Tackling poverty and inequality

The Institute for Fiscal Studies (IFS) has undertaken a detailed analysis of the distribution of household income in the UK. They look at the changes to average incomes, income inequality and poverty that occurred in the latest year of data (2014–15), and put these in historical context using comparable data spanning the last 50 years.

The one great success is that the growth in pensioner incomes means they are now the least likely major demographic group to be in income poverty. Another is that more people are in work than ever before. 

The “new poor” tend to live in households where there is someone in work. Only a third of children below the government’s absolute poverty line now live in a workless household – two thirds of those classified as poor are poor despite the fact that at least one of their parents is in work. This means that the policy focus needs to shift to raising wages and social security for those in work, particularly those with families.

This was reinforced in today's employment data that shows huge increases in self-employment, which account for much of the increase in employment. This trend is not attributable to greater entrepreneurship, but to more workers signing unstable contracts with fewer rights, less pay and little job security.

The key findings of the IFS report include:

- The incomes of poor households are increasingly sensitive to what happens in the labour market. Income from employment made up half of income for the poorest fifth of households in 2014–15 (excluding pensioners), up from less than a third 20 years ago. While this is good news it does mean that the poorest are now more vulnerable to any downturn in the labour market than they would have been in the past.

- Further falls in worklessness have much less scope to reduce child poverty than in the past. The falls in worklessness that we’ve already seen, plus the fact that rates of poverty rates among working families have risen, mean that only one third of children in income poverty now live in workless households.

- Median income overall has finally moved 2% above pre-crisis (2007–08) levels, but for adults aged 31 to 59 it is at its pre-crisis level and for those aged 22 to 30 it is still 7% lower. It is highly unusual to see no growth in working-age incomes over a seven-year period.

- Inequality in workers’ weekly earnings has fallen during the recovery. This was the result of a recovery in the number of hours worked by those with low hourly wages. Between 2011–12 and 2014–15, real weekly earnings grew by 4.4% at the 10th percentile, but fell by 1.2% at the 90th percentile.

- Strong employment growth and weak earnings growth have combined to hold down inequality in recent years. Since 2011–12, falls in household worklessness and increases in the number of second earners both mainly boosted the incomes of poorer households. Meanwhile weak pay growth has held back the incomes of higher income households.

- In key respects middle income families with children now more closely resemble poor families than in the past. Half are now renters rather than owner occupiers and, while poorer families have become less reliant on benefits as employment has risen, middle- income households with children now get 30% of their income from benefits and tax credits, up from 22% 20 years ago.

- Mothers’ earnings are increasingly important for households with children. For middle-income children the fraction of household income coming from women’s earnings rose from less than a fifth in 1994–95 to more than a quarter in 2014–15; and it doubled from 7% to 15% for the poorest fifth.

These findings should inform anti-poverty polices in Scotland, at an important time when more powers to tackle poverty are being devolved to the Scottish Parliament.

Today, the Scottish Government announced is to bring forward legislation to tackle the deep-rooted causes of child poverty. The new Child Poverty Bill will to set out a new approach to tackling poverty and inequality that the Government claims will provide a clear way forward for delivering their ambition to eradicate child poverty.

The Scottish Government has previously rejected the UK Government’s decision to abandon income-based child poverty targets, and is seeking to develop Scottish legislation after the UK Government repealed large parts of the existing UK-wide legislation.

A consultation setting out proposals for the Bill will be published over the summer, building on the existing work in the Child Poverty Strategy.