A new report out today highlights the need for more to be done for the nearly 15 million low-income earners in Britain.
The mainstream media will focus on GDP figures and house prices because these are the issues that largely affect their audience, however the often unreported story is that of the nearly 15 million low earners struggling to keep their heads above water.
Today the Resolution Foundation publishes a report – Closer to crisis? – which charts the impact of the recession on ‘low earners’ – the 14.3 million adults living in 7.2 million low earning households across the UK.
We find that this group are particularly exposed by current economic circumstances. Their low skills, coupled with the industries, occupations and geographic areas where they are concentrated, put low earners at greater risk of job loss and long-term unemployment.
Their poor financial health – over half of low earners have less than £1500 saved – reduces their resilience to withstand changes in circumstances further. The risk is that the recession will push greater numbers of low earners from a position of coping to a position of crisis, with all the costs that this entails for their families and for the state.
The degree of exposure this group is currently experiencing throws a sharp light on current debates about which party is best placed to tackle poverty.
For all the impassioned debates between Yvette Cooper and her shadow Theresa May about the differences between their parties’ approaches, our analysis suggests that there is a clear set of priorities that must be addressed by either party when it comes to finding ways of maintaining the fragile economic independence of low earners and ensuring they do not fall into more outright poverty.
• First, there must be a priority focus on tackling ‘in-work poverty’. Over the last decade, while progress on eradicating child poverty has been impressive, levels of in-work poverty have remained static overall. For a significant minority of low earners, work is not a route out of poverty. Two million of them who are in work are also in poverty. Over 50 per cent of children living in poverty now live in households where at least one person is in work, compared to 40 per cent in 1992.
• Second, employers must be engaged in building ladders up and out of low paid jobs. Quality of work – including part-time work – must be prioritised alongside increased productivity and global competitiveness when it comes to industrial policy. Too many low earners remain trapped in ‘dead-end’ jobs, unable to progress in the workplace and lacking the autonomy, occupational benefits and investment in human capital that are characteristics of many higher-skilled jobs.
• Third, we need to look again at the distribution of wealth, as well as income. The UK now has the most generous tax credit system it has ever had, designed to put money in people’s pockets and lift them out of poverty. The table below shows what a major difference these payments have made to low earners by topping up their low wages.
Average value of tax credits received per week by age of head of benefit unit (UK, 2007-08):
But as Harriet Harman has argued this week, there is now a need to tackle entrenched wealth inequalities as well as dealing with income redistribution. Possession of assets can be the dividing line between a household that can weather tough times and a household where a change in circumstance can trigger crisis.
And yet many of the current asset-building initiatives, from home ownership to savings to pensions, remain highly regressive in their nature. For example, 55 per cent of the tax relief on private pensions, which adds up to £10.5 billion a year, goes towards supporting those people on or near the upper rate of tax.
Our report argues that the priority during the recession is to protect the economic independence of low earners not only for their own sake but for the sake of the economy at large. This will require concerted action, not only by government, but also by the wider mixed economy including lenders, employers and regulators.
The question is whether today’s exceptional circumstances – coupled with an appetite in both parties to put poverty centre stage once more – will open up a useful wider debate about how and why low earners came to be in such a vulnerable position in the first place.
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