UK Poverty 2023

The importance of looking at trends in poverty, its characteristics and impacts

We are in the midst of a profound cost of living crisis with huge implications for society. Many of us are having to make difficult choices on what spending we prioritise, but some of us face increasingly bleak choices. None of these should be necessary in a country as wealthy as the UK.

UK Poverty 2023 looks at trends in poverty across many of its important characteristics and impacts. The latest official poverty data used in this report was collected between April 2020 and March 2021 (the first year of the Covid-19 pandemic), but 2021/22 and 2022/23 are very different years. By looking across a range of data sources and insights we can build up a more comprehensive picture of the current state of poverty in the UK, and form a judgement of future prospects.

We know poverty at any stage in life can lead to negative outcomes, so it is critical to scrutinise the data thoroughly to work out who is worst affected, determine how trends are changing over time and see what future prospects are likely to be.

13.4 million people were living in poverty in 2020/21

Around one in five of our population (20%) were in poverty in 2020/21 - that's 13.4 million people. Of these:

• 7.9 million were working-age adults
• 3.9 million were children
• 1.7 million were pensioners.

There was a reduction in the headline poverty rate and numbers between 2019/20 and 2020/21.

It might sound very surprising that measured levels of poverty fell in the first year of the pandemic. This is likely due to changes to overall incomes, policy choices and how the pandemic affected population groups differently. A falling average income caused the relative poverty line to drop. At the same time, a range of temporary coronavirus-related support was introduced, including a £20 a week uplift to Universal Credit and Working Tax Credits.

The largest impact of these changes would be seen amongst children and pensioners. Children are the group most likely to be in poverty, so their families are the most likely to receive benefits that were increased during the pandemic. Most pensioners are not in work, so their incomes were less likely to have been affected during this period.

Many of the most vulnerable groups before the Covid-19 pandemic continue to have a higher risk of living in poverty

Poverty for families in receipt of Universal Credit or equivalents remained very high in 2020/21, at 46%. This is despite the temporary £20-a-week uplift and a resetting of Local Housing Allowance to reflect actual rents in an area. Poverty rates continued to be highest for people in the social rented and private rented sectors, and much higher for households including a disabled person or an informal carer.

Looking at the geography of poverty, Northern Ireland and Scotland continue to have lower poverty rates than England and Wales and, within England, the North East and London have the highest rates.

There remains huge variations in poverty rates by ethnicity. Around half of all people in households headed by someone of Bangladeshi ethnicity were in poverty in 2020/21. This figure was over four in ten for people in households headed by someone of Pakistani or Black ethnicity. This is over twice the rate of people in households headed by someone of white ethnicity.

Changes in poverty rates were seen for some groups in the latest data

Families with three or more children still had much higher poverty rates than smaller families, but the rate in 2020/21 was much lower than in 2019/20. The rate for families with a child aged under four also fell more than for families with older children. Some of the increase in deep poverty since 2002/03 was also reversed in the latest data.

The impact of the pandemic on the labour market was immense. Around 11.7 million jobs were furloughed, many on reduced pay. At the height of the pandemic, there were 929,000 fewer pay-rolled employees than before lockdown began. This has contributed to a fall in the share of people in poverty living in working households.

Poverty continues to affect life chances and outcomes

The rate of deaths caused by Covid-19 was higher in the most deprived than in the least deprived areas in all nations of the UK. In England and Scotland, the death rate from Covid-19 in the most deprived areas was more than twice as high as in the least deprived areas.

Working-age adults living in poverty are more likely to suffer from poor health more broadly. Evidence suggests low incomes are associated with potential symptoms of anxiety, such as lack of sleep, lacking energy and feelings of depression.

For children there is a gap in young people’s educational attainment by parental income across all stages of education. The Covid-19 pandemic generally widened the attainment gap between the most and least disadvantaged pupils in the UK. This is likely driven by the digital divide, differences in home learning environments and falling incomes.

Living standards are likely to have fallen since the latest official data covering 2020/21

Since the last official poverty data, the direct impact of the pandemic on society has lessened, but some of the changes it has brought about will be long lasting. There have also been further economic shocks from the Russian invasion of Ukraine and the continuing effects of Brexit. The labour market has recovered strongly since the pandemic. However, employment is still below pre-Covid-19 levels, more people have moved into inactivity and pay has not increased in line with inflation.

