Overview: analysis of trends

This report looks at the whole five years of the Coalition’s term in government, although only some of the indicators bring us right up to date.

The record of the last five years

The data on the labour market and benefit claims covers 2015. The data on incomes and poverty is less recent, taking us only to March 2014.

So what can we say about the Coalition’s record on incomes, jobs, pay, homelessness and education? Inevitably, the record contains good and bad, but the divisions between those indicators which have improved and those which have not is instructive. The table below summarises the changes over both the last five years and the last ten.

Much of the ‘good’ is found in the employment chapter. Unemployment has fallen markedly over the last five years from 2.5 million to 1.8 million even if it is not quite back to the level of the mid-2000s. This is true for young adults as well as older adults, and true for long- and short-term unemployment. Household worklessness is now the lowest on record – only 16 per cent of working-age households have no working adult.

There are a few caveats to this good news story;  there are more people on temporary contracts than five years ago, and more people in self-employment, for whom incomes have been falling. There are more people working part-time but wanting full-time work. Pay rates are lower than five years ago across the distribution, after inflation has been taken into account. Still, though, the improvement is real – there are more people in full-time, permanent jobs as well.

This rise in employment has knock-on effects when we look at the number of people claiming benefits, but overall the indicators in the social security chapter are pretty mixed. Jobseeker’s Allowance (JSA) claims have fallen much more quickly than unemployment, leaving around 680,000 unemployed people not claiming the support they are entitled to. Out-of-work Housing Benefit claims have fallen, but claims among working families have risen. And while the number of people claiming Employment and Support Allowance (ESA) is lower now than in 2010, it rose in the last year, after falling almost every year in the previous decade.

Summary of indicators

The table below shows how indicators in the report have changed over the last five and ten years – better, worse or same. The assessment tends to be conservative; where there is any doubt, the assessment is of no change.

Some of the effects of the 2011 Welfare Reform Act can now be considered in this report. For the first time, we can include the number of people claiming Universal Credit. In May 2015, following delays and the phased nature of its rollout this figure stood at 65,000 – around 1.5 per cent of the out-of-work benefit caseload. This is the government’s flagship welfare reform policy, but its impact so far is negligible because of the small numbers.

Another high profile policy is the overall benefit cap, which so far affects relatively few people (around 22,000 households nationwide) but reduces their income by a lot (an average of £65 per week). With the further reduction of this cap from £26,000 to £20,000 (£23,000 in London), the number of people affected will rise sharply, and the average losses to those currently hit will increase by a further £60. Whereas the benefit cap affects a relatively small number of people, the new harsher system of sanctions for benefit claimants affects a large number of people – 20 times as many in the last year. While numbers fell in 2014 in line with falling numbers of JSA claims, from 890,000 to 500,000, it is still around twice the level of a decade ago, when the number of claimants was roughly the same.

It is not just the number of people affected, which remains historically high even after last year’s fall, but the size of the financial penalty. Around one-third of people sanctioned last year had been sanctioned more than once. The penalties ranged from four weeks' to three years’ suspension of benefits.

Sanctions existed before 2011, and a form of benefit cap existed for private renters, to the extent that Housing Benefit did not cover rent in all cases. But the scale was much smaller. What we have now is a large, potentially growing number of people whose needs would previously have been met by social security but are now contingent on a variety of factors such as family size, geographical location and personal behaviour.

On incomes and income poverty, the overall proportion is similar to a decade ago, but the mix of people has changed. The average household saw their income increase by 2 per cent over the last decade, the result of a rise up to the late 2000s and a fall thereafter. Poverty across the whole population is very similar now to ten years ago – around 21 per cent measured after housing costs. But now just over half of all people in poverty are either in work or living with a working adult, up from around 40 per cent ten years ago. A third of people in poverty live in private rented accommodation, up from a fifth a decade ago. And while in 2003/04, there were more people in poverty aged over 65 than 16–25, the opposite is now true. Due to changing definitions, a longer trend is harder to confirm but in the last couple of years the poverty rate among disabled people has risen, widening the gap in poverty rates between families with and without a disabled member.

Increases in the cost of food, fuel and rent have hit lower-income families harder than average families, as these items make up a greater share of expenditure for people further down the income spectrum. Around a quarter of people in poverty are behind with at least one bill. And, most strikingly, the proportion of families in the poorest fifth with no savings stands at 69 per cent, up from 57 per cent a decade ago.

