Unemployment is at its lowest level for forty years, so why does a fifth of the nation live below the poverty line?

The Office for National Statistics (ONS) revealed that the overall employment rate is at record high of 75.7%, with unemployment at 4.7%, the lowest it’s been since the 1970s; however over 20% of the population lives on incomes below the poverty line (after housing costs), despite most of these households being in employment. What is the story behind the statistics?


Earlier this year the Office for National Statistics (ONS) announced that the employment rate is at record high of 75.7% and unemployment at 4.7% the lowest it’s been since the 1970s. Minister of State for Employment, Alok Sharma, is quoted as saying: “It’s fantastic that we have another record high in overall employment and the female employment rate has never been higher, with more people in work than ever before.” These high employment figures might indicate that most of Britain lives in relative prosperity, but unfortunately the converse is true: over 20% of the population lives on incomes below the poverty line (after housing costs), despite most of these households being in employment. Figures issued by the ONS indicate that the average amount of disposable income people have in the UK has dropped 0.3% from April to June this year compared with the same quarter last year. Here, we investigate the factors responsible for this disparity between high employment and low income.

What is Poverty?

There are many definitions for what it means to be poor; however, for statistical purposes the ÔÇÿpoverty line’ is a threshold where income is considered adequate for a particular country. In the UK, the Government publishes an annual survey of income poverty and sets the national poverty line at 60% of the median UK household income (the median is used due to the significance of wealth inequality in the UK; individuals with relatively high incomes create a skewed distribution). The most recently published report is from 2016/2017 and shows that 22% of the population live below the 60% median, the same proportion as in 2002/2003; therefore, despite a record number people being in work, poverty has not decreased in the last 15 years. In fact, the BBC reports that millions of families are worse off than they were 15 years ago.

Other indicators of poverty are the record rise in food bank use and the increase in fuel poverty. The Trussell Trust is an anti-poverty charity that runs a network of 428 food banks across the UK, their figures show that for the financial year 2017/2018, they distributed 1,332,952 three-day emergency food supplies to people in crisis, this is a 13% increase on the previous year. They attribute this increase to benefit levels not being in line with inflation and have called for benefit payments to keep pace with the cost of living. Their results were published for the start of the current financial year, at the same time as the government announced its biggest annual benefits cut for six years, so it seems likely that even more people will be relying on food banks in the current financial year.

Last month, energy regulator Ofgem ascribed part of the continuing fall in energy use as due to customers disconnecting from their energy supply as they cannot afford to top up their meters. Last year average household energy consumption continued its long-term decline and fell by 5.5% for gas and 3.3% for electricity. In part, the decline is due to milder winters and better insulation in homes, but 10% of the 70,000 people who Ofgem surveyed revealed that they “self-disconnected” from their meters because they could not afford to top them up. Ironically, those using prepaid meters are usually charged more per unit of fuel than those on standard meters who are able to shop around for the best tariff.

Why does having a job not bring people out of poverty?

There are a variety of socioeconomic reasons why we are seeing high levels of poverty accompanying record high employment. They include; how labour force figures are compiled, the insecurity of zero hours contracts, sectors where employers fail to meet the minimum wage and wages which do not keep pace with the rising cost of living.

The Labour Force Survey (LFS) is conducted by the ONS and includes “people aged 16 and over who did one hour or more of paid work per week (as an employee or self-employed), those who had a job that they were temporarily away from, those on government-supported training and employment programmes, and those doing unpaid family work”. These criteria would include people who work and are struggling financially, for example many on zero hours contracts may only manage to secure one hour of minimum wage employment per week. The figures also include those who do not work but look after family, e.g. a stay-at-home parent (who might have a job if that employment provided enough money to cover the cost of childcare) or carers for infirm or elderly relatives (who again, may work if that job enabled them to pay a carer’s wage). Therefore, not everyone who is counted as “employed” a) receives an income or b) receives more than ┬ú4.20 per week (the minimum hourly wage for those aged 16-17).

Zero hours contracts are those contracts where an employee is not guaranteed any hours in a given week. The ONS compiles figures for this in conjunction with the aforementioned LFS, their latest results are for October to December 2017 where 901,000 people had a zero hours contract for their main job, this represented 2.8% of all people in employment. The ONS Business Survey (November 2017) indicates that there were 1.8 million contracts that did not guarantee a minimum number of hours (where work had actually been carried out under those contracts) which represented 6% of all employment contracts. The majority of those on zero hours contracts are young, part-time, women or in full-time education. Such contracts may be attractive to full-time students who enjoy the flexibility; however, they have been heavily criticised by charities and trade unions for their inherent insecurity. This insecurity is highlighted by the fact that more than 25% of those in zero hours contracts would like more hours, compared to those in contracts with specified hours where 7.3% of people would like more hours. Several large employers e.g. McDonalds, JD Wetherspoon, Greene King, Curzon and Everyman cinemas have since announced that they will no longer be offering zero hours contracts.

This year, a record 200,000 workers missed out on being paid at least the minimum wage rate, representing a £15.6m underpayment; these are the highest figures since records began. Following the HMRC investigation, those companies who had underpaid workers were fined £14m as well as having to reimburse their staff. Those sectors most affected are: social care, retail, commercial warehousing and gig economy, with HMRC also prioritising employment agencies, apprentices and migrant workers. It is worth noting that this year, HMRC had record funding for minimum wage enforcement, rising to £26.3 million in 2018/19 from £20 million in 2016/17, so it is possible that more underpayments were discovered as a result of greater investigative resources.

Inflation is the rate at which the cost of goods and services rises year-on-year. To be able to buy the same amount of goods and services, your salary must increase by at least the same level as inflation. The Consumer Prices Index revealed the 12-month inflation rate reached a 6-month high in August 2018 at 2.4% (up from 2.3% in July) and in February, headlines were made when wages grew faster than inflation for the first time in almost a year, following the April 2017 inflation jump which resulted from the Brexit vote. This means that for most of the year, good and services were increasingly unaffordable for millions of workers. Currently weekly earnings for employees in Great Britain in real terms (that is, adjusted for price inflation) increased by 0.7% excluding bonuses, and by 0.4% including bonuses, compared with a year earlier.

A rapidly changing landscape

The employment market is a rapidly changing landscape due the advent of the 4th industrial revolution with technologies such as Artificial Intelligence, Quantum Computing, Nanotechnology, 3D printing and blockchain cryptocurrency increasing in prominence. A resilient labour market is one which can adapt and harness these technologies; however, revolutions divide rather than unite people, so in the short-term at least, such disruptive technologies (notably automation) may lead to an even greater wealth gap for those who due to a variety of socioeconomic reasons may struggle to adjust.