Poverty and Income Inequality: A review of the evidence

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Key Drivers

18. Poverty is not necessarily a fixed state - very few individuals or households live permanently in poverty. Some may only experience poverty on one occasion but many move in and out of poverty. For people living near the poverty threshold, there is a high risk of recurrent poverty.

19. A range of factors can influence the chance of living in poverty and what triggers poverty for some, will not lead to poverty for others. Some factors may have immediate effect on income and risk of poverty; other factors may impact over longer periods by gradually altering opportunities and choices.

20. There is a well established and complex evidence base focusing on the drivers, causes and consequences of poverty and it is beyond the scope of this paper to provide a detailed analysis of every factor affecting the risk of poverty. The following evidence will focus on the key factors which have an impact both in the short and long term and will include discussion of:

  • low pay and 'in-work poverty'
  • qualifications, skills and training
  • caring responsibilities
  • financial disincentives in the benefits system
  • inequality of educational attainment
  • health inequalities
  • discrimination and bias
  • stigma of poverty
  • housing

21. The above factors affect the risks of being or staying in poverty, but some, such as qualifications and skills, can help build resilience to poverty and low income and will in turn help people to avoid or exit poverty.

22. It is important to bear in mind that these different factors are often closely connected and do not affect everyone equally.

Low pay and 'in-work poverty'

23. Being able to work or to have at least one family member in paid employment reduces the risk of poverty and low income. Scotland has the highest employment rate of any region in the UK. (Figure 7).

Figure 7: Employment rates in the 4 countries of the UK, Q1 1998 - Q4 2008

Figure 7: Employment rates in the 4 countries of the UK, Q1 1998 - Q4 2008

Source: Labour Force Survey, Seasonally Adjusted data, Office for National Statistics

24. Despite comparatively high employment rates, there is evidence indicating that many people in paid employment receive low pay and are unable to lift themselves out of poverty on their wages alone 20.

25. Low paid jobs are distinct from 'in-work poverty' but remain highly connected phenomena. Low paid jobs are those which have a wage that is less than 60 per cent of the UK full-time median hourly pay, excluding overtime. This is a relative measure of low pay, and is higher than the National Minimum Wage which was uprated to £5.73 in October 2008 21. Households defined as being in working poverty are those with at least one adult in paid employment, whose equivalised net income is less than 60 per cent of the UK median.

26. As stated in Scottish Economic Statistics 2008, in 2006/07, 33 percent of the 840,000 people living in relative poverty before housing costs were in families containing working members 22. Some of these low-paid workers are not poor, indicating that income must come from sources other than their basic salary, such as second jobs, over-time, benefits, or wages from other household members.

27. Detailed analysis of source of household income from Family Resources Survey highlights much complexity in the relationship between low pay and relative poverty. Data suggests that 26 percent of workers receive low pay but are not in relative poverty. This indicates that low pay from earnings is not the only determinant in the make-up of household income which affects the risk of entering poverty. For more detailed analysis and discussion, refer to Article 2: Low pay and in-work poverty in Scotland23 in Scottish Economic Statistics 2008.

Characteristics of low-paid employees

30. Research demonstrates that low pay and in-work poverty does not affect all households living in poverty equally. Certain groups in the population are more vulnerable than others.

Gender

31. The following section draws on the 2007 Annual Survey of Hours and Earnings, to consider concentrations of Scottish low pay by gender, and by hours worked.

32. Figure 8 shows that 16 per cent of all male workers, approximately 158,000, earned less than £6.80 per hour. This compares with 28 per cent of all female workers, approximately 310,000 individuals.

Figure 8: Percentage employees receiving low pay by gender, Scotland 2007.

Figure 8: Percentage employees receiving low pay by gender, Scotland 2007.

Source: Annual Survey of Hours and Earnings 2007

33. With regard to full time employment, Figure 9 shows that more female employees are low paid in comparison to male employees, with 17 per cent of full-time female workers earning less than £6.80 per hour compared to 12 percent of full-time male workers.

Figure 9: Percentage full-time employees receiving low pay by gender, Scotland 2007

Figure 9: Percentage full-time employees receiving low pay by gender, Scotland 2007

Source: Annual Survey of Hours and Earnings 2007.

