Middle-income families in UK resemble the poor of years past

Plunging levels of home ownership and an increased reliance on state benefits to top up salaries have meant that Britain’s middle-income families increasingly look like the poor households of the past, according to one of the UK’s leading thinktanks.

The Guardian highlights part of the  report from the Institute for Fiscal Studies which showed that the old link between worklessness and child poverty had been broken, with record levels of employment leading to a drop in the number of poor children living in homes where no adult works.

However, the study found that by 2014-15, two-thirds of children classified as living below the poverty line had at least one parent who was working. If Theresa May wanted to take forward David Cameron’s “life chances” strategy, the IFS said, the prime minister needed to focus on lifting the incomes of working households.

“In key respects, middle-income families with children now more closely resemble poor families than in the past,” the IFS said. “Half are now renters rather than owner-occupiers and, while poorer families have become less reliant on benefits as employment has risen, middle-income households with children now get 30% of their income from benefits and tax credits, up from 22% 20 years ago.”

The report divided the population into five groups according to income and found that for the middle 20% of children, half were living in an owner-occupied house, down from 69% two decades ago.

It also found that mothers’ earnings were increasingly important for households with children. More than 25% of the incomes of middle-income households came from mothers in 2014-15, up from less than 20% in 1996, while this figure doubled from 7% to 15% for the poorest group over the 20-year period.

Britain’s economy since the recession of 2008-09 has been marked by a hefty increase in employment, coupled with a much more modest rise in incomes.

The IFS said this had changed the dynamic of poverty, with the least well-off households much more vulnerable to economic downturns, such as that likely to be caused by Britain’s decision to leave the EU, than in the past. Earnings from employment made up 50% of the total income for the poorest 20% of households in 2014–15 – excluding pensioners – up from less than one-third 20 years ago.

“Virtually all serious analysis suggests that the uncertainty over the UK’s future relationship with the EU will lead to a smaller economy, and hence lower living standards over the next few years, than we would otherwise have had,” the IFS said. “But precisely how this will feed through into employment, earnings, and tax and benefit policy is impossible to predict with confidence.”

There had been strong growth in incomes during 2014-15, the thinktank said, which had finally taken living standards for the median household 2% above their pre-crisis levels. But this was due to higher incomes for the elderly, with no increase for workers aged 31-59 and a 7% decline for those aged between 22 and 30. The IFS said it was “highly unusual” to see no growth in working age incomes over a seven-year period.

The report found that there had been a decrease in income inequality during the post-financial crisis years due to an increase in the hours worked by those on low incomes and weak earnings growth for those on higher incomes. Between 2011–12 and 2014–15, real weekly earnings grew by 4.4% for the poorest 10% of households, but fell by 1.2% for the top 10%.

Andrew Hood, an IFS research economist and an author of the report, 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.”

Julia Unwin, the chief executive of the Joseph Rowntree Foundation, which funded the report, said: “This report paints a stark picture of the new face of poverty in the UK. Falling unemployment has helped many families to keep their heads above the water, but slow wage growth, benefit squeezes and rises in the cost of essentials means there are still a shamefully high number living in poverty in the UK today.

“The fact that an increasing number of people in work are living in poverty shows that we need urgent, wide-ranging action to make a real difference in the living standards of low-income households. It is vital that politicians work with business, individuals and local communities to solve UK poverty once and for all.”