Rising levels of in-work poverty

22 May 2017

More than half (60%) of people living in poverty in the UK live in a household where someone is in work, the highest figure recorded, according to research published today by Cardiff University and funded by the Nuffield Foundation

The researchers found that the risk of poverty for adults living in working households rose by more than a quarter (26.5%), from 12.4% to 15.7%, during the ten year period 2004/5 to 2014/15.

Crucially, the research finds that the number of workers in a household, and not low pay, is the primary determinant of in-work poverty. People living in one-earner households account for almost 60% of people experiencing working poverty, more than double their population share.     

The relationship between low pay and in-work poverty, on the other hand, is weaker than is often assumed. Rather than low pay and in-work poverty being the same thing, the research team found that just under half of people experiencing in-work poverty have a low paid member in their household. Most low paid workers, by contrast, are not poor, because many low paid workers live in households with additional earners.  

“There has been a lot of discussion recently about how increasing the minimum wage can help to reduce poverty,” according to Dr Rod Hick from Cardiff University, who led the research.

“However, what our report finds is that less than half of adults experiencing in-work poverty have a low paid worker in their household, and most low paid workers live in non-poor households. Low pay is one of the reasons why in-work poverty occurs, but it’s not the only reason, and indeed, it is a secondary factor behind the amount of work conducted by household members.”

“Tackling in-work poverty requires re-thinking our approach: it’s about improving the circumstances of the whole household, not just those of an individual worker, and promoting employment is key,” he added.

One important support for low income working families has been tax credits, which have been the subject of considerable political debate in recent years. The research examined the effectiveness of tax credits in reducing in-work poverty over the past decade.

Dr Hick explains: “Our research shows that tax credits have proven quite highly effective in reducing in-work poverty – for families who received them”.

However, tax credits are received by less than half of working poor households, through a combination of design and low take-up.

In particular, working poor families without children have very low rates of tax credit receipt.

The report also finds that the rise in in-work poverty has been concentrated amongst households in the private rented sector and amongst social housing tenants.

Dr Hick adds: “Our research finds that housing costs are becoming an increasingly important factor in determining poverty rates amongst working families.

“If policy does not do more to tackle rising housing costs directly, then it seems likely that these will eat up gains made elsewhere – for example, in terms of the planned increases in the minimum wage.”

To help tackle the problem the report makes a series of recommendations. The report recommends supporting families with children to be able to take up additional paid employment through ensuring childcare is available and affordable; reversing cuts to tax credits to ensure that low income working families are supported; and tackling the high housing costs experienced by families, especially in the private rented sector.