Tuesday, February 11, 2020

The future is not a rosy one

In-work poverty is not new.  In the late 1990s Gordon Brown brought in tax credits to top up the earnings of those not making enough to get by from their wages alone. Critics said it would simply encourage employers to pay low wages because they knew the government would provide a top up.

The Joseph Rowntree Foundation noted in a report released last week, many of those with jobs are struggling to get by. Britain still has a poverty problem, but now it is concentrated among the employed rather than the jobless. The official definition of poverty is someone who lives in a household where the money coming in – typically from pay and benefits – is below 60% of the median income for a similar family type after housing costs. According to the foundation, 56% of those below the poverty line live in a household where someone is working.

As the benefits system has become less generous, people have needed to work longer hours to get by. The Resolution Foundation thinktank estimates that a single parent with two children in a job earning the “national living wage” needs to work 23 hours per week to live free of poverty, compared with the 16 hours required in the absence of benefit cuts made post-2010. This helps explain why earnings growth has been so weak even as the official jobless rate has fallen to below 4%. Britain looks like a full-employment economy but also has large pockets of under-employment. If demand for labour increases, employers don’t need to pay more to attract new workers; they simply have to offer existing workers more hours at the current rate.  There are more people on zero-hour contracts, more people who would work longer if they could.

Housing has become a lot more expensive for those on low incomes. Most of those affected by in-work poverty are not owner-occupiers, so while ultra-low mortgage rates have kept housing costs down for those who own their own homes, renting has become more expensive. That helps explain why some of the highest levels of in-work poverty are to be found in London. Kensington and Chelsea in London is the most unaffordable place in the country at 44.5 times average annual earningsHouse prices in some other parts of the country have risen out of reach for young adults. According to the ONS, the average full-time worker could expect to pay about 7.8 times their annual earnings on purchasing a home, compared with about 3.5 in the early 1990s.

Home ownership has collapsed for adults in their prime working age, according to official figures that show those in their mid-30s to mid-40s are three times more likely to rent than 20 years ago. In a reflection of surging house prices and a lost decade for wage growth since the financial crisis, the Office for National Statistics found that a third of 35- to 44-year-olds in England were renting from a private landlord in 2017, compared with fewer than one in 10 in 1997. Home ownership had become increasingly concentrated among people over the age of 65. Almost three-quarters of adults in the generation that includes baby boomers born after the second world war own their own homes outright, up from just over half in 1993.
Since the launch of the scheme in 1979, which allowed social housing tenants to buy their homes at reduced prices, the proportion of council properties in Britain has slumped from 33.2% to only 17.6% in 2017. The findings from the ONS come with potentially damaging implications for living standards for the current generation of adults under the age of 65, who are poised to enter retirement in worse financial health than their parents. Someone who owns their home outright could expect to maintain their living standards on a pension pot of about £260,000, while someone who rents privately would need almost double this, at about £445,000. 
If the declining home ownership trend continued for the current generation of 35- to 44-year-olds, older people in future would be more likely to live in private rented accommodation than today. The ONS found early signals to suggest the current trajectory could continue, including figures showing that 15.8% of 45- to 54-year-olds rent from private landlords, up from only 5.6% in 1997. One in three of the millennial generation, born between the mid-1980s and the mid-1990s, are expected to never own their own home, with many forced to live and raise families in insecure privately rented properties. Renting from a private landlord tends to be most common at younger ages but then gradually declines as people take out mortgages or receive an inheritance from family. However, the ONS said that people in every under-65 age bracket were now far more likely to rent privately than 10 or 20 years ago.
Lindsay Judge, the principal research and policy analyst at the Resolution Foundation thinktank, said, “The prospect of renting privately in retirement will alarm many people as it could mean high costs, and low levels of housing security. It also carries huge cost implications for the state as the UK’s housing benefit bill could escalate,” she said.
Nathan Long, a senior analyst at Hargreaves Lansdown, a financial investment platform, said that many middle-aged private renters would face problems in the future.
“Not only were they born too late to benefit from final salary pensions, they were born too early to benefit from a lifetime of automatic pension saving and many won’t be able to call on their house if times get tough,” he said.

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