Revealed: Working family poverty hits record high, fuelled by rising housing costs and childcare challenges

• Billions spent on state support enrich private landlords, while one in six working households face poverty
• Action needed to bring down housing and childcare costs, and make work pay, to prevent further increases in poverty
• Stark new figures show the need to rethink economy and end constant house price spiral, report says

The UK’s relative poverty rate among working households has hit a record high this century of 17.4 per cent, according to the first comprehensive analysis of official data released last month. Working poverty rates among families with three or more children have reached 42 per cent, up more than two thirds over the past decade.

The figures, reflecting the position just before the pandemic struck, show that working poverty rates have risen across the entire country but are highest in London, Wales and the north of England. Families of all sizes have been affected, with single parents, couples with a single earner and large families affected worst.

The sharp rise in working poverty (poverty faced by anyone living in a household where someone is in work) is revealed in a report by the IPPR think tank, published today. The report, No Longer Managing, lists four factors behind the growth in poverty: spiralling housing costs among low-income households; low wages; a social security system that has failed to keep up with rental costs; and a lack of flexible and affordable childcare.

It identifies the economy’s over-dependance on house price growth as a key factor in driving poverty higher, as more families have to rely on renting privately and housing costs for private tenants have risen by almost half (48 per cent) in real terms over 25 years. One in four households is projected to be renting from private landlords by 2025.

As a result, it says, much of the multi-billion pound benefits bill supports housing costs in the private sector, with any increase effectively channelled into the pockets of private landlords. IPPR estimates that £11.1 billion of housing support spending went to private landlords last year.

Detailed IPPR analysis of DWP survey data also found that:

• Two-earner families where one partner works full-time and one works part-time are increasingly being pulled into poverty, a significant shift. For people in this group, the chances of being pulled into poverty have doubled over the past two decades, from one in 20 to one in 10.
• Even for households with two people in full-time work, the chances of being pulled into poverty have more than doubled over the same period, rising from 1.4 per cent to 3.9 per cent.

• Couple households with one full-time earner now have a poverty rate of 31 per cent, almost as high as working households where nobody works full time.
• London has the highest rate of in-work poverty – 22 per cent – with Wales, the Midlands and the north of England next highest on 18 per cent. The rate is lowest in Northern Ireland (13 per cent). (See table in notes below)

The IPPR report argues for new and different long-term targets for welfare, economic and housing policy, which reflect housing, childcare and travel-to-work costs as a percentage of families’ income.

It says that the government’s current ‘levelling-up’ agenda is “unlikely to benefit working families if it remains largely focused on physical infrastructure” and fails to address growing inequalities. These include rapidly rising house prices and the growing gulf between property owners and renters – often in the most affluent parts of the country.

Instead it urges developing wider objectives to bear down on some of the highest costs faced by working families – housing and childcare – and to ‘make work pay’.

The report calls for long-term reforms to:

• Contain housing costs as a share of household income. This could include setting a house price inflation target as part of the Bank of England’s remit; greater taxation of property wealth; and investing at least £15 billion in capital grants to help vastly increase the rate of new housebuilding.
  
• Contain childcare costs as a proportion of household income, and make it more flexible. Measures to achieve this would include higher state subsidies for children under five and wraparound care for school-age children, with funding going directly to childcare providers.
• Make work pay, through labour market reforms, skills policy and higher income support. Greater collective bargaining and unionisation, bearing down on insecure work and increased access to training and skills would all help to raise incomes; but greater support through the social security system, eroded during the transition to universal credit, is also needed so that people are better off in work.

It also proposes measures to alleviate the problem in the short term, ranging from increases in local housing allowance to changes in childcare payments made through Universal Credit, and a 20 per cent higher minimum wage for zero hours contracts (see note 4 below).

But it warns that without underlying long-term reforms, government will face a perpetual choice between paying constantly rising social security bills to offset growing in-work poverty – or allowing the number of working families in poverty to increase unchecked, as is currently the case.

Clare McNeil, IPPR associate director and head of its Future Welfare State programme, said:

“These shocking new figures should be a wake-up call for everyone concerned about our future. The UK economy’s dependence on ever-rising house prices, and the lack of affordable housing, have trapped us in a vicious circle which, unless broken, will condemn us either to a constantly rising social security bill, or to ever-increasing poverty among working households.

“A growing private rented sector coupled with high rents enriches property owners at the expense of renters, and represents a transfer of wealth away from people who already have very little, into the hands of others who are steadily accumulating more.

“We need an alternative to what the government calls ‘levelling up’. That should look beyond headline incomes to the true costs and obstacles people face when struggling to make work pay. Otherwise more and more families who were once ‘just about managing’ will join the growing number who are ‘no longer managing’.

