Summary

‍It is clear that we are in the midst of a profound cost of living crisis with huge implications for society. Many of us are having to make difficult choices on what spending we prioritise, but some of us face increasingly bleak choices, none of which should be necessary in a country as wealthy as the UK. This is the second issue of our new-style UK Poverty report, which looks at trends in poverty across many important characteristics and impacts. We know poverty at any stage in life can lead to negative impacts, so it is critical to scrutinise the data thoroughly to work out who is worst affected, determine how trends are changing over time and see what the future prospects are likely to be. Many economic and social trends have changed dramatically in the less than three years since Covid-19 first severely impacted lives in the UK. Throughout each section of this report we had to ask ourselves key questions about the period in which the data was collected. The latest official poverty data is for April 2020 to March 2021, but 2021/22 and 2022/23 are very different years. By looking across a range of data sources and insights we can build up as comprehensive a picture as possible of the current situation and the state of poverty in the UK, and form a judgement of future prospects.

‍What does the latest official data for 2020/21 tell us?

‍Around one in five of our population (20%) were in poverty in 2020/21 – 13.4 million people. Of these, 7.9 million were working-age adults, 3.9 million were children and 1.7 million were pensioners. There was a reduction in the headline poverty rate and numbers between 2019/20 and 2020/21. It might sound very surprising that poverty fell in the first year of the pandemic, with the largest reductions for pensioners and children. The explanation of these results is based on changes to overall incomes, policy choices and how the pandemic affected population groups differently. A falling average income caused the relative poverty line to fall, at the same time as a range of temporary coronavirus-related support was introduced, including a £20 a week uplift to Universal Credit and Working Tax Credits. Children and pensioners are the two groups where the impact would be most likely to be seen: children, as they are the group most likely to be in poverty and thus their families would be the most likely to be receiving benefits that were increased, and pensioners, who are least likely to have been affected economically by the pandemic, as they are less likely to be working.

‍Which groups have the highest poverty rates?

‍The latest data shows a similar picture to previous reports in terms of the groups more likely to be in poverty, but there have been reductions in poverty rates for some of the groups with the highest poverty rates, where the temporary coronavirus-related support is likely to have had a large effect. The reduction in average income also caused the relative poverty line to fall.

Poverty for families receiving Universal Credit or equivalents remained very high, at 46%. This is despite the temporary £20 a week uplift, which was in place for the whole of the period covered by the survey, and a resetting of Local Housing Allowance to reflect again actual rents in an area. Poverty rates continued to be highest for people in the social rented and private rented sectors, and much higher for households including a disabled person or an informal carer.

Families with three or more children still clearly had the highest poverty rate by family size, but the rate in 2020/21 was much lower than in 2019/20, with the rate for families with a child aged under four also falling more than for families with older children.

Similarly, some of the increase in deep poverty since 2002/03 showed a reversal in the latest data. Looking at the geography of poverty, the latest data reflects a similar ranking, with Northern Ireland and Scotland having lower poverty rates than England and Wales and, within England, the North East and London having the highest rates.

The impact of the pandemic on the labour market was immense. Around 11.7 million jobs were furloughed, many on reduced pay. At the height of the pandemic there were 929,000 fewer payrolled employees than before lockdown began. This has contributed to a fall in the share of people in poverty living in working households.

Finally, there remain huge variations in poverty rate by ethnicity. Around half of all people in households headed by someone of Bangladeshi ethnicity were in poverty in 2020/21, with rates for people in households headed by someone of Pakistani or Black ethnicity also having very high poverty rates of more than 4 in 10, more than twice the rate of people in households headed by someone of white ethnicity.

Living standards are likely to have fallen since the official data was collected Since the last official poverty data, the direct impact of the pandemic on society has lessened, but some of the changes it has brought about will be long-lasting, with a further severe global economic shock coming from the Russian invasion of Ukraine and the continuing effects of Brexit. The labour market has recovered strongly, but employment is still below pre-Covid-19 levels, with an increasing share of the population moving into inactivity, and pay has not increased in line with inflation. In our last report we said we expected inflation would rise, but at that point the peak was expected to be about 4%, which would have been the highest rate for 10 years.

