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Growing poverty for children and pensioners highlighted by Joseph Rowntree Foundation study

The latest study by the Joseph Rowntree Foundation has found that the numbers in poverty in the UK have started to increase in recent years. Worryingly the study found that the number of children living in poverty has grown by 400,000 since 2013 whilst the numbers of pensioners in poverty had grown by 300,000 in the same period.

In measuring poverty the work of the Foundation draws a distinction between ‘absolute’ poverty, where households have insufficient income for the basic needs in life, and ‘relative’ poverty which relates to those living in households with an income less than 60 per cent of median incomes, after housing costs. This relative measure sets the poverty line at £248 per week for couple with no children or £144 per week for a single person. For a couple with two school-aged children the poverty line set by the study is £401 per week and for a one parent household with two children it’s £297 per week.

Such relative poverty lines have been the benchmark for measuring who is in poverty for decades. The measure effectively says that those living below the line may have enough to buy the essentials to live on but have insufficient to enjoy the lifestyle enjoyed by those on median incomes. Such households are therefore denied access to anything like a ‘normal’ lifestyle. Even eight decades ago, in the second of his three studies into poverty in York in 1935, Seebohm Rowntree, another of the Rowntree family of sweet-making fame, included non-essentials like newspapers and holidays in determining the poverty line for households.

The causes of this upturn in poverty are not particularly surprising. For pensioners the level of the state pension - be it the old state pension or the new (since 2016) ‘flat-rate’ state pension - has been protected by the ‘triple-lock’ where the annual increase in the pension is  the highest of earnings inflation, price inflation and 2.5%. However for the worst off state pensioners the benefit used to top up their income - Pension Credit - has not kept pace with rising living costs in recent years. It is these pensioners that are now feeling the financial pinch and falling in increasing numbers into relative poverty.

Elsewhere the freezing of state benefit levels and the low rate of growth of incomes from those in employment have combined with rising pricing inflation to squeeze household real incomes. This explains the growing number of non-pensioner households falling into relative poverty.

It can be argued that benefits for those not in employment - or at least not in full-time employment - were increased over-generously in the 1990s and early 2000s. This created pressure on the government’s budget and, arguably, decreased the incentive to work for those on benefit. So the freezing of state benefits and the reforms to the benefit system that are seeing Universal Credit replacing other benefits can be viewed as correcting the balance between income from work and benefits for those not employed. Yet this line of thought hardly provides comfort or solutions for the growing numbers of struggling households. And for those pensioners experiencing relative poverty their plight is particularly concerning given the lack of options in later life for boosting income.

Balancing the provision of a financial safety-net for poorest households with the need to maintain the incentive for people to seek work is not a new problem. The challenge it has caused policy makers can be traced back at least as far as the Elizabethan Poor Laws of 1597 and 1601. What it will always be, though, is a problem that generates fierce public debate and a problem that has no easy solution.

 

Martin Upton

Director, True Potential PUFin

4th December 2017

About True Potential PUFin

True Potential PUFin is based at the Open University Business School in Milton Keynes, UK

True Potential PUFin is the first and only personal finance research centre in the UK that has an active teaching programme freely available to the public. Supported by the University’s excellence in delivering distance learning, the Centre is uniquely positioned to develop the public’s financial capability and to research the impact and effectiveness of its education programme. 

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