There’s something badly wrong with our welfare system
Britain’s working families are now more likely than ever to be living in poverty.Analysis today by the Institute for Fiscal Studies (IFS) reveals a stark truth: household incomes for those currently in employment are often insufficient to provide a basic living.
In fact, almost half of all poor working-age adults without children (those that live on less than 60 per cent of the median family’s income) are in work or have a partner who works, compared with just 30 per cent in 1978–1980.
This is clearly insane. These people are not ‘scroungers’, but ‘strivers’. They are the very people that David Cameron promised to support when he introduced the most recent round of welfare reforms. Yet their efforts are not being rewarded by a system that was ostensibly designed to make work pay.
Through IPPR’s Condition of Britain work, we have heard from people who are increasingly worried about the effects of the rising cost of living, dramatic cuts to benefits and services, and their lack of savings to fall back on. Many people we speak to say the same thing: they don’t want a hand-out from government, they just want a system that is fair, proportionate and which rewards the contributions that they make to society.
So what can be done to reduce the risk of poverty among those who are in work?
One option is to increase the value of benefits and tax credits for low earners, which in recent years have failed to keep up with rises in inflation. In today’s straitened times, however, any rise in spending must be balanced by cuts elsewhere, and this is far from easy. IPPR has detailed how savings could be madeby means-testing benefits for pensioners, such as the winter fuel allowance and free bus passes. But these savings, although substantial, will not be sufficient to fund a large increase in benefits.
For those households with two working-age adults, much more should be done to provide incentives for both partners in a couple to work. Under the incoming Universal Credit system, a second earner will see their tax credits withdrawn at a steeper rate than ever before, meaning that they will almost be no better off in work than if they stayed at home.
What is needed is a tax credit disregard which would allow a second earner to keep more of their earnings before their entitlement to Working Tax Credit is withdrawn. For those with children, we also need to take big steps to make childcare more accessible and affordable.
Perhaps the most obvious option is to boost hourly pay, either by raising the minimum wage or by stepping up campaigns for a ‘living wage’. IPPR has already identified the steps necessary to promote wider take-up of the living wage, which could potentially save the Treasury more than £2 billion in higher income tax payments and national insurance contributions, as well as lower spending on benefits and tax credits.
In the long term, any effort to increase wages would also mean providing in-work support, training and career pathways for low earners; promoting skills development through quality apprenticeships and vocational training; and increasing the supply of jobs that pay a decent wage.
Today’s figures should open up debate on how to reform the current system of tax credits and benefits. What is clear is that more needs to be done to address the growing number of people who are actively contributing to society but yet are finding it increasingly difficult just to get by.