APPG on Poverty: Response to inquiry on in-work poverty

Oral evidence given by WBG member Fran Bennett, for the All Party Parliamentary Group on Poverty for their inquiry into in-work poverty.

16th November 2021

The definition and causes of in-work poverty (IWP) are complicated. IWP is usually measured on a household basis, using income below a percentage of the median equivalised disposable household income (after housing costs as the preferred measure).

The definition of a worker is also important. In the UK, a worker is someone who has worked one hour in a week or more (the ILO definition). But in the EU, only someone working for 7 months or more in a year counts. And EU debates usually focus only on the worker, whereas in the UK we include everyone in their household when we discuss IWP. In either case, the household is a ‘black box’ in which it is assumed resources are shared equally.

And neither of these is the same as low pay, measured on the basis of an individual worker’s hourly gross pay rate, usually as a percentage or fraction of the median wage (for example, the current government is aiming to increase the national minimum wage for those aged 23 plus (the ‘national living wage’) up to two-thirds of the median hourly wage by 2024). This focuses not on poverty but on inequality in labour market rewards.

So in-work poverty combines an individual activity status with household income. This is not helped by phrases muddling the two, such as ‘hard-working families’, or both single people and families being called ‘family’ in the income statistics.

So in practice a series of steps is necessary to get from low pay to IWP, including not just the hourly wage of the worker (or workers) but the work intensity of the household and who is in it. Even for single people, more is needed than the gross hourly pay rate – i.e. what tax and national insurance they pay, whether they have other income and, if the AHC measure is being used, what their housing costs are.

The difference between low pay and IWP is evident when, for example, analysts note that an increase in the ‘national living wage’ or in the real value of the personal tax allowance does not, for many, outweigh reductions in benefits/tax credits – as has happened in recent years. The first is looking at the unit of the individual – who may or may not be living in a household in poverty- whereas the second is looking at the unit of families/households who are on a low income and therefore entitled to claim means-tested support.

So this means what households do, and why, is important for many in IWP, not just the characteristics of the worker(s). Households do not work – but they do have implications for the employment activity of the adults who live in them. This tends to be obscured by the label IWP, which directs attention only to the worker(s) and can limit discussion of potential policies to increasing their pay and/or supplementing it. Instead, we should recognise the mix of individual and household factors involved.

Of course, this should not be misinterpreted as saying that low pay is unimportant. Pay levels are crucial in themselves, both for one-adult households (including lone parents, the vast bulk of whom are women) and for individual access to income in other households – including those not defined as in poverty. In fact, the WBG would argue that we should focus on individual income over a life-course, and not just a household at one point in time.

This is especially important because of the fluidity of families today. We know that women are more likely to remain stuck on low pay for longer, as the Resolution Foundation found in analysis for the Social Mobility Commission (though many have been able to progress in work due to training and promotion in the public sector, which may be less possible now due to the increase in outsourcing.) But the ‘gender paradox’ is that their labour market disadvantage is not necessarily reflected in the IWP rate broken down by gender. If we try to measure individual poverty, however, their labour market disadvantage becomes more visible, as Sophie Ponthieux has demonstrated. And the Institute for Fiscal Studies (IFS) has found that those who struggle in their working life are also more likely to be in poverty in later life, especially lone parents.

So gender issues are important both for low pay and IWP, but in different ways. Pay rates are influenced by gendered assumptions – for example about the value of the skills involved in work that traditionally falls to women, in particular caring. And the risk of IWP is influenced by other factors, including the roles women and men play in the household, which affect whether they are in paid work and how many hours they work. Women tend to have both lower hourly pay and lower hours – though we should also note that male disadvantage is increasing in both these areas as well.

It is also easy to forget self-employed people when discussing IWP, and important not to do so; women in particular may take up self-employment in the hope of having more flexibility. In addition, some self-employment is more apparent than real.

To pursue this issue of IWP and what households do, if we look at one-earner couples with children in poverty in particular, a high proportion are male breadwinner families. Institute for Public Policy Research (IPPR) analysis suggested that 31% of couples with one full-time earner were in poverty and that even for those with one full-time and one part-time earner the risk of IWP had doubled over the past 20 years.

So measures to tackle IWP must not stop at higher hourly pay (which, as the APPG co-chair Ruth Lister said, cannot be varied to reflect family circumstances), but also embrace a range of other policies. Opportunities for good quality flexible work should be increased (with meaningful opportunities here for employers to contribute to tackling IWP). The ideas for the future Employment Bill include ways to increase workers’ control over hours of work. And if ‘in-work benefits’ are needed, we should ensure that they do not disincentivise those groups who are particularly sensitive to incentives – and are relied on in government documents to increase their work and hours under universal credit – i.e. women and especially mothers. The location of jobs and housing and the availability of public transport are also key issues.

The government has a taskforce on the cost of living, and this is also crucial, in particular because in low-income families, as the WBG has shown, it is often women who take on the burden of making ends meet. Here, important areas are childcare costs (which the Social Metrics Commission suggests should be included in an improved poverty measure); housing costs (identified by many analysts as being key to the recent increase in IWP); and more generous support for children and disabled people from society – including in particular improving the level of child benefit.

But policies for those not currently in the labour market are, ironically, also relevant to tackling IWP. Policies to improve paid parental leave, and eligibility for and rates of non-means-tested benefits for those who are on maternity leave, out of work, or with health conditions or caring responsibilities limiting their work capability, are important (looking at couples in particular) to give partners of those in work individual income at these times. But recently, these have instead, with the exception of maternity allowance, been made harder to qualify for and, in one case, been limited to a year. Without such benefits, rates of IWP would be even higher, as Holly Sutherland and I found in research some time ago.

You can view WBG’s written submission to the APPG on Poverty inquiry into in-work poverty here.