Two thirds of children living in poverty in working households, finds IFS

Two thirds of children living in poverty are from working households - photo credit: Holyrood

Two thirds of children living in poverty are from working households, according to a new report from the Institute for Fiscal Studies (IFS).

Living Standards, Poverty and Inequality in the UK: 2016 found the proportion of children living in a household where no one works has fallen from nearly one in four to less than one in six in 20 years.

However, the report warned that a fall in worklessness has less scope to tackle child poverty, given two thirds of children living in poverty have at least one parent in work.

The report found pensioner incomes have grown so much they are now the least likely major demographic to experience income poverty, and that more people are in work than ever before.

The IFS has urged new Prime Minister Theresa May to make the “life chances” strategy, started by her predecessor David Cameron, focus on lifting the incomes of working households.

Robert Joyce, an author of the report said: “Tackling low income is increasingly about tackling the problems faced by low-earning working households. In the short term this would be aided by a continued recovery in the number of hours worked by those on low wages or by more second earners entering work.”

Overall inequality in workers’ weekly earnings has fallen during the recovery however. This was the result of a recovery in the number of hours worked by those with low hourly wages.

Between 2011–12 and 2014–15, real weekly earnings grew by 4.4 per cent at the 10^thpercentile, but fell by 1.2 per cent at the 90^th percentile.

Andrew Hood, an author of the report and a research economist at IFS said:  “Given the economic recovery and cuts to benefits over the last few years we might have expected inequality to rise. But the combination of strong employment growth, some earnings growth for low-paid workers, and a lack of earnings growth for others, has kept inequality below its pre-recession level”.

But the report also says that middle income families with children now more closely resemble poor families than in the past.

It found that the fall in household worklessness and increases in the number of second earners both mainly boosted the incomes of poorer households, but that weak pay growth has held back the incomes of higher income households.

Furthermore half of middle income families are said to be renters rather than owner occupiers and while poorer families have become less reliant on benefits as employment has risen, middle-income households with children have seen income from benefits and tax credits rise to 30 per cent, from 22 per cent 20 years ago.

Median income overall has moved two per cent above pre-crisis (2007–08) levels but for those aged 22 to 30 it is still seven per cent lower. For adults aged 31 to 59, median income is at its pre-crisis level.

The report says it is “highly unusual” to see no growth in working-age incomes over a seven-year period.

The report also revealed that mothers’ earnings are increasingly important for households with children. 

For middle-income children the fraction of household income coming from women’s earnings rose from less than a fifth in 1994–95 to more than a quarter in 2014–15; and it doubled from seven per cent to 15 per cent for the poorest fifth.

Joyce said economic uncertainty surrounding the UK’s eventual withdrawal from the European Union could make the problem more difficult to achieve.

He said: “Ultimately substantial progress will depend crucially on economic policies that push up productivity. Economic uncertainty following the Brexit vote will only serve to make these challenges all the tougher”.