34. In contrast, Figure 10 shows that when part-time work is investigated, more male workers are low paid in comparison to female workers. 46 percent of male part-time workers, 50,000 individuals, earned less than £6.80 per hour, compared to 44 per cent, 196,000 individuals, of all female part-time workers.

Figure 10: Percentage part-time employees receiving low pay by gender, Scotland 2007

Figure 10: Percentage part-time employees receiving low pay by gender, Scotland 2007

Source: Annual Survey of Hours and Earnings 2007

35. Between 1998 and 2007, the number of females and males in all types of employment increased. The number of low-paid females increased from 273,000 to 281,000. The number of low-paid males increased from 112,000 to 144,000.

36. During this period, the number of low-paid males, as a percentage of all male employees, rose slightly from 12 per cent to 14 per cent. However the number of low-paid females, as a percentage of all female employees, fell from 28 per cent to 25 per cent (Figure 11).

Figure 11: Low paid employees, as a percentage of all employees, by gender and working pattern, Scotland 1998-2007

Figure 11: Low paid employees, as a percentage of all employees, by gender and working pattern, Scotland 1998-2007

Source: Annual Survey of Hours and Earnings, 2007

Age

37. As shown in Figure 12, in 2007, 65 per cent of employees aged 18 - 21, and 26 per cent of employees aged 22 - 29 were low paid. These age groups, when taken together, accounted for 21 per cent of all employees, but 37 per cent of all low-paid employees.

38. It is worth noting that the minimum wage for those aged 18-21 is below the full adult rate. As of October 2008, those aged 18 - 21 were entitled to £4.77 per hour, and employees aged over 21 were entitled to £5.73 per hour 24. However, the lower minimum wage for those aged 18-21 is only one component in explaining the prevalence of low pay in young workers, since large proportions of young employees are not low paid.

39. Those aged 30-39 constitute 23 per cent of all Scottish employees. This group had the lowest incidence of low-pay, at 15 per cent . Scottish employees aged 60 or over constitute 6 per cent of all Scottish employees and 27 per cent of this group were low paid, the second highest incidence of low pay.

Figure 12: Risk of low pay by age, Scotland 2007

Figure 12: Risk of low pay by age, Scotland 2007

Source: Annual Survey of Hours and Earnings

40. The data presented above also suggest that the risk of low-paid employment begins to increase from the age of 50 onwards. As our analysis is cross-sectional, it is unclear whether this suggests a cohort effect, caused by the particular characteristics of those who are now working in this age group, or whether this suggests employer discrimination in older workers' pay.

Geographic distribution of low paid employees

41. As can be seen from Figure 13, the incidence of low pay in rural authorities is higher than in urban local authorities. Low paid employees account for over 25 per cent of all employees in Angus, Aberdeenshire, Highland, and Scottish Borders. Excluding East Lothian, all rural authorities described in Figure 13 have a higher incidence of low pay than the local authority median. 25

Figure 13: % Employees low paid by local authority; 2007

Figure 13: % Employees low paid by local authority; 2007

Source: Annual Survey of Hours and Earnings. Clackmannanshire, Dumfries and Galloway, Moray and the Island Authorities have been excluded due to small sample size.

42. In contrast, each of Scotland's major cities, Edinburgh, Aberdeen, Dundee and Glasgow, have incidences of low pay lower than the local authority median.

43. However, evidence also suggests that local authority rates of low pay do not clearly correlate with local authority unemployment rates and income poverty rates. For example, data from the Households Below Average Income 2005/06 and 2006/0726 datasets indicate that in terms of relative poverty, percentage of relative low income before housing costs is lower for rural areas. In addition, data from the Annual Population Survey27 indicates that employment rates are higher in rural areas compared to urban areas. Despite having lower income poverty rates and higher levels of employment, rural areas continue to receive higher incidences of low pay.

