News Release

PERSISTING HARDSHIP A SERIOUS CHALLENGE TO NEW WORK INCENTIVES

During the 1990s, incentives to work for Britain's low-income families improved. But hardship remained common among the lowest paid and families out of work. Their barriers to work grew - especially the incidence of poor health. More cash from Working Families' Tax Credit and other recent measures are likely to improve incentives and reduce hardship. Stronger support for out-of-work families will be needed to overcome persisting difficulties and low morale.

A new national report by the Policy Studies Institute provides a wealth of detail on Britain's low-income couples and lone parent families. Low-income Families in Britain: Work, Welfare and Social Security in 1999, a survey of 5000 families just before the introduction of Working Families Tax Credit, is by Alan Marsh, Stephen McKay, Alison Smith and Augusta Stephenson, and was sponsored by the Department of Social Security (who publish the report today) and Inland Revenue. The report is available from the DSS Social Research web site. More such studies are underway.

Amongst the report's key findings are:

Change among low-income families

Lone parents

• The earlier growth in single* lone parents has slowed, while the formerly married are slower to divorce. Now similar proportions of lone parents are lone mothers who are divorced (23 per cent) separated from marriage (19 per cent), separated from cohabitation (26 per cent) or single (23 per cent). The rest are lone fathers (6 per cent) and widows (3 per cent). ·
• The lone parent population is ageing: their average age increased from 32 in 1991 to 35 in 1999 and the proportion under 25 fell from 18 to only 12 per cent.
• Fewer now have a child under five: declining from 47 to 37 per cent in eight years. ·
• Lone parents have also become better qualified. In 1991, 41 per cent of lone parents had no qualifications of any kind. By 1999 this figure had fallen to 26 per cent. One quarter had a qualification beyond GCSE level, compared with 16 per cent in 1991. ·
• The proportion receiving child support payments did not improve.

Low-income couples

• Among low-income couples with children, cohabitation rather than marriage increased from 11 per cent in 1991 to 19 per cent in 1999, compared with 13 per cent nationally. Among couples receiving means-tested benefits in social accommodation, cohabitation doubled from 15 per cent to a third in eight years.
• Low-income couples are also ageing and have fewer dependent children, the average falling from 2.4 to 2.2 children.

Hardship

• Hardship was common among low-income families and was concentrated among those without work. Overall, more than eight in ten children in all non-working households were living in hardship - they had parents unable to afford some basic necessities, in debt, in poor housing circumstances and so on. Four out of ten were in 'severe hardship' - lacking several such things.
• Many families living on Income Support were not sustaining a standard of life consistent with good health and family well being. Out-of-work families suffered a malign spiral of hardship, poor health and lowered morale.
• Six out of ten lone parent families were without work, and a third of lone parents' children lived in severe hardship.
• Among low-income couples, fewer were without work but unemployed couples experienced just as much hardship as unemployed lone parents. · In contrast, among the working families the rate of severe hardship was halved among those receiving Family Credit and was rare among those earning even a little more.
• The average gap in income between families in severe hardship and those free of hardship was £34 a week, after housing costs were paid.
• Families out of work on or Family Credit in 1999 experienced at least as much hardship as similar families experienced in 1991. Out of work couples were fewer, but were worse off.

Incentives to work

• Family credit continued to help some of the least qualified parents to get and keep paid work and to allow lone parents to enter work at short hours.
• Compared with the out-of-work benefits they would receive on Income Support, lone parents working and getting Family Credit were on average about £57 a week better off and couples £41. After childcare costs and travel to work costs these figures fell to £40 and £36 a week respectively.
• Under the new Working Families' Tax Credit, these gains in work will rise. Had WFTC been available in 1999, the average entitlement would have been £81 a week (compared with £59) for those receiving Family Credit, though less (£23 a week) for those brought into the range of in-work support by the introduction of WFTC.
• It will not be surprising if WFTC has to overcome some problems of take-up among eligible though slightly better-off families, just as Family Credit did in 1988. They tend to be couples and take-up of Family Credit was lower for couples (64 per cent) than for lone parents (80 per cent).
• Take-up rates for Family Credit were also lower for owner-occupiers (60 per cent) than private tenants (87 per cent) and higher among those in severe or moderate hardship. Families earning too much to get Family Credit, but who will now qualify for WFTC tended to be owner-occupiers, were rarely in hardship and not used to claiming extra money from the Government.

