Over the last decade, the overall relative poverty rate in the UK and London has barely changed
According to figures from the Office for National Statistics (ONS), the patterns over the past ten years show how changes in relative poverty rates tend to be modest. Increasing rents and cuts in benefits have contributed to keeping millions of people in low income, with London facing the highest levels of poverty of all UK regions.
How is relative poverty measured?
Households are considered to be in low income if they live on less than 60 per cent of the average median equivalised UK household income in that current year. In 2019, the average annual household income was around £26,800 before housing costs and £23,300 after housing costs. For example, a household consisting of a couple with no children would be in low income with an annual household income of up to £16,100 before housing costs and £14,000 after housing costs.
Statistics on income after taking into account housing costs show that in 2018/19 approximately 14.5 million people in the UK were in relative poverty, meaning more than one in five people. In 2008/09 their number was 13.4 million, showing an 8 per cent rise over the decade. The pattern was similar in London, where 2.5 million people lived in relative poverty in 2018/19, compared with 2.3 million in 2008/09, highlighting a 9 per cent increase.
London continues to have the highest poverty rate of all UK regions, and the most affected are children. In 2018/19, 30% of children in the UK were living in relative-poverty households. In London, this proportion was 39%, which represents about 800, 000 children.
Projections made by the Institute for Fiscal Studies indicate that the number of children living in low-income households is likely to rise under current policies, with London still having the highest child poverty rates in the country. Today, child poverty rates are likely to increase to 35.6% in the UK and 41.5% in the capital.
Some of the main causes of high poverty rates in London are housing costs and falling Housing Benefit support and income
A greater number of households are privately renting, and due to the extremely high rent price in London, they are struggling to keep up with the cost. With little support from Housing Benefit, low-income families have to cut back their expenses to keep up with the rent. Fewer low-income households are in social housing as this option is often unavailable, and fewer people are buying with a mortgage because it is too expensive.
From 2014 to 2019, the average annual private rental prices in London increased by 15 per cent, in comparison to housing benefits allowances and income, which for the same period, showed only a 5 per cent and a 4 per cent increase, respectively.
Housing costs in London have increased more than anywhere else in the country in the last decade. The median monthly private rent was highest in London at £1,495, which is £17, 940 per year, higher than the median monthly rent in 2014, which was £1, 300, or £15,600 per year.
In 2014, the median weekly equivalised household incomes for all individuals in London were an average of £437 per week or £22, 724 per year. By 2019, the amounts had become £454 and £23, 608 per year, showing only a 4 per cent increase. For children in a household, this amount was even less, with them having an average of £333 per week or £17, 316 per year and £327 per week or £17, 004 per year, respectively, signalling a 2 per cent decrease since 2014. Similarly, the average annual award for Housing Benefit claimants was £4,798 in 2014 and £5,036 in 2018, revealing only a 5 per cent increase over the four years.
This reflects why the number of individuals in relative low income has remained persistent over time and that paying for housing, particularly in the private rent sector, is the single largest cost for London households.
Is the social benefits system helping?
In 2010, the Coalition Government was “determined to reform the benefits system to make it fairer, more affordable and better able to tackle poverty, worklessness and welfare dependency,” according to a document presented to Parliament by the Secretary of State for Work and Pensions in November that year. Consequently, the Government reformed the welfare system and in 2013 started rolling out Universal Credit and the benefit cap.
The benefit cap put a limit on the total amount a household can receive in benefits to £26,000 per year (£18,200 for single people with no children), which represented the average family income in the UK. This amount was further reduced in 2016 to £20, 000 per year for families outside London (£13,400 for single claimants) and £23,000 (£15,410 for single people) per year for families in London.
The government argued that this measure would encourage people to work and earn money to look after themselves and their family. Moreover, it stimulates the benefits system to become “fair” by ensuring a non-working family does not receive more help in benefits than how much a working family gets from going to work while making financial savings for the country.
Since the benefit cap was introduced, 28% of households affected by the cap were in London. Although the programme has been rolling for six years, The Work and Pensions Committee, which looks into the policies and spending of the Department for Work and Pensions, reports that the cap’s performance against these aims is “disappointing at best”. The Department reports having saved just 0.1% of the total welfare bill, while just 4.7% of claimants moved into work because of the cap. The Work and Pensions Committee states that this result is not surprising considering that people living on benefits already have significant barriers when seeking work.
Many families in London still face socioeconomic hardships, and although at the receiving end of benefits, their income mostly covers the rent, putting them at risk of losing their homes. Although governments have proposed a range of different approaches to tackling poverty, and significant changes have occurred in the British economy, the number of individuals with low income has continued to stay relatively the same year after year.