“Short-term fixes are needed to alleviate the immediate crisis, but to solve the underlying problem we need a far deeper rethink of housing, childcare, social security and work.”

The Bishop of Dover, the Rt Revd Rose Hudson-Wilkin, who is a member of IPPR's welfare state advisory panel, said:

“The system is broken and it is our responsibility to see that it is changed.

“Providing a home and building a future for your family is something we all strive for and this report shows that one in six households are trying as hard as they can but still finding it impossible to feed their families and provide a safe roof over their heads.

“The gulf between the rich and the poor is growing, as the pandemic showed us all too clearly. We must do more as a country to ensure that the resources we have been blessed with are shared more equally - now, and in the future.”

ENDS

Clare McNeil, the report’s lead author, is available for interview

CONTACT

David Wastell, Head of News and Communications: 07921 403651 d.wastell@ippr.org

Robin Harvey, Digital and Media Officer: 07779 204798 r.harvey@ippr.org

NOTES TO EDITORS

1. The IPPR paper, No Longer Managing, by Clare McNeil and Henry Parkes, with Kayleigh Garthwaite and Ruth Patrick, will be published at 0001 on Wednesday May 26. It will be available for download at: https://www.ippr.org/research/publications/no-longer-managing-the-rise-of-working-poverty-and-fixing-britain-s-broken-social-settlement

2. Advance copies of the report are available under embargo on request. Case studies of families on low income may be available through the Covid Realities research programme, with whom IPPR collaborated on this report. Please contact covidrealities@gmail.com for more information.

3. Households are defined as ‘in relative poverty’ when household income after subtracting housing costs fall below 60% of the median household income, with adjustments (equivalisation) to enable meaningful comparisons between households with different numbers of adults and children.

4. Analysis uses the Households Below Average Income (HBAI) dataset, a detailed annual survey conducted by the Department for Work and Pensions, and the standard dataset used for calculating poverty in the UK.

5. The increase in working poverty varies in different parts of the UK. Increases across the UK are shown in the table below. Regional estimates are based on “pooled” results from three-year averages due to sample sizes. Comparable data for Northern Ireland before 2002/3 is not available.

6. Table: Proportion of people living in working households who are in relative poverty by region

7. The estimate for housing support spending which goes to private landlords in 2020/21 is calculated by taking a 2014/15 National Housing Federation estimate and uplifting by the expected increase in housing spend by DWP between 2014/15 and 2020/21, based on the latest expenditure forecasts.

8. The report calls for short term steps to tackle immediate problems of housing, childcare and making work pay across the UK including:
   
   Housing:
   - Raise Local Housing Allowance to the 50th percentile
   - Overhaul private rented sector to provide greater stability for tenants, with measures such as an end to no-fault evictions and capping rent increases
   Childcare:
   - Change the universal credit system so that childcare support is paid upfront, rather than in arrears, and raise the cap on childcare fee claims to make it more affordable to those on low incomes
   - Invest at least £616 million annually into childcare in England to cover the shortfall faced by nurseries and pre-schools in delivering the current entitlement to free care
   
   Childcare:
   - Change the universal credit system so that childcare support is paid upfront, rather than in arrears, and raise the cap on childcare fee claims to make it more affordable to those on low incomes
   - Invest at least £616 million annually into childcare in England to cover the shortfall faced by nurseries and pre-schools in delivering the current entitlement to free care
   
   Making work pay:
   - Increased rights to flexible and part-time working, and to job shares
   - A ‘good jobs standard’ for England, with accreditation under the standard required for public procurement contracts
   - A 20 per cent higher minimum wage for zero hours contracts and other uncontracted hours
   - Ambitious priorities to help individuals progress from low-paid work, to be set by the DWP’s current in-work progression review
   - Cancel the cut to universal credit planned by withdrawing the £20 pandemic uplift, and make other changes to boost the income of lone parents, restore top-up payments to those with limited capability for work, and remove the two-child limit

9. This report is produced as part of IPPR’s Future Welfare State programme. Previous reports under the programme include:
   The Decades of Disruption: New social risks and the future of the welfare state
   https://www.ippr.org/research/publications/decades-of-disruption
   Rescue and Recovery: Covid-19, jobs and income security
   https://www.ippr.org/research/publications/rescue-and-recovery
9. IPPR is the UK’s pre-eminent progressive think tank. With more than 40 staff in offices in London, Manchester, Newcastle and Edinburgh, IPPR is Britain’s only national think tank with a truly national presence. www.ippr.org