The Government’s July budget announced a raft of measures to reduce the welfare budget by £12 billion by 2019/20 and, more surprisingly, the introduction of a ‘National Living Wage’. But will these changes lift the living standards of the millions that fall below what the public views to be an acceptable standard of living in contemporary Britain? Joanna Mack discusses the findings of the latest ESRC-funded research into Poverty and Social Exclusion in the UK and argues that far more fundamental changes are needed to tackle the sharp increase in the numbers of those in-work falling into poverty.
The challenges facing the Government in reforming welfare and work are huge. Over the last thirty years, there has been a sharp rise in the numbers falling below a publicly-defined minimum standard from around one-in-six in 1983 to just under one-in-three today.
Through four large scale surveys – the ‘Breadline Britain’ surveys of 1983 and 1990 and the subsequent ‘Poverty and Social Exclusion’ surveys of 1999 and 2012 – levels of poverty and deprivation can be measured using the public’s views on what is an unacceptable standard in contemporary Britain. In these surveys respondents are asked which of a long list of items and social activities, from a basic diet and minimum housing decency to a number of personal and household goods and leisure and social activities, they consider to be essential for living in Britain today.
This method establishes a minimum standard based on what the majority of people think are the necessities of life, which everyone should be able to afford and no-one should have to do without. This is the nearest we have to a democratic definition of poverty. Importantly, there is near unanimous agreement across different groups in society – if a majority of men think an item is a necessity so, in the vast majority of cases, will a majority of women (and similarly for all other groupings such as age, class, education level and, significantly, political affiliation).
There has been a sharp rise in the numbers of people who cannot afford (as opposed to do not want) some of the most basic of these publicly-defined necessities. One-in-ten households live in a damp home, up from just 2 per cent in the 1990s. Those who cannot afford to heat their home adequately has trebled since the 1990s to 9 per cent of households, while overcrowding is also on the rise with the numbers of children over ten having to share a bedroom up from 3 per cent in 1999 to 11 per cent. Not only are many missing out on the most basic of contemporary needs but many lack the educational and social opportunities that most take for granted – for example, 4 million children (one-in-three) miss out on at least one or other of the family activities of holidays, day trips, and celebrations on special occasions. 600,000 children (8 per cent) are unable to go on school trips each term because their parents can’t afford to pay.
Moreover, the percentage of households who cannot afford each of the items and activities seen as necessities in 2012 and 1999 has, in nearly all cases, risen or stayed the same. For some, the increase has been large: for example those unable to afford to ‘replace or repair broken electrical goods’ has gone up from 12 to 26 per cent.
These material and social deprivations are closely associated with a range of other disadvantages, in particular financial and health – which have risen sharply. The proportion of households in arrears on at least one of their household bills – rent and mortgage payments, gas, electricity charges, council tax and loan repayments – has risen from 15 to 21 per cent since 1983. The numbers losing sleep because of worry has risen since 1999 from 19 to 31 per cent.
Accompanying this overall rise in poverty has been a sea change in the groups most at risk of poverty. The most striking shift has been the rise of poverty among those in work. In 1983 just over a third of those in deprivation poverty (lacking three or more necessities) were in a household where the ‘head’ was in full or part-time work. Today, the equivalent figure is just above 60 per cent.
The government claims that work is a route out of poverty – increasingly it is not. Britain is now a leading low-pay economy, with the proportion of the workforce on low wages almost doubling over the last thirty years. It now stands at 21 per cent, up from 12 per cent in the early 1980s, taking the UK to second place – behind the US – in the global low-paid league table for rich nations.
In this context, the introduction of a ‘National Living Wage’ is helpful – but nowhere near sufficient and accompanied, as it is, by cuts to tax and universal credits, millions in work will nevertheless be worse off. The gross increase in employment income from the higher minimum wage is estimated to be about £4 billion by 2020 while welfare spending as a whole is due to fall by £12 billion. There will clearly be more losers than gainers.
It is a slight of hand to suggest, as the Chancellor George Osborne has in his justifications for cutting benefit levels, that lower welfare can be exchanged for an increase in minimum wages. The policies simply have different purposes. Tax credits support those with low annual family incomes (some of whose members, but a relatively small proportion, will be on the minimum wage) while minimum wages support those with low hourly wages, many of whom have higher family incomes.
The ‘National Living Wage’ is more accurately seen as a rebranding of the National Minimum Wage. It is not a ‘living wage’ at all – any such calculations depend on benefit levels. Furthermore, the Low Pay Commission sets the National Minimum Wage (NMW) by market conditions not by needs. Based on the Retail Price Index, the real value of the NMW in October 2012 was less than it was in October 2004.
To lift people out of poverty through work requires much bigger changes – ones intimately linked with the erosion of labour’s collective bargaining power. Firstly, it requires a substantial boost to the share of national income going to wages. This has fallen since the 1980s to such an extent that the workforce would receive around £90 billion more in wages if the wage share returned to its post-war average.
Secondly, it requires a narrowing of the yawning pay gap between top and bottom. The real gross earnings for those at the top grew almost four times as fast as those at the bottom over the last thirty or so years.
Thirdly, there needs to be a closing of the gender pay gap. In 2013 (despite thirty-five years of the Equal Pay Act),this stood at nearly 20 per cent for median hourly earnings (excluding overtime). And finally, the rise in insecurity at work – particularly at the bottom end – must be tackled. This has made it more difficult for families to build the reserves and resilience necessary to cope with harder times, making even those whose current earnings are above the poverty threshold more vulnerable to slipping below it.
These changes would leave the benefits system with less work to do, allowing a return it to its founding purpose of a universal system that supports people according to their needs not a means-tested system supporting inadequate incomes. But such a shift in economic power is not on the agenda. Quite the reverse.
Joanna Mack is co-author (with Stewart Lansley) of Breadline Britain, The Rise of Mass Poverty, Oneworld, 2015, £9.99. She was the Open University’s lead on the 2012 Poverty and Social Exclusion study and set up the academic poverty resource www.poverty.ac.uk.
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