Barriers to work

• Compared with 1991, out-of-work families were fewer in 1999 but faced the more difficult barriers to work.
• A majority of the unemployed fathers suffered long-term health problems (62 per cent) and had few qualifications.
• Rates of work** among lone parents had improved a little since 1991, rising from 29 to 38 per cent, but still the majority were not in work and faced a familiar set of barriers including poor health and doubts about the availability of suitable child care and its cost.

Conclusions

As in 1991, there remained in 1999 a serious gulf in welfare between families who have a parent in work and those with none. Family Credit continued to help often poorly qualified parents to get and keep paid work and helped to relieve some of the hardship typical of life on Income Support. Working Families' Tax Credit is likely to have improved circumstances, by adding to financial incentives. Some of the families earning too much to qualify for Family Credit, but who now qualify for WFTC may find this a surprise. Take-up rates may dip before they respond to the news of a new subsidy for working parents.

The authors of the report, Alan Marsh, Stephen McKay, Alison Smith and Gussie Stephenson said today: "The Government has placed great emphasis on family welfare and has a commitment to remove all children from poverty in 20 years. This report is the first in a series that will track these families over time and test the effects of New Labour's policies to make work pay and to assist families into work. This baseline survey suggests that improving the quality of existence on Income Support will be an important first step in maintaining families' health and morale and so their readiness to work."

Contacts

Alan Marsh, PSI (lead author), 020 7468 2231
Jo O'Driscoll, PSI (Head of Communications), 020 7468 2269 / 07802 181249

Notes to editors

1. Policy Studies Institute, with the National Centre for Social Research, surveyed over 5000 British low-income families in 1999, comparing them with a similar survey of 2300 families done by the same PSI team in 1991. The sample was drawn primarily from Child Benefit records with booster samples from Family Credit records. The survey is representative of all lone parents and of low/moderate income couple families (people on incomes up to 35 per cent above the point of eligibility for Family Credit) in Britain. Interviews with around 5,000 families were carried out in July/August 1999. Around half of the respondents were lone parents. Inland Revenue part-funded the study.
   
2. This study was designed to enable this 'snapshot' to be extended longitudinally over time to form a panel survey. A second wave of the survey took place during summer 2000 and analysis is in progress. This year wave three will be expanded so that it is representative of all couple families as well as lone parents.
   
3. A relative measure of hardship was derived from the factors associated with the three dimensions of living standards: a) relative material well-being of families (ability to afford key items of food, clothing etc.) b) quality of housing c) money management.
   
4. Comparisons are made with figures from the 1991 lone parent survey ('Lone parents and work' by Stephen McKay and Alan Marsh, DSS Research Report no. 25).
   
5. 'Low-income families in Britain: work, welfare and social security in 1999' by Alan Marsh, Stephen McKay, Alison Smith and Augusta Stephenson is published on 15 March in the Department of Social Security's Research Series (report number 138). It is available from Corporate Document Services, ISBN RR 138: 1 84123 312 9 priced £53.00. A free summary is available from Omonigho Awaritoma at the DSS Social Research Branch (0171 962 8981). It will be possible to download the report from the Social Research website www.dss.gov.uk/asd/asd5
   
6. 'Work and welfare: attitudes, experiences and behaviour of nineteen low-income families' by Augusta Stephenson is also published on 15 March in the Department's in-house series (report number 76, ISBN 1 85197 917 4). A free copy of the report is available from Omonigho Awaritoma at the DSS Social Research Branch (0171 962 8981).
   
7. PSI is a registered educational charity (no 313819) and has no association with any political party, pressure group or commercial interest

* 'Single' means they have never lived as a couple with anyone since a year before the birth of their eldest dependent child
** Working 16 hours a week or more.