Poverty in the Divided Kingdom

Pat Thane | 17 September 2018

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Executive Summary

• Shockingly, the extent and causes of poverty in UK are now remarkably similar to those revealed by pioneering social research at the time the Joseph Rowntree Trust was founded at the beginning of the twentieth century.
• Then, deeply disturbing findings by researchers Charles Booth and Seebohm Rowntree (son of Joseph) led to the beginnings of a welfare state, which steadily decreased socio-economic inequality through to the 1970s.
• Under Conservative governments since the 1980s poverty has increased again, mainly due to cuts to welfare, including subsidized housing, and deregulation of the economy; and this has been shockingly intensified by the austerity cuts since 2010.
• The current situation, of around 30% of all children in poverty, is seriously damaging for UK society and economy. Government action could reverse this, but unlike the response in the 1900s and despite the Prime Minister’s ‘burning injustice’ speech on taking office in 2016, her government is showing no sign of reversing the austerity policies on benefits, housing and the workforce which are known to be making it worse.

Introduction

Working on my recently published survey of British history since 1900, Divided Kingdom (CUP 2018) alerted me to some unexpected continuities and discontinuities over the period. The book attempts an integrated survey of political, economic, social and cultural history, with a particular focus upon inequalities, including those of income, wealth and poverty, gender, race and age. In the early years of the twentieth century certain inequalities, concerning wealth and poverty, race and gender, became particularly prominent and have not gone away, though they have waxed and waned over time in their intensity and as sources of concern and protest. This paper focusses on similarities between the level and causes of poverty then and now which especially surprised and shocked me

Poverty, Income and Wealth Inequality c. 1900.

One of the signs of growing public attention to inequalities at the beginning of the twentieth century is that the Labour Party was founded in 1900 with a central mission to improve the lives of working-class people and reduce income and wealth inequalities. It was supported, indeed established and funded, by the growing trade unions who had a similar mission and were particularly active in demanding better pay and working conditions in the years to 1914. Labour’s concerns were reinforced by the poverty surveys of Charles Booth and Seebohm Rowntree whose findings aroused widespread shock. Booth’s massive survey of social conditions in London (the full 17 volumes published in 1903; 3 volume summary published 1889) concluded that about 30% of Londoners lived ‘in poverty or in want’ as he put it. But London was known to have a complex economy and to attract needy people seeking work and some thought/hoped its level of poverty might be exceptional. Then, in 1899 (published 1902) Rowntree surveyed poverty in York, which he reckoned was a fairly typical English town, unlike sprawling London, so might better indicate conditions across the country. He was shocked to discover that, even in York, 27.84 % of the population were in poverty, in ‘obvious want and squalor’ as he put it. Other surveys in town and countryside before World War I produced similar findings.

Booth and Rowntree also discovered that a major cause of poverty was not, as often suspected, feckless shirking by the irresponsible lower classes but low pay for full-time work, or under-employment, inability to get regular full-time work despite best efforts to do so. Both resulted in incomes insufficient, as Rowntree put it, ’to maintain a moderate family (i.e. not more than four children at that time) in a state of physical efficiency’. He found that in York this was true of 52% of households in poverty.  He used a more precise measure of poverty than Booth, whose survey was more impressionistic at a time when precise statistical measurement was in its infancy. Rowntree’s measure was designed to assess the numbers in severe, absolute poverty, based on the weekly sum estimated to cover the ‘absolutely necessary’ basic requirements of diet, clothing, rent, light and fuel. Other major causes of severe poverty identified by both Booth and Rowntree were family size, widowed motherhood and old age.

Statistically accurate sample surveys were pioneered by AL Bowley, an academic statistician at LSE. In 1912-14 and again after the war he conducted sample household surveys pf poverty in five towns spread across England:  Reading, Warrington, Northampton, Bolton and Stanley. His findings were similar to Booth’s and Rowntree’s and he also concluded that low pay for full-time work, especially when combined with a large family, was the major cause of poverty. A study of income and wealth in UK in 1900 by Leo Chiozza Money (an Italian immigrant economist and Liberal politician) revealed that 17,000 persons in a population of over 41m owned around two-thirds of private wealth. There was serious income and wealth inequality in Britain at the beginning of the twentieth century.

