The truth about
in-work poverty

Stock image: posed by model.

Stock image: posed by model.

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A record

six in ten

people in poverty in the UK live in a household where at least one person is working.

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It's a growing problem.
Between 2004/5 and 2014/15, the rate of poverty for adults living in working households rose by a quarter, from

12.4% to 15.7%.

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Research led by Dr Rod Hick at Cardiff University looked at what causes in-work poverty, and how changes in policy can make a difference.

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Renters are a particularly vulnerable group. Hick's research found that

six in ten

adults who experience in-work
poverty live in private or social
rented accommodation.

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"Housing tenure and housing costs are becoming much more important in determining poverty rates," says Hick.

"All of the increase in working poverty between 2004/05 and 14/15 was experienced by families living in the private rented sector and social housing, without any increase for owner-occupiers.

"I expect this to continue in the coming years, and I think we’re going to hear much more about the link between housing costs and poverty.

"There has been a shift away from owner-occupation and a significant growth in the private rented sector. It’s not clear to me that this shift is going to abate any time soon.

"This is problematic from a poverty perspective because the private rented sector is associated with high housing costs, and elevated poverty rates, and a continued shift towards the private rented sector is likely to generate upward pressures on poverty rates in the UK."

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Families with one person in
work are another group with
a high risk of falling into
poverty.

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Six in ten

of those who experience in-work
poverty live in households with
only one person in employment.

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Low pay and in-work poverty aren't the same thing. Most low paid workers aren't in poverty because many of them live in households with additional earners.

"You can’t simply assume that workers who are low paid experience in-work poverty," says Hick. "One needs to know something about their wider household circumstances, both in terms of other income sources, and the number of family members who are dependent on the family income."

Among people living in jobless households who go on to find work, a quarter will enter in-work poverty. Lone parents and families with three or more children are over-represented in this group.

"Many people find this transition hard to understand, perhaps even hard to accept," says Hick. "I think it points to the difficulty of reconciling work and family life for families with children, and the need for policy to be supportive of those making these transitions into the labour market.

"One way to do this is by providing more publicly-provided childcare, which might make it easier for parents to work additional hours where they wish to do this."

Changes in the benefits
system are also having
an impact.

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Universal Credit is currently being rolled out by the UK Government.

It combines six social security payments, including Working Tax Credit and Child Tax Credit, into one.

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"Our analysis demonstrates that tax credits were highly effective at reducing poverty – for families who received them," says Hick. "But through a combination of design and take-up, receipt by families without children was very low, despite such families making up almost one-half of those in in-work poverty.

"While Universal Credit is often labelled a ‘simplification’, it not only amalgamates six social security benefits into one, but also introduces significant changes, too.

"One big problem is that Universal Credit now has significant cuts built into it – including the fact that there will be no additional payments for third or subsequent children. These cuts are likely to drive up poverty, and especially child poverty, which is forecast to rise sharply in the coming years.

“Another problem is that claimants face lengthy waits for an initial payment, leaving people at risk of severe hardship in the interim.”

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Will the planned rise
in the living wage
help?

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"The National Living Wage is not, in fact, a living wage, but is a more generous minimum wage," says Hick.

"While there has been something of a sleight of hand in attempting to portray it as a living wage, it has to be recognised that it does represent a significant increase in the minimum wage – at least for people aged 25 and over. So in that sense it’s a welcome development.

"But analysis by the Resolution Foundation shows that the gains that will accrue from this increase in the minimum wage for those on low incomes will not offset the cuts imposed under Universal Credit and the ongoing freeze of most working-age payments. The latter is quite a substantial cut when we consider the cumulative impact of this freeze over a number of years.

"The tax credit system, while expensive, did make a significant difference in terms of raising the incomes of low income working households. Reforms to this system need to be made with great care – indeed, with greater care than is being taken at present."

Dr Rod Hick

Dr Rod Hick

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Dr Rod Hick
Senior Lecturer in Social Policy
Email: HickR@cardiff.ac.uk

Read more about research at Cardiff University

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