London Letter: Having a job is not the same as earning a living
Gap between pay and prices leaves many trapped by poverty, former minister Alan Milburn’s commission has found
About 2.5m people in the UK are unemployed but those in work are not guaranteed a living wage, the report said
George Osborne has had a good week, enthused by the energy of the
Chinese during his week-long visit, while back at home economic numbers continue to improve.
Nearly 30 million people are working in the UK – 29,870,000; the highest figure since proper statistics began in 1971.
Wages lag behind inflation, he noted. For decades, politicians believed a job
was the best route out of poverty. Milburn warned it is still the best safeguard “against being poor, but it is not a cure for poverty”.
“Today child poverty is overwhelmingly a problem facing working families, not just the workless,” according to Milburn, who said he was asked by David Cameron “to hold the Government’s feet to the fire”.
The Social Mobility and Child Poverty Commission, which Milburn chairs, said two-thirds of poor children – compared with less than half in 1997 – are now in families where an adult works. In three-quarters of cases, the adult works full-time.
“The principal problem is that those working parents simply do not earn enough to escape poverty,” the commission warned.
The UK has one of the worst low-pay records in the developed world. The National Minimum Wage – £6.31 (€7.47) an hour for over-21s – is worth £1,000 less per annum in real terms than
five years ago.
“Today, 4.8 million workers, often women, earn less than the living wage. Too often, the working poor are the forgotten people of Britain,” said the report. During Gordon Brown’s years in the Treasury, his complex system of tax credits gave some firms a free ride, leaving the taxpayer to top up pay.
The situation was complicated by the arrival of eastern European labour after European Union enlargement in 2004. They are paying
their way in tax, contrary to arguments endlessly recycled by the UK Independence Party, but their presence has put pressure on pay levels at the bottom rungs of society.
However, trends were changing before Poles, Lithuanians, Estonians and others arrived. Earnings stagnated from 2004 – “even when the economy was doing well”, the commission noted – not after the 2007.
Moreover, tax credits were the only substantial source of real income growth for low- to middle-income households between 2003 and 2008. “Between 2007 and 2012, annual earnings of the bottom 20 per cent fell by 13 per cent in real terms due to a combination of falling real pay and reductions in hours of work,” said the report.
Employers must now “accept that the taxpayer alone can no longer bridge the gap between earnings and prices and that they will need to step up to the plate by providing higher minimum levels of pay and better career prospects, enabled by better skills,” the commission argued. It proposed the Low Pay Commission should be given the power to raise the minimum wage.
Every family working the hours ministers believe they must, should be “able to live free of poverty”. It proposed employment agencies,
paid for each job they fill, should be paid according to the wages earned by the workers they place.
Over several decades, the jobs market has “polarised” between high-skills, high-wage work for those with qualifications and connections,with little available for the rest. “Public policy has not yet come to terms with that profound change. Traditionally the prime focus of policymakers’ attention has been on getting people off benefits and into work,” the report said.
“With 2.5 million still unemployed, that attention must not diminish but there needs to be an additional focus – on securing for the working poor higher pay, lower insecurity and better opportunities.”
The problem is not
confined to low-earners. Two-thirds of the “squeezed middle” are struggling to keep up with bills, let alone saving. “One-quarter of those with mortgages pay more than 25 per cent of their income in mortgage repayments, even at a time when interest rates are at historically low levels,” the commission pointed out.
Given the surge in property prices in the southeast of England, the seeds of the next crisis are already being sown.