Change through the century

The findings of these early poverty surveys and the furore they aroused among politicians and reformers led directly to the first measures of what was later called the Welfare State, including legislation for free school meals for needy children in 1906; old age pensions in 1908; the Trade Boards Act, 1909, which introduced procedures to raise the wages of some of the worst-paid, most insecure, mainly female, workers; and National Health Insurance and Unemployment Insurance in 1911. Expanding state welfare and other government measures contributed to reductions in poverty and inequality over time.  The Institute for Fiscal Studies (IFS) has estimated that the share of total income held by the top 1% of the UK population was just 3% in 1979, the lowest point of the century; it then rose to 5.7% in 1991 and 7.8% in 2018. This 1% minority was estimated to hold over 40% of total wealth in 1923, a decline from Money’s estimate for 1900, falling further to around 20% in 1980, then rising to 25% in 2000. However, the super-rich grew increasingly skilled at concealment as taxation increased from the very low levels of 1900 and accurate estimates of their assets became increasingly difficult. Throughout, there were significant ethnic inequalities in income and wealth, though they have been precisely measured only in the recent past. Corlett estimates that in 2017 median Bangladeshi household incomes were 35% below those of White Britons, Pakistanis were 34% below, Black African households 22%.

According to IFS, the Second World War and the 1960s and 70s saw the most sustained decline in overall inequality. Income and wealth inequality was at its narrowest of the whole period since 1900 in the late 1960s and 1970s. Contrary to popular denigration of the 1970s, this was also when the range of state welfare benefits and services was at its peak. But between the two periods of increasing equality, during the Conservative governments of 1951-1964, the number of UK households in poverty rose from 7.8% in 1953-4 to 18% in 1960, according to an influential survey by LSE academics, Brian Abel-Smith and Peter Townsend published in 1965. This ‘rediscovery of poverty’, as it became known, revealed much lower levels of poverty than those estimated around 1900 or in 2017, but it was alarming  at the time, when it was believed that post-war welfare measures and full employment had almost eliminated poverty.  Of these households in poverty 41% were primarily dependent upon earnings. The main causes of this situation, the researchers concluded, were large family size and the falling real value of benefits under the successive Conservative governments, including the falling value of family allowances (introduced in 1946).

Real reductions in inequality particularly followed the redistributive policies of Labour governments from 1945, including the achievement of full employment for the first time in peacetime, taxation of high incomes, regulation of the labour market and of prices, and expansion of welfare benefits and services. But Labour could not subsequently sustain mass support for equality and redistribution against the international growth of neoliberal commitment to unfettered free enterprise and a minimal state, promoted vigorously by the Thatcher governments from 1979-1990. In the 1980s top salaries rose to a level and at a speed that shocked even Mrs Thatcher. The average income of directors of Morgan Grenfell investment bank rose from £45,000 in 1979 to £225,000 in 1986, which was not untypical. Mrs Thatcher told BBC TV in 1985, ‘Top salaries in the City fair make one gasp, they are so large’, but she saw no reason to curb or tax them.

Privatization and ‘outsourcing’ of a wide range of public sector jobs decreased security and real pay for many workers, while unemployment rose sharply, due partly to manufacturing being allowed to decline, while welfare benefits were cut, withdrawing the safety-net which had stopped those on lowest incomes falling too far behind the rest since 1945. There was renewed stigmatisation of supposed “shirkers” on benefits, despite many of them being sick, disabled or in underpaid work. The sale of council houses without replacement affordable housing and abolition of rent controls (which had been continuously in place, with variations, since 1915) increased housing costs and shortages. As the IFS graph below shows, even after allowing for housing costs (AHC), child poverty grew dramatically. In 1960, when Abel-Smith and Townsend found it so high, it was experienced by about 13% of all children in Great Britain. It remained at about this level, with periodic small fluctuations, until 1979. By 1992 Mrs Thatcher’s decade in power had left 34% of children growing up in households below the official poverty line. This remained the case through the Major years until 1998. Thereafter New Labour brought about a gradual but definite reduction in the child poverty rate to 27% by 2010. But the austerity policies initiated in 2010 have rapidly raised the figure in just 6 years back to 30.5% by 2016. Poor children live in poor families.

Figure 4.6. Relative child poverty rates (AHC) since 1961(GB)

Note: The relative poverty line is defined as 60% of median AHC income in each year. Years refer to calendar years up to and including 1992 and to financial years from 1993–94 onwards. The final year is 2016-17.

Source: Jonathan Cribb Agnes Norris Keiller Tom Waters, Living standards, poverty and inequality in the UK (IFS June 2018), Figure 4.6.  Authors’ calculations using the Family Expenditure Survey and Family Resources Survey, various years.

