Why Is In-work Poverty Higher Now Than In 1994-95?
Why has in-work poverty risen?
In Britain, the headline relative in-work poverty rate steadily rose from 13.4% in 1994–95 to 18.4% in 2019–20. In the latest data (covering 2023–24), the in-work poverty rate stood at 18.0%.
In this article the Institute for Financial Studies (IFS) summarises a new research paper, published in the Oxford Bulletin of Economics and Statistics, which explains why the in-work poverty rate increased in the quarter-century prior to the pandemic.
Surprisingly, the effect of tax and benefit reforms between 1994–95 and 2010–11 was to reduce in-work poverty by 2.5 percentage points. Reforms over the 2010s – when benefits and taxes were both cut – increased in-work poverty by 1.9 percentage points.
The trouble with understanding issues like "relative" poverty is that increases in the income of a non-working group like pensioners can push up the "relative" poverty line.
The figures don't reflect recent changes in the benefits system where income-related benefits and credits have been replaced by Universal Credit.