Inflation is currently forecast to peak at around 11%, the highest rate for forty years. The speed of the increase in inflation made the effects of the withdrawal of the £20-a-week uplift to benefits in October 2021 even more severe. In April 2022, benefits only increased by 3.1% when inflation was much higher. This meant April 2022 saw the greatest fall in the value of the basic rate of unemployment benefits since 1972, when annual uprating began. As the cost of living has continued to rise throughout 2022, the real term purchasing power of households in receipt of benefits has continued to fall.

The cost of living crisis is having a wide-ranging effect on poorer households

Across the poorest fifth of families, results from JRF’s cost of living tracker in October 2022 present a shocking picture:

• around six in ten low-income households are not able to afford an unexpected expense
• over half are in arrears
• around a quarter use credit to pay essential bills
• over seven in ten families are going without essentials.

Low-income households have less of a buffer against rising costs or unexpected expenses, given that they are less likely than other households to have savings. In 2018-20, just over one in three people in the poorest fifth of households had less than £250 in liquid savings compared with one in fifty of the richest fifth. Amongst low-income households, those with children, single working-age adults, private and social renters, and households headed by someone sick or disabled were more likely to have low levels of savings.

Low-income families are struggling to afford essentials

Almost a fifth of poor households and over a quarter of households in receipt of Universal Credit experienced food insecurity in 2020/21. Since then, the impact of the cost of living crisis on normal daily life has been laid bare in JRF’s latest cost of living tracker, conducted in late October and early November 2022:

• half of the poorest fifth of families say they have reduced spending on food for adults
• around four in ten families with children are spending less on food for their children
• half are already reducing the number of showers they take
• around six in ten are heating their home less.

This is the background to the growth in foodbank use, with the latest full year Trussell Trust data covering 2021/22 showing a much higher level of use than before the pandemic.

Trends going forward look even more worrying. The Office for Budget Responsibility (OBR) forecasts falling employment from mid-2022 to late-2023. It expects the employment rate to remain below its mid-2022 level until the start of 2028.

Wages are forecast to not keep up with inflation for the whole of 2023, though this is mitigated somewhat for low earners by increases in the National Living Wage. In April 2023, benefits and the Benefit Cap will be increased in line with inflation and lump sums will be added to help recipients cope with higher prices. However, Local Housing Allowance continues to be frozen and the basic rate of benefits remain close to destitution levels.

Costs have already risen dramatically. While the OBR expects inflation to fall throughout 2023, it is forecast to remain well above the Bank of England's target throughout the year. Therefore prices are expected to rise less quickly than in 2022, but not to fall following the large recent increases. Rents are expected to continue to rise, with mortgage payments also rising due to higher mortgage interest rates.

The impact of these factors on measured poverty levels will depend, in part, on what happens to average incomes and how the current recession affects poorer and middle-income households. It will also, critically, depend on the extent to which national and local government's policies protect the living standards of the households least able to cope with these economic headwinds.

The Chancellor of the Exchequer said in the 2022 Autumn Statement: “How we look after our most vulnerable citizens is not just a practical issue but speaks to our values as a society.” As can be seen throughout this report, poorer households are some of the most vulnerable in the cost of living crisis. This comes after a long period of stubbornly high poverty rates and rising deep poverty, followed by a pandemic that had a greater impact on more deprived areas.

There are some elements designed into the benefits system that increase poverty which should be addressed. These include:

• the two-child limit in income-related benefits
• the benefit cap
• the five-week wait for the first Universal Credit payment
• unaffordable debt deductions from benefits
• Local Housing Allowance rates (frozen since April 2020) again breaking the link between housing costs and benefits.

Beyond this, it is clear that the basic rates of benefits are inadequate and do not allow recipients to meet their essential needs. Resetting basic benefit rates, and ensuring they cannot be brought below these rates through the repayment of advances or other deductions is critical to protect people who need benefits. This is not just during this cost of living crisis but whenever anyone needs social security support.

It is necessary to look more long-term at what getting to a UK free of poverty would take

The evidence from the Office for Budget Responsibility (OBR) is that the economic fallout of the current recession will last several years. This will have big effects across society; on the labour market, the housing market, the relative prosperity of different parts of the UK and public services.

The need to protect people in poverty from the worst impacts of the recession should be a principle running through all decisions to address these challenges. This means examining the building blocks of social and economic systems, be that the labour market, the housing market, the social security system or how we organise family life or care. This needs to be done to see how these can be made to work in the interests of poorer households so that there is a positive vision beyond simply getting through the current recession.