Under Blair’s Labour governments of 1997-2007 employment increased and many welfare benefits and services improved, though they did least to improve housing supply and costs. Through the decade, poverty declined and low and median incomes rose, though the top 1% of incomes rose faster. Income inequality continued to increase though more gradually than before. Wealth inequality grew rapidly: the share of the richest 10% (excluding housing) rose from 57% in 1980 to 63% in 1996, to 71% by 2003. Tax and social security changes under New Labour were more redistributive than any since 1979, but Britain was now one of the most unequal societies in the developed world. Among the 31 richest countries at the beginning of the 21^st century, UK income inequality was outstripped only by Chile, the US, Israel and Portugal; Iceland was the most equal.

Pay and bonuses continued to soar. The Sunday Times described 1997-2007 as a ‘golden’ age for the very rich, estimating that in 1997 the wealth of the UK’s wealthiest one thousand totalled £98.99bn; by 2007, £359.94bn. Blair, who amassed a considerable fortune after resigning as premier, never criticized this burgeoning of wealth. He wrote in a Fabian pamphlet in 2002, ‘We favour true equality; equal worth and equal opportunity, not an equality of outcome focussed on incomes alone’, telling BBC TV Newsnight in 2001 ‘It’s not a burning ambition of mine to make sure David Beckham earns less money’. His ally Peter Mandelson notoriously remarked in 1998 that the government was ‘intensely relaxed about people getting filthy rich’ especially from promoting business, adding hastily, within earshot of a journalist, ‘as long as they pay their taxes’.

The manifestoes for Blair’s three elections all pledged not to raise income tax, in contrast to previous Labour governments. New Labour focussed on improving opportunities at the bottom e.g., by introducing the minimum wage for the first time in UK in 1999, though at a low level, and reducing the income gap between the bottom and the middle, not on the growing gap between the middle and the top. The governments also did much to improve working conditions, adopting EU standards including giving part-time workers equal rights with full-timers including sickness and holiday pay and pension rights, and providing extended maternity leave, four weeks’ guaranteed annual paid leave and increased protection from unfair dismissal for all employees. Redistribution and poverty reduction owed most to Gordon Brown, who, as Chancellor, was mainly responsible for social policies. Blair was genuinely committed to reducing poverty but it was Brown who did something about it. From 1997-2008 poverty fell among pensioners and families with children. In 1997 nearly 29% of pensioners were poor by the official measure of relative poverty (income below 60% of median income, see below), falling to 14% by 2010. Child poverty fell from 34% in 1996 to 27.5% in 2010, removing hundreds of thousands of children from poverty. In the financial crisis of 2007-10 welfare benefits rose to protect those unemployed or on low incomes, such that the there was no initial rise in child poverty until 2013-14.

Then and Now

Since 2013-14, however, the austerity policies of the Coalition and then the Conservative governments have severely cut welfare benefits and services and poverty has grown rapidly. Employment has risen to high levels but it is often poorly paid. The numbers on low incomes have risen again and inequality increased. A serious problem and cause of poverty is the growing numbers on low pay in insecure employment as more employers evade the minimum wage and their obligations to provide sickness and holiday pay and pensions by imposing fake self-employment and insecure contracts. Despite clear and repeated evidence of the extent of these problems nothing obvious is being done to curb them, though the Shadow Chancellor, John MacDonnell, has promised to do so if Labour comes to power.

The outcome is a return to a situation in which large numbers of families in poverty include at least one full-time worker, as in the 1900s. Surveys by the Joseph Rowntree Foundation found that in 2015-16, 20% of the UK overall population lived in poverty, 60% of them in households including an inadequately paid full-time worker. The Child Poverty Action Group (CPAG) estimated that as many as 30% of children in the UK (4.1m) were in poverty in 2016-17, 67% of them in households with at least one full-time worker. The IFS supports this estimate and also stresses extreme regional variations: they report that in 2016-17 24% of children in Scotland were in poverty, 37% in London, the difference driven above all by housing costs.  The Resolution Foundation has estimated that in 2017-18, around 23% of the British population (excluding Northern Ireland), including 33% of children, lived in poverty. All these findings are derived from official government surveys of reported household incomes.

However, the Resolution Foundation has found that benefit income is underreported in these surveys. Consequently, they attempted to recalculate incomes by allocating benefit receipts ‘to people who don’t report benefit receipt but appear to be likely candidates.’ They estimated, by this measure, the lower numbers of 18% of people in Great Britain (excluding Northern Ireland) and 24% of children living in relative poverty. They admit that this outcome is a ‘rough adjustment’, as it certainly is, given the well-known fact that a high proportion of eligible people do not apply for means-tested benefits, and that ‘it should be stressed that our approach is not perfect and the adjustment shown here will not be the final word on the topic’ (p. 74). They also conclude that this revision suggests that ‘the rise in relative child poverty since 2011/12 may have been slightly faster than the official figures suggest’.

