Working but Poor: Why UK Families Struggle Amid Record Poverty

In 2024, the UK's poverty rates have reached their highest levels since the turn of the century, marking a distressing milestone for one of Europe’s largest economies. According to a new report from the Social Metrics Commission (SMC), 16 million people—nearly one in four UK citizens—are now living in poverty. This includes an alarming 5.2 million children, accounting for 36% of all children in the nation. For students of economics, these figures serve as both a stark reminder of economic inequality and a case study in the power and limitations of economic policy.

The Hidden Costs of Living

What does it mean to be “in poverty” in today’s UK? Traditionally, poverty was measured simply by income thresholds. But the SMC has broadened this definition, considering "below average resources," which factors in unavoidable costs like housing, childcare, and the additional expenses associated with disabilities. This nuanced approach reveals that many families are struggling not only with low income but also with costs that consume a disproportionate share of what little they earn. This measure offers a more realistic snapshot of economic deprivation but also paints a bleaker picture.

Children Pay the Price

The cost-of-living crisis, exacerbated by the COVID-19 pandemic and global inflation shocks following the conflict in Ukraine, has had the heaviest impact on children. The data shows that more than a third of children are living in poverty—a jump by 260,000 since 2019. This harsh reality undermines economic theories that assume rising national wealth will trickle down evenly. Instead, it illustrates how economic shocks and inflation can disproportionately harm the most vulnerable.

Working but Poor

Perhaps the most paradoxical finding of the SMC report is that nearly 5 million people in poverty belong to families where someone works. Despite rising employment rates, stagnant wages and inflation have left many families trapped. The economic concept of "working poverty" challenges classical economic assumptions about labor as a guaranteed path to prosperity. While employment provides some protection, the data shows that 75% of workless families remain in poverty, while even among fully employed families, 9% live in poverty.

Disability and Economic Disadvantage

The report also highlights the plight of disabled individuals and families with disabled members, who make up over half of the population living in poverty. This intersection between disability and economic disadvantage underscores the economic theory of "capability deprivation." Policies that fail to address these specific needs inadvertently reinforce cycles of deprivation.

Regional and Policy Dimensions

Economic inequality in the UK also varies geographically. London and the West Midlands show some of the highest poverty rates, reflecting disparities in regional economic development, housing costs, and employment opportunities. Policies such as the two-child benefit cap—meant to limit government spending—have fueled debates about their social impact versus their economic rationale. While intended as a fiscal measure, the cap has left many larger families deeper in poverty.

Hope Amidst Challenges?

There are glimmers of hope. Poverty rates for pension-age adults have decreased over the past two decades due to targeted welfare support. This suggests that with the right policies, poverty can be alleviated. However, broader structural changes, including increased social security and wage growth policies, will be crucial to achieving sustained progress.

As students analyze these findings, key economic themes emerge: the role of government intervention, the limitations of market-driven solutions in ensuring equitable wealth distribution, and the impacts of inflation and economic shocks. Addressing poverty requires not just theoretical insight but practical, data-driven policy changes—a challenge that calls for a collective societal response.

Glossary of Key Economics Terms:

1. Poverty Line: The minimum level of income deemed adequate in a particular country.
2. Below Average Resources (BAR): A measure of poverty that accounts for disposable income minus inescapable costs like housing and childcare.
3. Cost-of-Living Crisis: A situation where the prices of goods and services increase faster than incomes, reducing purchasing power.
4. Capability Deprivation: A concept suggesting that poverty is more than lack of income; it involves a lack of freedoms and opportunities.
5. Inflation: The rate at which the general level of prices for goods and services is rising, eroding purchasing power.
6. Workless Poverty: Households where no adults are in paid employment, leading to higher poverty rates.
7. Two-Child Benefit Cap: A UK policy limiting state benefits to families with two or fewer children.

Graham Watson's insight:

Dreadful news from the Social Metrics Commission: one quarter of adults in the UK are living in poverty and, worse still, one third of children, both representing the highest levels of poverty this century.

The latter figure represents 5.2 million children, and is likely to renew calls for the Labour government to scrap the two-child benefit cap because 55% of those children in poverty live in families with three or more children.

This report is significant because it uses the latest definition of poverty - because it measures resources rather than simply income and is seen as a better indicator of deprivation.