Inflation is now forecast to peak at around 11%, the highest rate for 40 years. The speed of the increase in inflation made the effects of the withdrawal of the £20 a week uplift in October 2021 even more severe, with benefits only going up by 3.1% in April 2022, when inflation was much higher. This meant April 2022 saw the greatest fall in the value of the basic rate of unemployment benefits since 1972, when annual uprating began and, as the cost of living has continued to rise throughout 2022, the real term purchasing power of households receiving these benefits has continued to fall. The pressure on renters has grown, especially for poorer households affected by the frozen rates of Local Housing Allowance.

‍Future prospects are deeply worrying Trends look even more worrying for the future.

‍The Office for Budget Responsibility (OBR, 2022) forecasts falling employment from mid-2022 to late 2023 and for the employment rate to remain below its mid-2022 level for the whole period to the start of 2028. At the same time, wages are forecast to not keep up with inflation for the whole of 2023 (although this is mitigated somewhat for low earners by increases in the National Living Wage). Benefits were increased in line with inflation, as was the benefit cap, with lump sums added to these to help recipients cope with higher prices. However, Local Housing Allowance continues to be frozen and the basic rate of benefits remains close to destitution levels. Costs have risen dramatically and while the OBR expects inflation to fall throughout 2023, it is forecast to remain well above the Bank of England target throughout the year and lower inflation just means prices are rising less quickly but not falling, following the large recent increases. Rents are expected to continue to rise, with mortgage payments also rising due to higher mortgage interest rates. The extent to which these factors drive higher poverty levels will depend, in part, on what happens to average incomes and how the current recession affects low- and middle-income households. It will also, critically, depend on the extent to which national and local governments’ policies protect the living standards of the households least able to cope with these economic headwinds.

‍The experience of deepening poverty

Our latest cost of living tracker, carried out in late October and early November 2022, illustrates the wide-ranging effect of the cost of living crisis on poorer households. Looking across the poorest fifth of families, the results present a truly shocking picture: more than 7 in 10 families are going without essentials, around 6 in 10 cannot afford an unexpected expense, more than half are in arrears and around a quarter use credit to pay essential bills. The situation has worsened greatly since we first asked this set of questions in October 2021.

Low-income households have less of a buffer against rising costs or any unexpected expenses, given they are less likely than other households to have savings; in 2018–20, just over a third of people in the poorest fifth of households had liquid savings of less than £250 compared with 1 in 50 of the richest fifth. Low-income households with children, single working-age people, private and social renters and households whose head was sick or disabled were also more likely to have low levels of savings. Almost a fifth of poor households experienced food insecurity in 2020/21, with more than a quarter of households receiving Universal Credit being food insecure. The impact of the cost of living crisis on customs taken for granted is laid bare in our latest cost of living tracker where around half of the poorest fifth of families say they have reduced spending on food for adults, half are already reducing the number of showers they take and around 6 in 10 are heating their home less. Around 4 in 10 families with children are spending less on food for their children. This is the background to the growth in food bank use, with the latest full year Trussell Trust data covering 2021/22 showing a much higher level of use than before the pandemic.

Looking at the direct impact of the pandemic, the rate of deaths caused by Covid-19 was higher in the most deprived areas than in the least deprived in every UK nation. For England and Scotland, the death rate from Covid-19 in the most deprived areas was at least twice that in the least deprived areas. As an area’s level of deprivation increased, so did its number of deaths from Covid-19. Among working-age adults, people living in poverty are more likely to suffer from poor health more broadly. There is evidence that suggests low incomes are associated with potential symptoms of anxiety, such as lack of sleep, lacking energy and feelings of depression. For children, even at a young age, there is a gap in young people’s educational attainment by parental income level, and this continues throughout the different stages of a child’s education. The impact of the Covid-19 pandemic has generally widened the attainment gap between the most and least disadvantaged pupils in the UK, with reasons for this including the digital divide, home learning environments and falling incomes.