This suggests some of the difficulties of measuring poverty, but even the ‘rough’ lower estimates of the Resolution Foundation and the reasons they deduce are shockingly close to those of over 100 years ago. They stress that:

Policy makers need to be aware that the challenges facing many families have … shifted. While worklessness is still a problem, it has been supplanted by in-work poverty for many families. Housing costs play a key role in determining a household’s living standards, perhaps more so than at any time in the past. Finally, household incomes, particularly those of non-working and low- to middle-income families are increasingly sensitive to changes in the generosity of benefits (p. 25).

Another important difference from the situation in the 1900s, and also from the Abel-Smith and Townsend findings for the 1950s and 60s, is that large family size does not now appear to be a more important cause than low pay, housing costs and benefit cuts, while both of the latter elements have grown in significance. Since the late 1960s there are fewer large families than earlier in the twentieth century. The IFS also emphasizes the impact of the fall in average employee real earnings and a 10% fall in the value of benefits and tax credits to working families since 2010. It has also employed an alternative approach to measuring poverty, applying the Department of Work and Pensions’ preferred measure of ‘absolute poverty’, defined, for no clear reason, as income below 60% of the median in 2010-11, uprated for inflation. By this measure, IFS calculates that 19% of the UK population were in poverty in 2016-17, and 26% of children. The UN defines absolute poverty as

‘characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information. It depends not only on income but also on access to services.’

This definition would have made sense to Booth and Rowntree, but it is widely accepted that poverty has a wider meaning in affluent countries including Britain today. The concept of ‘relative poverty’, defined as having income below 60% of national median income, has been widely adopted internationally in preference to measures of severe destitution because the life chances of those living above the level of severe destitution but so far below the average standards of modern society are severely restricted in all respects. On average they experience poorer health, shorter life expectancy, poorer educational and employment outcomes. This ‘relative’ measure was used in the recent surveys quoted above, except where otherwise stated. It has been rejected by DWP who argue that it is an unconvincing measure because the resulting numbers in poverty are influenced by changes to median income and are likely to rise just because median income rises, without change to the circumstances of those concerned. They prefer a fixed measure which they believe is more stable and comparable over time. However, their fundamental assumption is mistaken: under the Blair governments median income rose yet relative poverty declined. Definitions and measurement of poverty and comparisons over time are not easy. They have to take account of the fact that Britain is much wealthier now than in 1900 and experiences of deprivation have changed accordingly. It is unlikely that any measure is exact, but, by all the measures quoted, above contemporary poverty levels are very high and comparable with those of the early twentieth century.

Also, all these measures exclude the large and growing numbers of homeless people living rough on the streets or in hostels – tens of thousands certainly, though the exact figures are uncertain. This and the growing use of food banks – unheard of in Britain until recently – should prompt us to ask how many people truly are living in absolute destitution comparable with the 1900s and with the UN definition of absolute poverty. In 2017/18 the Trussell Trust alone gave out 1.3m emergency food packages, while in May 2018 Fareshare fed 772,000 people with leftover supermarket food. The numbers helped by the many smaller community or church-based food banks are unknown.

The Resolution Foundation was correct to point out (above) that housing costs are now a greater cause of poverty than at any time in the past. In the 1900s the major housing problems of the poorest were overcrowding and lacking essential amenities such as running water, though these are not absent today when too many families are living in damp, mouldy, infested, poorly heated housing, comparable with the 1900s. The difficulties of those on low incomes today are exacerbated by the high cost of housing, especially in London, creating, as we have seen, major regional inequalities. Severe pre-war and post-war shortages of housing with adequate amenities had been largely solved by the 1970s, when there was an adequate supply of affordable local authority housing for those on low incomes, rent controls in the private sector and a good supply for those able to buy, all supported by successive governments of all parties, though always with an undercurrent of resistance to state subsidy and regulation in the Conservative party.  In the 1980s the Thatcher governments sold much council housing at low prices; they were not replaced and rent controls were abolished. One of the greatest failures of the Blair /Brown governments was that they did not improve housing supply, especially at the low-cost end. According to IFS, families with the lowest incomes are now most likely to live in privately rented accommodation where average housing costs are significantly higher (average £135 pw ) than for social rented (£84) or owner-occupied (£55) housing and these costs of private renting have risen steadily since 2010-11, increasing poverty and homelessness. IFS have calculated that real mean housing costs among households with children in the bottom 20% of the income distribution rose by 47% (from £67 to £98) between 2002-3 and 2016-17. There is no sign of government action to improve the less profitable end of the housing market and every sign that private rents will continue to rise.