Qualifications, Skills, and Training

44. Qualifications, skills and training are further key factors impacting on income inequalities in Scotland.

45. Figure 14 below provides evidence illustrating the proportion of working age employees who were paid less than £7 per hour by highest level of qualification. 28 As can be seen, the risk of low pay is substantially reduced with qualifications. There is clear evidence that qualifications are positively associated with the likelihood of employment, and level of wages earned and hence have considerable impact on the risk of entering poverty. 29

Figure 14: Impact of qualifications on pay, Scottish working age population earning less than £7 per hour, 2006

Figure 14: Impact of qualifications on pay, Scottish working age population earning less than £7 per hour, 2006

Source: Scottish Government Labour Force Statistics: Annual Population Survey 2006

46. A summary of the evidence from DfES and DWP30 finds that in-work qualifications, skills and training have the largest impact on wages, and that appropriate vocational qualifications give very substantial wage returns in the UK.

47. However, the report also found that workplace learning is heavily skewed towards those already holding higher skills and qualifications, and that those with low or no skills or qualifications face substantially greater barriers to achieving and sustaining employment 31.

48. The report goes on to examine the efficacy of different employment and training programmes in improving employment prospects for this group. Findings suggest that the "most effective provision is a package of support involving work experience or labour market contact, individually tailored and geared towards local opportunities" 32. However, findings from the report also suggest that not all training programmes are of a good standard, especially programmes aimed at people who are out of work. For example, the report states that a significant number of programmes fail in their objectives of moving people into jobs and indicated that the proportion of Jobcentre Plus programme providers rated as unsatisfactory or worse was around 40% 33.

Caring Responsibilities

49. Where there are significant demands for caring within the household, members can be constrained from accessing work on a full time or part time basis or may have to select job opportunities that allow them to balance paid and unpaid work.

50. Research suggests that the demands of childcare in particular are linked to increased risks of entering poverty. Having children in the household, with incomes remaining constant, not only increases the risk of poverty since household income is spread over more members, but the number, ages, and additional support needs of children affect the ability of households to participate in the labour force. The ability to work is affected primarily through the level and amount of care required within the family and the resources available to meet those needs 34.

51. The decision or ability to participate in the labour force will depend on the amount of time required to provide care and this reduces the amount of time available to carry out paid work. The more carers there are available in the household - not necessarily only adult carers - the more time is available for some or all to undertake paid work. Couple families will therefore theoretically have more ability to balance demands than single parents. For example, as reported by the Parents Access to and Demand for Childcare Survey, "a reduction in working hours in order to provide childcare is more common in two-parent households than in one parent households" 35. Where there is access to resources to help the balance - for example money to buy childcare, support from family or friends or access through public services or work; the balance of paid and unpaid labour is easier. Single parents with good family support or access to free childcare will therefore also find the balance easier 36.

52. Cost of childcare is an important factor, especially for low income households and those with more than two children. Childcare costs increase the costs associated with employment, reducing the net return from work and decreasing the incentive to find employment. Research indicates that many feel formal childcare is too expensive and so have to rely on informal means of childcare 37.

53. In some cases childcare costs may not be the only constraint. Evidence reported at the House of Commons Scottish Affairs Committee 38 highlighted that childcare can remain a barrier to employment because "there are significant problems with a lack of local provision (particularly in rural areas), opening hours that do not match the working day and insufficient places in affordable nurseries" 39.

54. Analysis of the Scottish respondents to the 2005/6 Family Resources Survey indicated that around a quarter of all adults in the lowest three deciles reported that they were prevented from working due to childcare responsibilities. The equivalent figure for the highest seven deciles was only 10 per cent. While cost of childcare is a major issue, availability, opening hours, and quality are also important.

55. Discussions at the House of Commons Scottish Affairs Committee noted that "support for childcare would also be of benefit to parents who are not in work, but wish to improve their employability … childcare should also be available for lone parents who wish to take up training or continue their education before returning to work" 40.

56. It is important to emphasise that providing adequate childcare is not the only caring responsibility that can act as a barrier to employment. Evidence given to the House of Commons Scottish Affairs Committee highlights caring for the disabled as a further, and perhaps overlooked, barrier to employment 41. For example, "barriers to entering the workplace may also be associated with disability, both for adults with disabilities and for parents of disabled children" 42.

