Severe Poverty in Scotland

SECTION E: CONCLUSIONS

This analysis has shown that, while relative poverty has decreased over time, the poverty that remains has deepened. Policies to increase the income of households in poverty, while improving the financial circumstances of the less poor, have not succeeded in decreasing the proportions in severe or extreme low income, particularly after housing costs where the proportion of those in poverty in extreme low income has increased. There are a number of reasons for this deepening picture of poverty.

Since 2010/11, employment patterns have continued to change and economic inactivity has increased. In addition, there have been decreases in real earned income, a rise in insecure employment (including zero hour contracts), and increases in the numbers in low pay. The combination of these factors is likely to increase the numbers living in severe and extreme poverty, and reduce the chances of those in low paid work to lift their families out of poverty.

In addition to low income, the recent past has seen a rise in concerns about the cost of living, which are not reflected in income-based measures. The challenge here is that inflation has over time seen costs rise faster than wages, adding to the pressures being experienced by low-income families. Between 2007 and 2012, food became 30 per cent more expensive and gas 57 per cent more expensive. These costs weigh more heavily on low-income families, who pay a 'low income premium' linked to lack of affordable credit, use of pre-payment meters and lack of internet access. Housing costs, water, electricity and gas take up nearly 60 per cent of total income for the poorest tenth, compared with less than 30 per cent of that of the richest 10 per cent.^[45]

Welfare reform is another key factor. The Institute for Fiscal Studies estimates that an additional 50,000 children and 150,000 working age adults will be living in poverty by 2020 due to welfare reform. The Scottish Government estimates that the cumulative impact of welfare reform over the six years to 2015/16 could result in a £6 billion decrease in the Scottish welfare bill, with £1 billion of this relating directly to children. The impact of these reforms is not evenly felt. Scottish Government analysis notes, for example, that disabled people in Scotland face a disproportionate loss of income from UK welfare reform. Households with both disabled adults and children are facing the highest reductions in income, but carers will also be affected^[46].

For low income working families reliant on benefits and tax credits, cuts combined with changes in eligibility, have seen household income decrease in 2012/13. The largest reduction in expenditure is from the 1% cap on uprating benefits, followed by the changes to tax credits. While the impacts of some welfare reforms were already being felt in 2012/13, the majority of the decrease in welfare expenditure is expected to be in the two years to 2015/16. Continuous, cumulative real-terms cuts in benefit levels are expected, affecting both working households and households not in employment. These changes are expected to have the largest effects on household income for lower paid working families, particularly those with children.

One factor not captured in the FRS is the extent of benefit under-claiming. This analysis has highlighted evidence about the extent to which Pension Credit may be being under-claimed. This is important for pensioners in poverty, as Pension Credit is intended to provide a minimum level of income for older people. However, all means-tested benefits are subject to a degree of under-claiming and certainly improving benefit uptake would appear to be one way in which the depth of poverty could be improved.

In short, poverty is changing; work is no longer a guarantee of a life free of poverty; people in poverty face increasing costs; and those in receipt of benefits and tax credits - which of course includes many in work - are finding their incomes squeezed. While policies targeted at reducing poverty have reduced relative poverty over time, the depth of poverty has not improved. Those in poverty are now more likely to be further away from, not closer to, the poverty threshold. It is these poorest children and adults who are likely to live in prolonged financial and material deprivation, with the poor outcomes associated with persistent poverty.