If we want to address poverty, let's begin by making work pay

Last week was abuzz with commentary over the latest poverty figures from 2010/11, Labour's last year in government. According to DWP’s own figures, relative child poverty had been halved from 3.4 million in 1998-99 to 1.4 million in 2010-11. Likewise, the number of pensioners in relative poverty is reported to have fallen by some 700,000 over the same period. Notwithstanding these notable improvements, everybody knew long in advance that Labour was never going to reach its ambitious target of halving child poverty by 2010. Thus, as soon as the figures were announced and this failure finally confirmed, commentators from all sides were ready to throw in their thoughts about why success never materialised.

Enter Ian Duncan Smith. In a speech last Thursday, he praised Labour’s intention of raising people out of poverty but criticised the means by which they sought to do so. His main criticism was as follows: giving people just enough income in the form of benefits so that they fall over the median poverty mark is no way to address poverty. Poverty should instead be tackled at its source, most notably by addressing worklessness. As IDS argued:

“With the right support a child growing up in a dysfunctional household, who was destined for a lifetime on benefits, could be put on an entirely different track – one which sees them move into fulfilling and sustainable work. In doing so they will pull themselves out of poverty.”

But therein lies the rub – as is becoming increasingly clear, work in its current form simply isn’t giving people the income or the wider opportunities to live the lives they want to lead. The most striking figure from last week’s data release is that three fifths of the households in relative poverty are ones where at least one adult is working. Put another way, this means there are now more working households in poverty than there are workless ones. Indeed, over 60 per cent of children who are in poverty live in working households. Only today, the Guardian released findings from research it commissioned which show that 2.2 million children live in families "teetering on an economic cliff-edge", even though at least one person in the household is earning an income.

The reason why in-work poverty has become such a mammoth problem is in large part down to declining levels of wage growth. The Institute for Fiscal Studies reported this month that in the three years leading up to 2010-11, average household income (pre-tax and benefit) fell by some 7 per cent in real terms. Last year’s 3.1 per cent fall in median income was said to be the largest one year fall since 1981, and puts median income in 2010-11 on a par with that of 2004-05. As the IFS put it, this is “undoing five years of slow growth.” Yet this is not just a new trend. A Demos report published last year by John Knell and John Philpott highlighted that the share of national income received in wages relative to profits has been falling since the mid-1970s. Whereas wages once represented 65 per cent of GDP, they now account for only 53 per cent.

What all of this means is that for many people right now work simply does not pay. Therefore pushing people into employment is never going to be enough on its own to make a sizeable dent in poverty figures. It won’t even help us to maintain the gains achieved under the last government. This dilemma reveals a deeper contradiction at the heart of the government's anti-poverty strategy. On the one hand, they position "fulfilling and sustainable" work as a route out of poverty, but on the other they are making it increasingly difficult for those at the bottom of the pyramid to secure such staid employment, whether by increasing the ease by which firms are able to fire their workforce or by introducing mandatory work experience which in turn reduces wages and hours for the wider workforce. Work is at one and the same time being lionised and devalued; it is being held aloft as the solution to our problems, while simultaneously being chipped away at from below.

If the government is serious about positioning work as the main route out of dependency and poverty then concrete steps need to be taken to make work pay. As Matthew Pennycook from the Resolution Foundation argues, given that working tax credits are now all but off the table this means that we will increasingly have to rely on decent wages to prevent those in employment sliding into working poverty. The obvious solution is to implement some form of Living Wage system; if not a universal one then at least tapered for different sized businesses and tailored for different geographical areas. For those who argue that companies can ill afford to pay an increase in labour costs, research by the Resolution Foundation shows that for large companies at least, the average increase on their wage bill would amount to as little as 1 per cent. Yes, clear thought would need to be given to smaller companies who could not realistically shoulder the extra expense, but this shouldn't stop us from pursuing the Living Wage in some form or another. If we want to live in a society that is fairer and more equal - one in which a decent day's work is met with a decent day's wage - then we can't afford not to.