Growth of in-work poverty eating up welfare, new report says

By agency reporter
5 Dec 2013

The rising number of working people living in poverty is causing the government to spend billions more than planned on social security, according to a new TUC (trades Union Congress) report published ahead of the autumn statement.

The chancellor's statement, which is predicted to be both austerity-oriented and self-congratualatory about the slight bottoming out of the longest recession in recent UK economic history, is due later today, Thursday 5 December 2013.

The TUC report Is Social Security Spending Really Out Of Control? compares social security spending over the course of this parliament with the government’s original forecast in 2010, as well as taking a longer term look at welfare spending over the last three decades.

The report examines the main areas of social security spending – which is set to be £9.2 billion a year more than originally forecast by 2014-15 – and finds that rising in-work poverty, caused by real wage falls and the concentration of new jobs in low paying industries, is the main cause of over-spending.

The biggest area of social security over-spending – £2.6 billion a year by 2014-15 – is on tax credits, two-thirds of which are going to working households. Recent figures from the Office for National Statistics (ONS) found that the number of middle-income families receiving tax credits has almost doubled in the last five years.

This overspend is a result of falling real incomes leaving more working families in need of tax credit support – and has come in spite of cuts to tax credits that have left some families thousands of pounds a year worse off, says the TUC.

The next biggest area of overspending – £2.5 billion a year by 2014-15 – is on housing benefit. This overspending is also likely to be due to rising in-work poverty as most of the increase in the housing benefit caseload since 2010 comes from working families.

The report follows recent TUC research which found that workers are experiencing the longest real wage squeeze in over a century – average weekly earnings growth has trailed inflation since late 2009 – and that 80 per cent of net job creation under the coalition has taken place in industries paying less than £8 an hour on average.
ONS figures published yesterday found that real household disposable income per head has fallen sharply in recent years and is now back at its 2005 level.

Rising in-work poverty is causing real hardship for families and a headache for government, which is overspending by billions on social security payments and is receiving less in tax revenues, says the TUC.

But rather than announce steps to tackle rising in-work poverty in the autumn statement later today, the Chancellor seems set to downplay the UK’s living standards crisis by saying that disposable incomes are rising and pay continues to rise in line with productivity, once employers’ pensions and national insurance contributions are included.

The Chancellor’s claims fly in the face of TUC research, as well official government statistics and reports by organisations ranging from the Resolution Foundation to the OECD and the IMF, all of whom have reported on Britain’s real wage squeeze and growing pay inequalities.

The trade union body believes that many of the Chancellor’s claims are based on dodgy data, and that his denial of a living standards crisis sits in stark contrast to the reality of squeezed household budgets.

TUC General Secretary Frances O’Grady commented: “For all its rhetoric on tackling welfare, the government is set to spend almost £10bn a billion a year more than it originally planned on social security payments by the end of this parliament.

“This is because Britain’s living standards crisis has led to a rapid rise in the working poor. Even while tax credits are being cut, spending is going up because so many more working people are reliant on benefits to help make ends meet.

“Millions of hardworking families will be looking to the Chancellor to offer some respite from the living standards crisis in his autumn statement today.

“But it looks like the Chancellor is still in complete denial. Having sought to reduce fuel poverty by redefining it, he is now set to repeat the trick with dodgy data that claims incomes are actually going up.

“Hard-pressed families are unlikely to be impressed by the Chancellor playing political games over such an important issue. What people really want to see is a recovery felt by working people through better pay rises and the creation of high quality jobs so they don’t need top ups from the state.”

* The TUC report Is Social Security Spending Really Out Of Control? is available (*.PDF Adobe Acrobat document) at: www.tuc.org.uk/sites/default/files/socialsecurityspending.pdf

[Ekk/3]

Creative Commons LicenseThis work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 2.0 England & Wales License. Although the views expressed in this article do not necessarily represent the views of Ekklesia, the article may reflect Ekklesia's values. If you use Ekklesia's news briefings please consider making a donation to sponsor Ekklesia's work here.