Two events: The IFS and the LSE

Two informative events took place on Wednesday 19th June.

In the morning, the Institute for Fiscal Studies launched its annual report on Living standards, poverty and inequality in the UK, and a working paper, Why has in-work poverty risen in Britain. Presentations by IFS staff emphasised the following points from the report and the working paper:

  • while median net household income growth in the UK since the economic crisis had been 1.6 per cent per annum on average, during the year 2017-18 it was zero;
  • median earned incomes are falling in real terms;
  • while the level of absolute poverty (households below 60 per cent of median equivalised income in 2010 adjusted for inflation) had been falling, there was no reduction during 2017-18;
  • child absolute poverty had risen during 2017-18;
  • the level of relative poverty (households below 60 per cent of current median equivalised income) has hardly changed for fifteen years;
  • the proportion of households in poverty that contain at least one adult in employment had risen from 37 per cent in 1994-95 to 58 per cent in 2017-18;
  • the entire change in in-work (after housing costs) poverty from 16 per cent of working households to 18 per cent of working households between 2010-11 and 2017-18 can be explained by changes to the benefits system;
  • working households make up a rising share of households in severe poverty (households below 40 per cent or 50 per cent below median income).

 

And then at a lunchtime seminar at the London School of Economics, representatives of the Resolution Foundation discussed Pay volatility and insecure work in the UK.

The first presentation, by Lindsay Judge, explained that

  • there are currently 900,000 agency workers in the UK;
  • the most vulnerable are those with no other source of income, while workers with another source of income often found agency work preferable to traditional employment with a single employer; and
  • the biggest problem faced by agency workers is pay volatility.

Daniel Tomlinson described the results of research on pay volatility carried out using bank account data. He had discovered that

  • only 9 per cent of employees who remained with the same employer throughout 2016-17 had no months in which take-home pay did not change by more 5 per cent;
  • 73 per cent of the sample had experienced at least one downward change of more than 5 per cent;
  • the average downward monthly change for this proportion of workers was £286; and
  • the low paid are more likely to suffer such falls in monthly pay than those with mid-range earned incomes.

Focus group research had found that

  • the stability of Tax Credits payments was preferable to the volatility of Universal Credit payments;
  • while Universal Credit is designed to smooth out changes in earned income, in practice it increases household income volatility, particularly for the 40 per cent of workers in the sample who were paid more frequently than monthly, and for whom the mismatch between the earned income cycle and the Universal Credit monthly payment cycle could result in radically different Universal Credit payments from month to month; and
  • while Universal Credit is intended to incentivise employment, the fact that payments are reduced immediately an increase in earned income occurs discourages workers from seeking or accepting short-term increases in pay.

 

Lessons that we might draw from the two events are as follows:

  • It is essential to ensure that any Citizen’s Basic Income pilot project, and any nationwide implementation of a Citizen’s Basic Income scheme, must be tested before implementation to ensure that it will not increase either poverty or inequality, and preferably that it will reduce both. Only microsimulation testing using a programme such as EUROMOD can ensure this, so that method must be applied before any scheme is considered for implementation.
  • A Citizen’s Basic Income of any size
  • would provide agency workers with a secure layer of income, and so could ensure that agency work would become a positive experience for a lot more workers;
  • would reduce income volatility for low paid workers; and
  • would not disincentivise workers from seeking short-term increases in earned income.

 

Sources

The IFS report Living standards, poverty and inequality in the UK

The IFS working paper Why has in-work poverty risen in Britain

Details of the IFS launch event

A Resolution Foundation report on volatile pay, Irregular payments

A Resolution Foundation report about agency workers, The good, the bad and the ugly

 

 

 

Footnotes

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