Working families are ‘new poor’ as pensioners enjoy a better deal

MIDDLE income working families are the “new poor” – increasingly dependent on benefits despite ministers’ promises to “make work pay”, Britain’s leading economic think tank has warned.

Two thirds of children growing up in poverty now live in a household where at least one parent works, according to a study by the Institute for Fiscal Studies (IFS).

Meanwhile, the gap between poorest households and those on median incomes has fallen to the lowest level for 20 years.

The report is a stark assessment of the scale of the task facing Theresa May, who entered Downing Street pledging to “build a better Britain not just for the privileged few”. Yet the IFS signalled that further falls in unemployment are unlikely to make much difference to overall poverty levels.

Instead, Mrs May will have to find ways to push up wages if she wants to fulfil her vision of social justice. While record employment means fewer children growing up in poverty, low wages are increasingly condemning working families to hardship, the report warns. With poor families more heavily reliant on wages than the social safety net than in the past, they are also “more vulnerable” to economic downturn.

Yet uncertainly in the wake of the Brexit vote is “highly likely” to squeeze incomes for the next few years. The young in particular are facing struggles, with average incomes languishing below levels seen before the financial crisis of 2008.

By contrast, elderly people are the least likely group to be trapped in poverty after a “major turnaround” in incomes. The IFS said protection of benefits, increasing access to private pensions and record numbers working past retirement age had helped transform their position.

Earnings of mothers were increasingly important. Women’s earnings in middle income families account for more than a quarter, compared with less than a fifth 20 years ago. Middle-income households are also more likely to rent rather than own a property, that proportion having risen from 30 per cent in 1994 to 50 per cent today.

The report, based on official figures, finds that typical households are better off than a year ago – with median incomes up by 3.4 per cent, by far the biggest rise in recent years. But while the typical income of someone over 60 is 11 per cent higher than before the financial crisis in real terms, the equivalent for someone aged between 22 and 30 is still 7 per cent below pre-crisis levels. The incomes of those aged 31 to 59 have only just returned to pre-crisis levels.