This week, news came out that the Prime Minister hopes to “blunt calls for urgent action on the cost of living crisis by stressing that work is the best route out of poverty”.
It’s a popular line with this government. And it should be true - but sadly, it isn’t.
The majority of people in poverty (57 per cent, or 8.3 million people) live in a working household. That rises to 75 per cent of children in poverty.
The government’s record on this is atrocious. The number of people in in-work poverty has increased by 2 million since they came to power in 2010. It’s now at a record high, as is the number of children in poverty living in a house where at least one adult is in work.
If work is to be the best route out of poverty, the government must do more to get pay rising. In the meantime, it can’t use “work is the best route out of poverty” as a cop out for not properly addressing the cost of living crisis. We need proper action. Structural solutions – such as improved trade union rights, nationalisation of energy companies, and improvements to the benefits system – are needed alongside a windfall tax to fund urgent support to pay energy bills.
17-year pay squeeze
A key reason for the rise of in-work poverty is that work simply doesn’t pay enough. The government’s minimum wage, even the one it calls a living wage, isn’t a real living wage.
And we’re in the midst of a 17-year pay squeeze. Real pay is currently lower than it was in 2008, and the Office for Budget Responsibility forecasts that it won’t return to above 2008 levels until 2025. This 17-year pay squeeze is, by far, the longest in living memory.
The impact of this on workers’ pay packets has been massive. If real weekly wages had continued growing at the pre-2008 rate, they'd now be £111 per week higher than they are. By 2026, if forecasts are correct, this'll be £164.
Impact of energy costs
It’s against this background that real pay is falling again. Inflation, at 9 per cent, is hitting wages hard. In March 2022, average weekly earnings fell by £16 per week (-2.7 per cent) compared to the same month a year ago. Public sector pay growth is the worst on record – falling by £30 per week (4.9 per cent) over the same period.
The news that the energy cap will rise by around £800 in October is incredibly worrying. If this does happen, it means that between December 2021 and December 2022, energy bills will have risen by a massive 119 per cent. In contrast, nominal wages will have risen by just 5.2 per cent. The standard benefits payment will have risen by just 3.1 per cent. This means that energy bills are set to grow 23 times faster than wages and 38 times faster than benefits this year.
On top of this, work is too often insecure. 3.6 million people are in insecure work, whether that’s zero-hours contracts, agency work, casual work, or low-paid self employment. The government has repeatedly broken its promise to introduce an employment bill that would tackle insecure work.
The benefits system
Pushing work as the route out of poverty is also often the government’s way of refusing to improve the welfare system. decent work and social security must go hand in hand, not be seen as alternatives.
Since it came to power, the government has repeatedly cut benefits payments in real terms. The real value of the standard benefits payment has fallen by £51 per month since 2010.
As set out above, in the face of massive rises in energy bills, the government has made real term cuts to benefits payments. When the price cap rises again in October, energy bills will be £1,523 per year higher than they were a year before. The standard benefits payment will only be £121 per year higher.
A common proposal around benefits is to bring forward the increase in benefits and pensions that would be expected in April 2023/24 to autumn of this year. For example, if inflation hit 10 per cent in September of this year (September is the reference month for benefit uprating), rather than waiting to increase benefits in April, they could be increased in October, and then maintained at that level from April onwards.
But this would increase benefits by around £7.70 a week, meaning it wouldn’t even go close to making up for cutting the £20 uplift.
Like the standard benefits payments, pensions also went up by just 3.1 per cent in April this year. Government made an active decision not to maintain the triple-lock – which would have seen pensions rise by around 8 per cent in line with the wage figures last autumn. This will cost pensioners almost £500 across the year.
Good, well-paid work is a route out of poverty
The current government has a proclivity towards badly funded temporary schemes and half-baked novelty ideas, which has again become clear during the current crisis. If it’s serious about tackling the cost of living crisis, we needed proper solutions to support people right now, alongside structural changes to fix these problems in the long term.
It’s not enough to just say that work is a route out of poverty. The reality is that too much work is low-paid and insecure. If government wants work to be a route out of poverty, it needs to ensure all work is well-paid and secure.
When it comes to pay, government should stop attacking trade unions, and instead improve trade union rights. Trade unions need stronger powers and better access to workplaces to drive up wages and conditions. Fair pay deals need to be implemented in whole industries, negotiated with unions, and designed to get pay and productivity rising in every sector. We also need an emergency boost to the national minimum wage, as well as the long-awaited introduction of that employment bill they’ve been promising for ages to tackle insecure work.
To help people with energy costs, the government must recognise that energy is an essential public good that should come under public ownership, and implement an accelerated programme to insulate homes. To help people right now, we need a windfall tax to pay for additional grants to help with the costs of energy. With the energy cap rising by £1,523 in the space of just a year, this support will need to be substantial.
Government must also fix the benefits system. We want much more generous benefits payment (with the standard payment raised to £260 per week), alongside the scrapping of the cruel aspects of the system, such as the five-week wait, the benefits cap, the two-child limit and no recourse to public funds.
Work isn’t currently a route out of poverty, but it can be if government takes steps to ensure that all work is good, well-paid work.
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