The Services chapter shows some progress in health, but in education the same inequalities that we have been reporting on for years persist. Children receiving free school meals are still less likely to get five good GCSEs than others - the gap remains at 27 percentage points. The gap between boys and girls persists, and the gap is greatest between poorer boys and poorer girls. The health indicators, though slow moving, do show closing inequalities in life expectancy between men and women and between men in more deprived areas and average areas.

As well as outcomes, the chapter also covers provision of services, focusing on the key areas of legal aid and social care. Cuts to legal aid mean that the number of people receiving help for welfare and housing issues has plummeted in the last couple of years. The number of over 65s receiving help to live at home is falling, while resources are focused on more concentrated and intensive packages of care for those in greatest need.

The most obvious examples of indicators moving in the wrong direction are in the housing chapter, particularly those relating to homelessness. Over the last five years, the number of rented households in England and Wales who were evicted has more than trebled, and now stands at 18,000. The number of households placed in temporary accommodation has risen by a quarter, to 64,000. Of these, 17,000 were placed outside their original local authority area, more than double the number five years previously.

Pulling this together, a picture emerges about the changes of the last five years. The average person in the UK saw their incomes fall a little during the recession and the recovery. If they owned a home, the fall will have been cushioned by low interest rates. Most of those in work avoided unemployment, even if their pay barely rose. Over a longer period, ten years rather than five, they are probably slightly better off.

At the lower end of the income spectrum, the number of people living in poverty has not really grown, but their material circumstances may well be worse now, as their incomes have not kept up with rising costs. Moreover, low-income families now have less money to fall back on in the form of savings. The mix of people in poverty has also changed – a shift towards younger, working people in private rented accommodation.

But there is now a growing group, a subset of those in poverty, whose circumstances, both in terms of material wellbeing and security, are far worse than five or ten years ago. This group includes those whose benefits have been sanctioned or capped, people in temporary accommodation and people who have been evicted from their homes. It is a group of people whose entitlement to state support in hard times has been restricted, and whose problems frequently manifest themselves in housing crises.

Poverty and place  

Each chapter in this report ends with a map, showing the variation between local areas of a particular indicator. Here we focus on three of them, beginning with the map in the first chapter showing the proportion of people claiming certain benefits.

This shows a very striking pattern. In Northern Ireland, every single district has an above-average proportion of people claiming benefits, as well as the district, Derry, with the single highest rate. Other areas such as the west of Scotland, the Welsh Valleys and the ex-industrial parts of the north of England also stand out.

The map has changed little over the last few years with one significant exception. When we produced a similar map three years ago, the Inner East London boroughs of Newham and Tower Hamlets were in the group with the highest levels of benefit receipt. This is no longer the case.

The position of London regarding educational attainment among children receiving free school meals is also one of the striking figures of the map in the services chapter. London stands completely apart – every borough has a GCSE pass rate for FSM pupils above the national average. In contrast, the east coast of England is an almost unbroken line of educational under-attainment among poorer pupils, with three of the five lowest performing areas being in East Anglia.

The other map that stands out is in the housing chapter, showing the proportion of children in each local authority that live in private rented accommodation paid at least in part by Housing Benefit. Here there are two things at play – the incomes of the families and the prominence of private rented accommodation rather than social rented. London figures quite prominently, as it has high levels of poverty, high housing costs and a large private rented sector. But areas with the highest levels tend to be small towns and suburbs, and, again, coastal areas in the east of England.

These are just indicative findings. There is a lot of variation within types of area as well as between types of area. But the ‘rise’ of London over the last decade is hard to deny, especially in terms of employment rates and educational attainment. The changes in coastal towns also deserves greater attention. The high proportion of poor children in the private rented sector in those areas is telling – these areas lack the infrastructure to cope with rising poverty.

Replacing the Child Poverty Act

As part of the Welfare Reform and Work Bill, the 2010 Child Poverty Act will be replaced with the Life Chances Act. As a result, the income poverty targets contained within the 2010 act will no longer be law, and will be replaced by reporting duties for measures of household worklessness and educational attainment.

The government is also intending to develop other measures and indicators of what it describes as ‘root causes’ of poverty, including family breakdown, debt and addiction. The new measures are yet to be announced but it seems low income will not be one of them. The DWP is still committed to publishing the relevant data, however.

To exclude income entirely would be a mistake. Poverty is about the lack of resources relative to needs, and income is generally used as the proxy for those resources. As well as collecting data on causes and symptoms, there needs to be some measure of poverty itself, or the indicators are incoherent. Having a broad set of indicators is also a positive step – this series of reports has always been based on that broader approach to measuring and tackling poverty.

