Work no longer enough to prevent poverty

In-work poverty is now a bigger challenge than out-of-work poverty, new research finds today. 58% of children living in relative poverty have at least one parent in work.

In-work poverty is now a bigger challenge than out-of-work poverty, new research by the Joseph Rowntree Foundation finds today.

Its latest annual report analysing poverty and social exclusion shows that 58% of children living in relative poverty have at least one parent in work. This reflects a long-term trend: in-work poverty has been steadily rising for several decades to affect over 2 million children today, while out-of-work poverty has been falling steadily since the early 1990s so it affects fewer than 1.5 million children today.

Part of this trend appears to be driven by people swapping out-of-work poverty for in-work poverty. In particular, the lone parent employment rate has risen by more than 10 percentage points over the last 15 years. But much of this increase has been in low paid work that does not often offer much chance of progression.

All of this points to the fact that, while work remains the best route out of poverty, it is not enough on its own. A strategy to cut (relative) poverty in general, and child poverty in particular, needs to focus on increasing in-work earnings as well as finding work.

Over the last decade, tax credits have “taken the strain”. The JRF report finds that tax credits are today keeping one million families out of poverty. In this context, the Coalition Government’s plans to cut tax credits (including reducing the Childcare Tax Credit to 70% of eligible costs from 80% today, cuts and caps to Housing Benefit (given HB is also an in-work benefit) are likely to lead to increases in relative poverty. At the same time, this group faces a double hit from declining real incomes, as the Resolution Foundation has shown.

But equally clear is that increasing tax credits more quickly than earnings is not possible each and every year and doesn’t provide a full policy response – there are limits to how far increasing wage subsidies can ‘hold back the tide’. So, while further increases in tax credits would be part of a strategy for cutting in-work poverty, they are not the whole of the answer.

Equally important are the integration of the skills and employment systems – still too disparate today – to help people ‘get on’ at work as well as ‘get in’ to work. Not to be forgotten too is the role of employers, both in creating opportunities and in paying a living wage. On the latter, the public sector can take a lead, both directly and through their supply chains. None of this is easy, particularly in the current economic climate, and employers need to see the business case for acting – this needs to be part of an economic growth strategy, rather than solely based on corporate social responsibility – supported by Government.

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