How do we tackle Britain’s huge, shifting poverty challenge?

UK poverty rates have been falling relatively steadily since the start of the 1990s. Policy changes have led to particularly significant reductions among pensioners and children. But much less progress has been made among adults without children; and current projections suggest that many of the improvements of recent decades will go into reverse over the remainder of the decade. New figures published today by the ONS help to put this UK picture into international context. In doing so, they reinforce the scale of the poverty challenge facing the country.

What does today’s release tell us? First, some facts. The UK’s overall relative poverty rate (defined here as households with annual income below 60 per cent of the median, or around £13,500 in the UK) was 15.9 per cent (covering around 9.4 million people) in 2013. That puts the UK just below the EU average and broadly on a par with Germany (though considerably higher than in many other Western European countries such as France, the Netherlands and Denmark).

The UK performs much better when we look at persistent poverty – that is, the extent to which households find themselves in poverty for years on end. In the UK, 7.8 per cent of the population (4.6 million people) were in this position in 2013, compared with an EU average of 9 per cent.

What explains this mismatch? Overall, there is much more churn in and out of poverty in the UK. As the chart below from today’s release illustrates, people in the UK face a greater risk of falling into poverty in any one year but they also have a higher likelihood of moving back out relatively quickly.

This churn means that almost one-third of the UK population (19.3 million people) experienced poverty in at least one year between 2010 and 2013. Pervasive poverty is perhaps slightly less troubling than persistent poverty, but clearly there is much more for the UK to do. And we shouldn’t overlook the fact that persistent poverty, under this definition, only includes those who experience poverty in the current year and in at least two out of the three previous years. The question of how these families do in the long run – whether this is a repeated cycle or a bad patch – is less clear from this data.

Getting to grips with this will mean facing up to one of the biggest shifts in the UK poverty challenge in recent years: the rise of in-work poverty. Roughly two-thirds of children in poverty live in households in which someone is in employment, so pay progression is key. This is no easy feat. A recent Resolution Foundation investigation found that over a ten-year period, just one in four low paid workers manage to move onto consistently higher wages. While others never managed to earn above low pay, the largest group were those who moved onto higher wages at some point during the decade but, worryingly, were unable to sustain that progress, highlighting the importance of taking a long-term view of incomes and earnings. While better progression prospects are unlikely to eradicate poverty, government and employers clearly need to do more on training, skills and support to help more low-paid people move up the ranks and raise their earnings.

Another big barrier is the poverty trap that the benefits system can create. For many households, figuring out whether or not they will be better off working more hours or taking a higher paying job can be difficult, with calculations often to be made across tax credits, housing benefit and non-cash support like free school meals.

The merging of six benefits into one in Universal Credit (UC) in principle represents a great opportunity to simplify those complicated decisions and make sure that it always pays to work. This is particularly true for single parents – the group most likely to get stuck in poverty according to today’s ONS figures – and who are most likely to respond to financial incentives to work more.

But the current design of UC risks missing this opportunity. Single parents who rent their homes will find that, as they begin to earn more, their benefits are withdrawn rapidly compared with other family types. While hours rules in the current tax credit system incentivises them to work at least 16 hours a week, UC creates a financial ‘sweet spot’ at just nine hours on the minimum wage. Discouraging single parents from increasing their earnings is the last thing welfare reform should do.

The Resolution Foundation review of UC will next month set out a series of recommendations designed to ensure our welfare system best meets the needs and challenges of the coming decade. Poverty and persistent poverty will remain features of our jobs market for years to come. But a well-designed benefits system and more support for in-work progression will give households facing poverty the best chance to become more financially secure.