As part of a wider set of indicators, the evidence in this report makes a very good case for housing being central to any understanding of poverty. In terms of life chances, having a warm, secure home is vital. It is also vital to have some idea of disadvantage in working families. This report has shown for several years that income poverty is not solved simply by one or sometimes both parents going out to work. It would be an obvious flaw in any new set of measures to pretend this was not the case.

The next five years

Predicting exactly what will happen to levels of poverty is never easy – so much depends on the broader state of the economy and labour market, and the policy decisions made in response to that. However, there are big changes we already know about, which will inevitably make a big difference to the poverty picture in the UK.

One change is the continuing rise in the state pension age, and the impact this will have on pensioner couples receiving pension credit. Pensioners are generally seen as generously treated by the benefits system. Over half the ‘welfare’ budget is spent on pensions, and the state pension is protected by the ‘triple lock’ – it rises by whichever is the highest of earnings, inflation or 2.5 per cent. But pension credit is not included in this lock, and has been subject to the same freezes and low increases as working-age benefits. As a result, after-inflation pension credit is worth less in 2015 than it was in 2010.

It is possible that we are already seeing the effects of this in the poverty statistics. While the rate of pensioner poverty over the last ten and even five years has fallen, the last two years of data have seen no further falls. The reduction in pensioner poverty was one of the great social policy success stories of the last 15 years, but low pensioner poverty rates should not be taken for granted.

The second big change relates to working-age benefits. A cut in working tax credits was announced in the 2015 summer budget. The changes – a cut in the total amount that any family could receive and a reduction in the number of families eligible – were announced alongside the new National Living Wage (NLW), effectively a much higher minimum wage for those aged over 25. From a poverty perspective, the cuts to tax credits do far more harm than the increases to the minimum wage will do good.

Analysis by JRF and others showed how many families on low incomes would be worse off with the package of measures announced in the Summer Budget. JRF highlighted that in families with two children, both parents would have to work full time on the NLW to get close to a socially acceptable standard of living in 2020 and lone parents with one child (also working full time on the NLW) would be £80 short of what they need every week, compared to £39 short today.

These changes to tax credits were rejected by the House of Lords and have proven politically very unpopular. From the perspective of poverty reduction, they were problematic in any case. Expressed simply, tax credits acknowledge the cost of children and wages do not. So an approach to tackling poverty that uses tax credits will, everything else being equal, be more effective in reducing poverty among families with children than one that focuses solely on earnings. A better balance would have been to bring in the higher minimum wage and leave tax credits as they are. Higher earnings would lead to lower entitlement to tax credits, meaning the overall tax credit bill would fall, albeit by less than the scenario set out by the Chancellor in June. But families on low incomes would have been protected.

Regardless, cuts to ‘welfare’ in the order of £12bn were promised in the Conservative manifesto at the 2015 General Election. Tax credits were due to supply £4bn of those cuts. If that money is to be found within the welfare budget, there are only three options.

Firstly, it could come through current in-work benefits, by reworking the tax credit proposals to make them more palatable, possibly delaying their impact. Over the medium term, the effects would be the same, but the pain would be forestalled. The second option is to make changes to Universal Credit (UC), so that as people move onto that new system, only then are the cuts felt. The slow rollout of UC makes estimating the impacts of that approach very difficult, but again, this would simply delay the problem, and undermine the effectiveness of UC at the same time.

The third option is that it is out-of-work benefits that take the hit. If the working tax credit cuts were unpopular due to the effects on working families who are seen as deserving of government support, attention may move to a group seen as less deserving. Given the long term freeze in out-of-work benefits, cuts to Housing Benefit for young people and reductions in amounts of money given to disabled people who have been found unfit for work, further cuts to this group would cause exceptional hardship. At the moment, and probably until next spring, there is a lot of uncertainty over what exactly will happen. Announcements made in budgets and spending reviews can change. But ostensibly, any cuts to the social security bill in the order outlined at election time are almost bound to increase poverty levels. Although such an increase was predicted when the recession first hit in 2009 and when the first round of austerity cuts were announced in 2010, one of the reasons it didn’t happen was due to the good performance of the UK labour market, highlighted in this report.

There is, therefore, a lot riding on the labour market continuing to grow as strongly in the next five years as it did in the last five. But while the last five years was about getting people who were out of work into work, the next five has to be about helping people in work progress both in terms of hours and pay. This is potentially a much harder task.

There also needs to be an increased focus on the role of another market, the housing market, in tackling poverty. Many of the trends that worsened the most are at the acute end of the housing crisis – rising homelessness, rising repossessions, the growing number of families living in temporary accommodation. People cannot be expected to work their way out of poverty in such conditions – a secure, affordable home is the first step on the route out of poverty.

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