Poverty total ‘worse than expected’


Published: Wednesday 5th November 2014 by The News Editor

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Thousands more people could be living in poverty than has previously been thought, a report published by the Joseph Rowntree Foundation has warned.

Poorer households have been harder-hit by the rising cost of basics over the last decade than those on higher incomes, but formal measures of poverty have not reflected this in their calculations, the research, which has been compiled by the Institute for Fiscal Studies (IFS) argues.

The report said that formal measures of change in poverty tend to assume that everyone feels the same impact of prices rising.

But in recent years, the prices of goods such as food and energy that tend to take up relatively large chunks of the budgets of poorer households have risen at a faster rate than the cost of goods that have a greater impact on higher earners, such as mortgage repayments, motoring and leisure services.

The report estimates that if the harsher impact of inflation on lower income households was taken into account, around 300,000 more people could be living in absolute poverty, meaning that their income falls below a given standard of living, than standard measures would suggest.

Between 2002/03 and 2013/14, households with incomes in the bottom fifth of the population have seen prices increase by 50%, while those in the top fifth have seen a more gentle increase of 43%.

Researchers found that, energy costs for example take up around 8% of the budgets of the poorest fifth of households, but for the richest fifth of households just 4% of their budget goes towards energy. The price of energy has leapt by 67% between January 2008 and March this year.

Food costs take up 20% of the budgets of the poorest fifth of households, but for the richest fifth this is 11%. Food costs have surged by 31% between January 2008 and March 2014.

The richest fifth of households spend around 8% of their budgets on mortgage interest payments, while the poorest fifth spend 3% of their budgets on this. Mortgage interest payments have actually seen a 40% decrease between January 2008 and March 2014, reflecting the low interest rate environment which has helped to keep the cost of home loans down.

The report said that if the impact of inflation rates was allowed to vary across household incomes, the absolute poverty rate would be around 0.5 percentage points higher than standard measures would suggest. This would equate to an extra 300,000 people living in absolute poverty in 2013/14.

Katie Schmuecker, policy and research manager at the Joseph Rowntree Foundation, said: “Costs rising faster than earnings causes problems for us all, but it is the poorest families who have faced the greatest pressure from rising prices over the past decade.

“Any plans at the next election to help improve family living standards must get to grips with the high cost of essentials, as well as how to boost wages and incomes.”

This week it was announced that the Living Wage has been raised by 20p to £7.85 an hour, boosting the pay of 35,000 workers.

The voluntary wage, which is based on the amount needed to cover basic living costs, was revealed as research showed that 5.2 million people, or 22% of the workforce, are paid less than the Living Wage – an increase of 1% over the past year.

Ms Schmuecker continued: “The Living Wage – which recognises the cost of essentials in how it is calculated – is an important part of the answer, especially for the 5.2 million workers who earn below this rate.

“But it must be complemented by a wider strategy that includes measures to address the cost of essential goods and services, the nature of work at the bottom end of the labour market and how well the tax and benefit system work.

“Otherwise millions of struggling households will find it even harder to make ends meet – even as the economy recovers.”

Shadow work and pensions secretary Rachel Reeves said: “This report is further evidence of the huge pressures which families are facing as a result of David Cameron’s cost-of-living crisis.

“The Government’s failure to tackle soaring energy, childcare bills and low wages has led to millions struggling to get by.”

A Department for Work and Pensions spokesman said: “Our reforms are improving the lives of some of the poorest families in our communities by promoting work and helping people lift themselves out of poverty.

“The percentage of people in the UK in relative poverty is at its lowest level since the mid-1980s and the number of households where no one works is the lowest since records began.”

Published: Wednesday 5th November 2014 by The News Editor

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