Is poverty on the rise in the UK?

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by Shaun Richards

Today the IPPR has released a report on poverty in the UK. As always care is needed as the answer mostly depends on how you define poverty starting with whether you chose an absolute definition or a relative one. With the latter poverty is always likely to be with us no matter how well off we become. But their report covers a couple of the themes of my work beginning with the issue of housing costs.

This is caused by the growth of people living
in the private rented sector and the increasing cost of rents: housing costs for private tenants have risen by almost half (48 per cent) in real terms over 25 years.

The next is the struggles that real wages have seen especially since the credit crunch hit just over a decade ago.

Working poverty – poverty experienced in households where one or more people are in work – has been rising under successive governments since 2004.

Also there is the issue of how you measure inflation because the IPPR is suggesting that something is wrong with our official measures.

We argue for greater priority to be given in welfare and economic policy to bringing down the high costs of
housing, childcare and other essential goods as a proportion of household income, as well as reforms to genuinely ‘make work pay’.

After all we are supposed to have been in a period of low inflation so how is the cost of these things “high”? Also this poses a challenge for the Bank of England which via its accommodative monetary policies is trying to make the cost of them even higher.

Housing Costs

The attention here is on those who rent.

Rising in-work poverty can be otherwise characterised as growth in poverty rates among renters. Rates of poverty have risen considerably among those in the private
rented sector since 2000, with smaller but still significant growth among those living in social housing, who still have the highest overall rates of in-work poverty.

For those unaware of the UK social housing structure it used to be state supplied as for example my maternal grandparents lived in a flat provided by the local council hence the name council house ( or flat). This switched to a hybrid where housing associations have increasingly supplied social housing. This has also provided trouble for the public finances as they have been regarded as state and then private which has been a big deal as it is a matter of around £50 billion.

Can anybody think why this is so?

 In 1994/95, 65 per cent of under 40s were mortgagers, but this had fallen to 38 per cent by 2018/19.

It is because house prices have risen so much that they cannot afford them. Thus there has been a shift towards this.

At the same time, the proportion of young renters has tripled (DWP 2020a). This means that over three million additional under 40s (ibid), instead of paying their own mortgage and building their own wealth, are paying the
mortgages and building the wealth of their landlords.

Which according to the IPPR means this.

The rise of in-work poverty among the different tenancy groups is mirrored heavily by the extent to which housing costs have risen among these groups. Throughout
the period, the costs for renters (both social and private) have been rising rapidly, while those on the property ladder have seen costs fall in real terms, as record low
interest rates have kept costs down for mortgagers.

Care is needed here as they are ignoring the issue of higher house prices. Mortgage costs may be low now but if you have paid a high price ( house prices keep making new records) you are at risk if they rise. Also they are assuming house owners have a mortgage when a bit over 30% buy outright. The latter is not especially relevant for a poverty analysis but mortgagers are at the moment at quite a potential risk.

Also home owners can be divided into two groups. Those who have been home owners for a while have low mortgage rates on smaller mortgages and positive equity, sometimes lots of it. Whereas newer buyers have had to take large mortgages and pay high prices which leaves them in quite a risky position.

Living Costs

This to my mind is an important issue and let me illustrate with this from Gracie.

“PPE to do my job when I’m not working from home/for my daughter when she’s in school has also cost £40+. This covers the masks (I had to buy extra as my daughter’s school decided to make plain black ones essential when I had previously bought other colours, so this was
an even bigger outlay), hand sanitiser which I could only get from my local shop as everywhere else was out of stock but they doubled the prices, and face masks. Employers should be providing these!”

This is a recent development but highlights an age old issue in inflation measurement. This is between an economic style measure ( for example the CPI family) and a living-costs measure which the RPI represents. Under an economic style measure if you bring such things in you adjust the basket. There is a road here where Gracie pays the higher costs they go in the basket and then as new suppliers arrive and prices fall we see inflation recorded as lower and not higher.

The alternative approach based on living costs would look to recognise that spending and costs are higher. There is a new effort planned for the UK called the Household Costs Index which measures what is spent. In practice it is always difficult to catch the issue above but at least it will recognise it.

Oh and I tried to get our official statisticians to factor in such new costs but was told they are not important enough.

Expenditure on products such as face coverings and hand sanitisers has inarguably increased over the last 7 months. However, based on the scanner data we have been receiving we believe that, as a proportion of total expenditure, it remains below the levels that price movements would have any discernible impact on our figures – essentially these products would receive a 0% weight in an index. Though we will continue to monitor this.

Wages

Even though they have risen they have not always kept up with inflation.

Despite real growth in wages amongst the working poor over the past decade, driven in part by a higher minimum wage, in-work poverty has continued to increase.

Comment

There has been a shift in the UK situation as the rises in the state pension via the “Triple-Lock” and higher house prices have benefited pensioners and reducing poverty in this group. Although this was on odd thing to add.

along with benefitting from generous private pension provision in many cases.

Generous pension provision these days is mostly to be found in the state sector.

I do have sympathy with this point as capital has gained more than labour I think.

The national focus on higher per capita
GDP growth and the regional focus on higher per capita GVA growth have delivered little for working families over the past two decades.

But fixing this is not as easy as implied.

Given the concentration of working poverty in low paid sectors such as retail, care and hospitality, it must link to industrial strategy and skills policy, increasing wages
in those sectors as well as opportunities for progression out of low paid work through better access to training and skills

For example high street retail is already in a crisis and higher wages would push more groups under.

Switching back to housing costs there is a big elephant in the room. This is that the gist of the IPPR report is very different to the official measure of rents used in the UK. That leads you to believe there has been little and based on it we are now supposed to have regained the lost ground for real wages. I have argued many times that the rent measure is a mess and for a while the Office for National Statistics agreed with me when they discovered a discontinuity in their series. There is a further issue here in the the IPPR have used such numbers ( from CPI) to calculate their version of real numbers.

Finally this uses a relative measure of poverty under which Jesus was right.

The poor you will always have with you

That will be true no matter how well off we became. But it does highlight something of another shift in our society.

These landlords are also receiving at least £11.1 billion in
state spending on housing support annually.

 

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