We need to abolish state-sanctioned poverty

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

No one is ever born poor. They are condemned to poverty by societal policies which prevent millions from realising their full physical, mental, and intellectual capacities potentialities. Governments covet economic growth but millions lack the spending power to facilitate it. Little attention is paid to systemic causes of poverty.

Burden of poverty

In the UK, despite a social security system, 13.4m people, including 4m children, live in poverty. Some 25.3m people, including 14.9m working adults and 7.7m children, live below minimum income standard i.e. income needed to live with dignity. 

Those denied good food, housing, healthcare and are racked with poor health, anxiety, and insecurity from an early age. Many do not reach their full educational, health, employment, and earnings attainment, and are more likely to need higher access to health services, welfare, and public services. Child poverty alone results in economic output loss of around £40bn a year.

The UK has a high rate of infant mortality compared with peer countries. British five-year-olds are up to 7cm shorter than children of the same age in Europe. Last year, more than 1m children in England were referred to mental health services. A study published in Nature Human Behaviour shows that consequences of social inequality alter human biology from a very young age. Adults who endured childhood economic deprivation continue to age at a significantly accelerated biological pace later in life, even if they achieved financial security decades after their initial childhood exposures. The less well-off cannot afford private healthcare and the National Health Service has a waiting list of 7.1m appointments for hospitals in England. Around 300,000 people a year die prematurely whilst waiting for a hospital appointment.  Poverty has reduced healthy life expectancy to average of 60.7 years for males and 60.9 years for females. In affluent areas such as Richmond-upon-Thames, males have HLE of 69.3 years and females of 70.3 years. In parts of Blackpool, HLE for males in 50.9 years and 51.2 years for females. Males in deprived areas in Scotland have HLE of 44.8 years, compared to 44.2 years for females.

Periodically, to manage public anger, governments make concessions. Following a backbench rebellion, the government has abolished the two-child benefit cap. It is rolling out a program of free breakfast clubs in all state-funded primary schools in England. From September 2026, there would be expansion of Free School Meals to all children in households on Universal Credit. Such help may not be permanent. Reform UK and the Conservative Party have promised to reimpose the two-child benefit which has lifted 450,000 children out of poverty.

The corrosive effects of child poverty cannot be eradicated without addressing parental poverty, which is deepened by inequitable distribution of income and a regressive tax system.

Shrinking share of the economic pie

In 1975, at the height of trade union membership, workers’ share of gross value added (GVA) was 71.9%. From the 1980s onwards, the state attacked trade unions and weakened workers’ ability to bargain with employers. By 2025, after 50-years of economic growth and increases in minimum wage, workers’ share of GVA declined to 59%. The real average wage has hardly changed since 2008. Work does not pay enough. Some 32% of universal credit claimants are in work. 1.23m workers are on zero-hour contracts. Some 4.4m jobs don’t pay the real living wage. Worker insecurity is being increased by “dynamic pay” under which employer price for labour varies form one job or the next, one hour to the next. There are no fixed pay rates or working hours. Therefore, no idea of income that workers and their families can rely upon. Millions more are likely to rely on foodbanks and charities for their wellbeing.

In May 2026, the median annual wage of a payrolled employee was £31,512, after deduction of income tax and national insurance the take-home pay was £26,208. The median wage for women, disabled and ethnic minority workers is even lower. The Joseph Rowntree Foundation estimates that for a socially acceptable minimum living standard a couple with two children needs to earn £74,000 a year between them. With both parents working, millions can’t achieve the minimum living standard.

Low wages result in lower savings to meet contingencies. The average savings amount is £19,214. 39% of Briton have £1,000 or less in savings, and 25% have £200 or less. The 18–24-year-olds have average of just £2,699 in savings, while those aged 55 and over have an average of £33,420 in savings. Lower savings result in lower household resilience and private pensions. 

Regressive taxation

In principle, what the mode of production denies can be secured though politics. However, successive governments have adopted regressive tax policies which hurt the poorest the most.

Wage earners are taxed at marginal rates of 20% to 45% and pay national insurance. In contrast capital gains and dividends mainly accruing to the well-off, are taxed at the marginal rates of 18% to 24%, and 10.75% to 39.35%. No national insurance is levied.

Income tax personal allowance has been frozen at £12,570 since April 2021.If increased in line with inflation, it would have been £16,048 for 2026/27. As a result, in 2026/27 a basic rate taxpayer on £17,000 a year will pay additional £696 in income tax and another £278 in national insurance contributions. This erodes disposable income of the poorest households. The problems are further compounded by taxes which take no account of income. For example, paupers and super-rich pay council tax at the same rate. A modest house worth £320,000 and a mansion worth £32m fall in the same council tax band. Altogether, the poorest 20% of the population pay a higher proportion of income in direct and indirect taxes than the richest 20%. 

Low incomes affect the capacity to save for pension, but the tax system favours high earners. In 2023-24, total tax relief on contributions to private pension schemes was £78.2bn. Some 13% went to 0.9m additional rate taxpayers; 55% went to 6.03m higher rate taxpayers and only 32% went to 29.2m basic rate taxpayers. The tax system does little to help the poor.

Cost of living crisis

Poverty could be reduced by tackling cost-of-living. But rents and mortgages are not frozen. There are inflation-busting annual increases in the price of water, energy, and broadband. The average UK renter spent 41% of take-home pay on rent in 2025. Social housing would help to reduce rental cost but since the 1980s Right to Buy schemes, 2.8m UK social homes have been sold and not replaced. There isn’t much relief on the horizon. More than 1.3m households (about 4m people) are on a waiting list for a social home, but only 12,198 social homes were built. At this rate, it would take about 119 years to clear the current waiting list.

Unite examined the annual accounts of 17,000 major corporations and found that since the pandemic average profit margins have soared by an average of 30% since the Covid pandemic. Some of the biggest hikes were by electricity and gas supply companies (363%), health and social work (118%), transport and logistics (47%), water and sewerage companies (44%), and mining and quarrying companies (43%).

Public services such as dentistry, veterinary services, childcare and social care have been privatised, enabling operators to make excessive profits and erode people’s disposable incomes.

Concluding thoughts

Poverty is part of social violence that exhausts people and removes hope. The government’s focus on child poverty reduction is welcome but it is hard to discern any policy for dealing with structural factors. No major political party has any strategy for improving workers’ share of GVA. It could be improved by adopting the real living wage or universal basic income, and by strengthening workers’ bargaining power. The Employment Rights Act 2025 omits collective bargaining, which leaves workers in a weak bargaining position. In common with most European countries, the UK could give workers in large companies a say in how the economic pie is shared through employee-elected directors, but industrial democracy and equitable distribution of income and wealth are not on the political agenda.

Poverty can be reduced through progressive taxation, particularly by reducing indirect taxes (e.g. VAT) and by increasing income tax personal allowances. Governments need to tax wealth at higher rates than wages and use the proceeds to recalibrate the incidence of taxation, but in the face of opposition from the super-rich they show little appetite for it.

Many of the cost-of-living pressures arise from profiteering by privatised utilities, such as water and energy, or from oligopolies dominating the market. Governments rarely break-up big conglomerates to create competition and reduce excessive profits. There shun price controls. Higher price of essentials results in higher gross domestic product (GDP) which governments celebrate, but this also increases poverty. Governments do not examine the quality and consequences of higher GDP.

The reversal of the two-child benefit cap shows that when people can secure emancipatory change by resisting and organising to challenge established orthodoxies. More of that is needed to banish state-sponsored poverty.