All worked out? The limits of work as a route out of poverty and hardship

Child poverty ruins childhoods and damages children's life chances. Children who experience poverty and hardship do worse at school, earn less as adults, suffer poorer health and are more likely to need help from a social worker.

Today we publish a new report that sets out to show the limits of work as a route out of poverty and hardship. We recommend you read the full report, which is packed full of new data and insights from interviews with parents in our services. But for those short on time, here are some quick takeaways:

(Note: this report was updated in July 2023 to correct an error in the modelled estimates of how much it would cost to abolish the Two-Child Limit).

Child poverty fell throughout the 2000s, from 34% of children in 1998/99 to 27% in 2010/11. But poverty rates steadily increased again over the last decade.

There were 400,000 more children in deep poverty in 2020/21 compared to 2010/11 (meaning families that survive on less than 50% of average incomes). And one in 10 children - 1.4 million - were in very deep poverty in 2020/21 (those living on less than 40% of average incomes). Though the pandemic made data collection less reliable that year, it does appear there was a significant fall in child poverty in 2020/21. But the withdrawal of the £20 Universal Credit uplift in October 2021, alongside soaring costs for families throughout 2022/23, has likely pushed this progress firmly into reverse.

Note: the child poverty measure used here is relative child poverty, after housing costs are taken into account.

Years of caps and freezes to benefits have left the social safety net seriously weakened and unable to prevent significant numbers of children from falling into poverty and hardship. Even after benefits rise by 10.1% in April 2023, child-related benefits will have eroded by more than 5% in real terms since 2013/14. The legacy of cuts throughout the 2010s casts a long shadow.

If benefits uprating had followed the historical process and increased by inflation from 2013, the Standard Allowance of Universal Credit for a couple over 25 would be £32 a month higher in 2023/24. The Child Element would be around £14 to £25 a month higher, depending on when the first child was born. And families would also gain an extra £6 a month in Child Benefit for their first child. This means a couple over 25 with a child over the age of six would be up to £755 a year better off.

We often hear that the best way to tackle poverty and hardship is through work. But this obscures a far more complex reality.

We analysed government data on families in low-income households to estimate the number of children in poverty or deprivation that live in families that are very obviously constrained from boosting their income through work.

We estimate that there are up to 1,950,000 children in poverty and living in families that face at least one significant barrier to taking on extra work. This is half (50%) of the 3.9 million children in poverty.

In our analysis, we identified the following potential barriers among these 'work-constrained families':

But there are lots of other possible barriers to work that aren’t included here. Our analysis was limited to what we could determine from the government’s income and poverty data. Consequently, the actual number of children in poor families that face barriers to work is likely higher than our overall estimate suggests.

• Single-parent families are far more likely to face barriers to work than children in couple-parent families.
• Families with very young children are being pushed into hardship by the high cost and often limited provision of childcare. The UK has some of the highest childcare costs in the developed world and current childcare schemes are not fit for purpose.
• If a parent is caring for a long-term sick or disabled child, or another close relative, it is likely to significantly restrict their ability to work. There are 492,000 children living in poverty in work-constrained families with a disabled child. Over 170,000 are in very deep poverty.
• In 2020/21, 740,000 children in poverty were in work-constrained families with at least one disabled parent.

We modelled the impact of various policy reforms to identify options for a government looking to tackle and ultimately eradicate child poverty. One of the most cost-effective policy reforms of those modelled was increasing the Child Element of Universal Credit. The report also identified a strong case for abolishing the Benefit Cap and the Two Child Limit, two policies which break the link between need and entitlement in the social security system and trap families in deep poverty.

Abolishing the Benefit Cap and raising the Child Element by £15 a week would take nearly 320,000 children out of poverty, and is only slightly less cost effective than increasing it by £10 a week. But it would also have a significantly positive impact on poverty depth – pushing the incomes of those still in poverty an average of 1.4% closer to the poverty line. At £4 billion a year, it is a bold yet realistic reform that is eminently affordable.

Our findings show that when it comes to supporting families in financial distress, work is simply not the silver bullet it is often presented as. We need more realism and less rhetoric from government in how we talk about the relationship between poverty and work. And we need a social safety net that ensures families can meet their essential costs and restores the link between a family’s needs and the support that is available to them.

Increasing the Child Element on Universal Credit by at least £15 a week and abolishing the Benefit Cap would help to lift hundreds of thousands of children out of poverty and hardship and represent a big step towards building a system that guarantees a basic level of income security.

(Note: this report was updated in July 2023 to correct an error in the modelled estimates of how much it would cost to abolish the Two-Child Limit).