Furthermore, cuts and freezes to working-age benefits, including Child Benefit, and the gradual substitution of the single Universal Credit for Housing Benefit, Tax Credits, Income Support, Jobseekers’ Allowance and Income-Related Employment and Support Allowances, its impact worsened by the slowness and complexity of its roll-out causing long delays in payment, are actively increasing poverty and inequality, regardless of their professed intentions. The IFS, CPAG and the Resolution Foundation all judge it likely to do so further in future. The government’s defence of the cuts and the introduction of Universal Credit is that they have successfully increased incentives to find work, the same grounds on which administrators of the 19^th century Poor Law justified low and punitive benefits and incarceration of unemployed people in workhouses. Realization that this deliberately deterrent Poor Law in fact perpetuated poverty by driving people into low-paid work, which led to ill-health, poverty in old age and children too malnourished to benefit from education, thus damaging society and the economy, was among the pressures for the first state welfare measures of the 1900s.

Conclusion

Although much has changed over the past century in terms of income and wealth inequality, welfare benefits and services, poverty and poor housing, we are back in a situation not identical, in a much richer country, but disturbingly similar to that of the early 20^th century. Precise comparisons of levels and causes of poverty are difficult given the extent of social, cultural and economic change and the lack of continuous, comparable statistics, but the indicators of a return to serious, sustained inequality and poverty after decades of improvement are too strong to ignore. It is also cause for concern that, while revelations of poverty in the early 1900s led to recognition of the harm it was causing to UK economic competitiveness and social stability, stimulating the consequent development of a welfare state, improved living standards and the gradual reduction of wealth and income inequalities, current levels of poverty and inequality owe much to the decline of state welfare and state intervention in the economy, which show no sign of reversal.

It is shocking to discover that, again, substantial numbers of people in full-time work are not earning enough to support a family of reasonable size; also that, for the first time in over one hundred years, housing costs, which families can rarely control, are driving them into poverty. Especially from the late 1940s to the 1970s, there were real improvements due to government action to improve the labour market and welfare provision, including housing. Neoliberalism in the 1980s brought a reversal and growing poverty and inequality, which was temporarily reduced by the New Labour governments from 1997. But ‘austerity’ and renewed neoliberalism since 2010 have created a disturbingly rapid further rise in poverty- among children from 27% to over 30%.

That government policy should create such outcomes is the more appalling since we know so much more about the ill-effects of poverty, especially upon young children, than was known a century ago. It is well-established that poverty in the earliest years causes lasting ill-health and poor performance in education and severely reduces the chances of gaining secure employment and mobility to a more prosperous life. Awareness of these difficulties led the New Labour governments to introduce the Sure Start programme which was successfully counteracting them until it was effectively abolished from 2010. The present government appears also to be aware. In July 2016 Theresa May spoke of ‘the burning injustice that, if you’re born poor, you will die on average 9 years earlier’. According to the Office of National Statistics a male born in Kensington and Chelsea can expect to live to 83.3 years, one born in Blackpool to 74.7. The gap between richer and poorer females is similar and for both genders those born poor will live substantially fewer years of their lives in good health. But May’s government has done nothing to correct such inequalities, which continue to grow. They could be corrected, as in the past, by government action against exploitative employers under-rewarding their workers, which might also help to improve the UK’s low levels of productivity, by subsidized provision of genuinely affordable housing, by abandonment of the much criticized, hugely expensive, Universal Credit and its replacement with benefits which meet real needs. It is a profound national disgrace that we read reports of many thousands of children starving during school holidays when they have no free school meals, despite the fact that so many of their parents are in full-time work, or have good reason (such as disability) why they are not.

These problems are urgent but they are not arousing the anger and alarm or the positive government actions provoked by similar revelations over a century ago, though we have far greater capacity now to resolve them.

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About the author

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PAT THANE, MA (Oxon), PH.D (LSE), FBA is Research Professor in Contemporary British History, Kings College, London. Her publications include:  The Foundations of the Welfare State (Longman, 2nd ed. 1996); Old Age in England. Past Experiences, Present Issues (OUP, 2000); Unequal Britain. Equalities in Britain since 1945 ed. (Bloomsbury 2010); Sinners? Scroungers? Saints? Unmarried Motherhood in Twentieth Century Britain with Tanya Evans (OUP 2012); The Child Poverty Action Group, 1965-2015, with Ruth Davidson (CPAG, 2016); Divided Kingdom. A History of Britain since 1900 (CUP 2018). She was a founder convenor of History& Policy.

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