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The Problem With In-Work Poverty

Get a job. Climb the ladder. Live happily ever after? Despite years of sustained employment growth, today in the UK almost 60% of those living in poverty are non-pensioners in working households. In 1994, at 35%, this figure was markedly lower. These numbers, taken from recent research by the IFS and JRF, call for a re-think on widely held assumptions about the best means of escaping poverty in the UK.

It is not particularly surprising that in-work poverty is on the rise. Our latest report showed that for almost all sectors of the economy, workers had seen their wages decrease since the financial crash. Further still, those on low and middle incomes are not expected to see any pay rises over the coming few years.

The rhetoric emanating from the government on this issue often centres on the need to make work pay. In the last budget, Chancellor Philip Hammond lifted the personal allowance – the amount you can earn before you start to pay tax – in order for ‘families to keep more of the money they earn.’ There are, I believe, two distinct issues here. Firstly, raising personal allowance thresholds does not aid those at the bottom of the income distribution (they weren’t earning enough to pay tax anyway). Secondly, ‘in-work poverty’ or the ‘working poor’ foregrounds the problem in the language of work. As such, proposals or policy solutions often fixate on the need to do something about wages at the expense of other issues.

This is not to diminish the issue of wages. Raising the minimum wage has had no impact on the number of hours worked or led to job losses in the UK and there is no reason for it not to be raised further. Collective action and membership of a trade union still represent the best ways to guarantee a higher wage in the public and private sector.  

However, in-work poverty is driven by more than just wages. There are three specific areas which need to be discussed. Firstly, austerity has disproportionately affected those at the bottom of the income distribution. The benefits freeze alongside the implementation of Universal Credit and ‘two-child limit’ is pushing working families into poverty. The move, on the one hand, to raise wages is in some cases more than offset by reducing these support mechanisms, on the other.

Secondly, housing costs have a huge impact on poverty rates. Poverty rates before housing costs for working households with and without children have remained largely unchanged since 1994. It is only after accounting for housing costs that the poverty has greatly increased. The lack of affordable and social housing is directly trapping families in poverty – 90% of low income private renters face a shortfall between their housing benefit and their rent.

Thirdly, and finally, in-work poverty should not be considered in isolation to the deepening inequalities in the UK and global economy. The latest Oxfam report on inequality noted that 82% of all growth last year accrued to the top 1%. As Thomas Piketty famously argued, an economic system that rewards wealth and not work is a recipe for ever-greater inequality.

Amazon is a perfect example of this. It is likely to become one of the first companies in history to be worth in excess of a trillion dollars. Jeff Bezos, their CEO, added more than $10 billion to his net wealth in the first few days of 2018 alone. Meanwhile, there is evidence to suggest that Amazon both poorly pays its employees and supresses local wages. In the UK, their corporation tax bill is less than £10 million. Their turnover in the UK was close to £1.5 billion.

In-work poverty, therefore, is evidently about much more than just work. Increasing wages is part of the puzzle, yet this needs to be incorporated into a much more holistic framework. Welfare, housing and taxation all play a crucial role if we are going to solve poverty both in and out of work.