Thank you so much for inviting us.
I will start by saying that we absolutely recognise that in-work poverty has increased. In the United Kingdom there are now 3.3 million adults in in-work poverty, and two-thirds of children in poverty are in families that work—I know that child poverty is a big issue for you in Scotland.
The whole composition of the population in poverty has shifted. We absolutely recognise that, and the UK Government has done quite a lot of work to try to understand the situation, to consider what we can do about it and to check that all our policies are consistent with helping to improve the situation.
The issue is mostly the flip side of a really good labour market. Across the UK, but also in Scotland, three quarters of all adults of working age are now in employment, and we now have a million fewer workless households than we had in 2010. The change in the labour market since the financial crisis has been really quite remarkable. That is the real issue, rather than some big shift in the underlying risk of in-work poverty, which has stayed quite flat at around 10 per cent.
However, I am not going to sit here and say that it is just about that. It is, of course, much better to be in work; after all, a child is five times less likely to be in poverty if the household is in work. Moreover, although the risk of those in work being in poverty has not fundamentally changed, that is not the case for absolutely everyone.
As we have said in our written submission, we know that, when housing costs are taken into account, the risks of children being in households that are in in-work poverty have increased. That is due in part to the greater cost of private renting, but it is also down to certain aspects of the labour market. For example, we know from the really helpful Joseph Rowntree Foundation report on poverty in Scotland that the risk of being in in-work poverty has increased for lone parents in Scotland.
We have done extensive analysis of who is actually in in-work poverty. Looking at the whole population of those who are in in-work poverty, we see that it mostly breaks down to the following categories: families that work only part-time, one-earner couples and low-earning self-employed people, with a small residual element of couples in full-time work. However, full-time work virtually eliminates in-work poverty for households both in the whole of the UK and in Scotland.
There is definitely an issue with regard to working patterns and work intensity, and we believe that universal credit is well designed not only to get people into work in the first place but to smooth their incentives to work more. It has removed a lot of the cliff edges from the old tax credit system, and it has helped address people’s worries about fluctuating earnings and whether, if they take a job and then lose it, they will have to navigate between two systems. Furthermore, the incentives under universal credit have improved, thanks to recent budget measures such as the increase in the work allowance, which was the main recommendation that the JRF had made as a change to universal credit that would tackle in-work poverty. The UK Government has been listening.
There are lots of different measures for poverty, but I know that the committee is mainly interested in relative poverty. As you will know, relative poverty is the sum total of everything that happens in the benefits system and the labour market as well as the wider macroeconomy. In that respect, what happens to the median income line also matters. Relative poverty has improved since the financial crisis, but that is really because of the collapse in median incomes. I should point out that relative poverty tends to stagnate if median incomes start to grow at a faster rate, because it gets harder for poorer families to keep up. The picture is therefore complicated with regard to what drives the final outcome for relative poverty. The benefits system is one element of that, but it has to sit within a wider context, and that is why UC incentives, which are good and, indeed, have improved, are being reinforced by increases in the living wage and the personal tax allowance. You have to see all that together, not just what is happening on the benefits side but what is happening with wages and taxes.
Of course, much wider Government agendas have to come together. Trying to get people to work more is not just about providing incentives, but about what employers are willing to offer, as well as all the good work that the UK Government and you are doing to halve the disability employment gap, to eliminate the gender pay gap and to make work fairer and decent for all. All of that comes into play alongside what happens in the benefits system.
Finally, people are much more likely to be in in-work poverty if they have children. Such couples tend to be one-earner couples, because someone has to look after the children. Lone parents, too, face barriers to working through having to deal with childcare responsibilities on their own. Childcare is therefore a really important element of this story, and universal credit is more generous on the childcare side than tax credits were.
Alongside that, the UK Government and the Scottish Government are doing more to subsidise free childcare places. However, it is about not just what the Government can do to subsidise childcare, but the provision in the market and whether flexible childcare is available to people in low-paid work.
I hope that I have managed to make the point that in-work poverty is a collection of many different things coming together, especially if we consider it in a relative sense. The benefits system is just one element in a wider context. The UK Government has also been very concerned about the issue and has tried to take all those elements together.