57. Evidence reported at the Scottish Affairs Committee report states that "Scottish households with one or more disabled people are twice as likely to live in poverty than those with no disabled people" 43. Discussions further highlighted that "social injustice impacts on families living with disability in many ways. They experience poverty of income, poverty of choice and poverty of opportunity" 44.

Benefit Traps

58. Even if the UK Government's target of an 80 per cent employment rate were to be reached, many people would still rely on benefits, as not all people of working age are able to enter paid employment. This includes people receiving incapacity benefits, lone parents and carers, and highlights the importance of benefits in providing security to those for whom work is not an option 45.

59. People who are unable to work in paid employment at all, part time or intermittently will rely on benefit income to some extent. Benefits are a key source of income for many low income households, and have a role in building resilience to poverty and can also help people to avoid or exit poverty. The tax and benefits system helps to provide a household income 'safety net' and to protect people from poverty.

60. Figure 15 below illustrates the different income sources for lower income and higher income households and specifically highlights the importance of benefits as a key source of income for lower income households. For instance, among the lowest 3 income deciles, roughly a third of household income comes from earnings, a third from benefits and tax credits, and a little less than a third from pensions income - of which four fifths arose from state pensions and pension tax credits 46.

61. Around 68 per cent of families in the lowest three income deciles are workless either through unemployment, retirement or economic inactivity, and so state benefits, including state pension make up a large part of their incomes. Around three quarters of all Scottish households whose income is wholly dependent on state benefits are in the lowest three deciles. A further quarter are in deciles four to seven. This demonstrates the importance of benefits as a key source of income for those with low incomes 47.

62. In addition to increasing household income and alleviating poverty, benefits are also important because they act to decrease levels of income inequality. At a UK level, the tax and benefits system aims to redistribute income from those in higher deciles to those in lower deciles.

Figure 15: Sources of family income in Scotland - 2006/07

Figure 15: Sources of family income in Scotland - 2006/07

Source: Department of Work & Pensions ( DWP), Family Resources Survey 2006/07

63. Benefits are a very important factor in helping to raise income levels of the poorest households and decrease income inequality. However, evidence also indicates that there are problems within the benefit system that act to hinder its effectiveness. For many people, benefits act as a financial disincentive to enter paid employment and this can negatively affect the risk of being or staying in poverty.

64. Problems and barriers within the benefit system which can contribute to an increase in the risk of poverty include:

  • Low level of benefits - that is, the money provided and how upward adjustments over time is inadequate;
  • Financial disincentives - the interaction of the benefit system with the tax system reduces the net return from working and may result in recipients not being better off in work;
  • Complex and inflexible administration;
  • Difficulties in gaining access; and
  • Poor take-up rates.

Inadequate value of benefits

65. For some people, work is not an option. It is essential that for those who cannot work, that benefits provide an adequate source of income that ensures a life with lower levels of disadvantage, financial uncertainty and poverty.

66. A Joseph Rowntree Foundation report A minimum income standard for Britain suggests that many people feel state benefits are set too low to provide for an adequate standard of living 48. The minimum standard of living defined in this report "includes but is more than just, food, clothes and shelter. It is about having what you need in order to have the same opportunities and choices necessary to participate in society" 49. The authors argued that state benefits did not adequately support this definition. For people who are furthest away from the labour market, work simply cannot provide a route out of poverty; thus, this group of people often rely on benefits as the most valuable option to increase income and access to services. The level of benefits are important in this instance as they ameliorate vulnerability to poverty.

67. Modelling conducted in a study for the Joseph Rowntree Foundation 50 suggests that the degree by which benefits are uprated is set at an inadequate level to lift people out of, or adequately alleviate, poverty. Uprating is the degree by which the value of different benefits and tax credits are increased, and can be used to adjust the value of benefits or tax thresholds over time where a government thinks that their present level is too high or too low.

68. This report highlights that if today's benefit uprating systems were to remain, then income received from benefits would substantially decrease relative to earnings. The report states, as most means-tested benefits are uprated using the 'Rossi' inflation index (which is based on the rise in consumer prices but excludes housing-related costs), "poverty reduction will be virtually impossible to achieve" 51, as median incomes will rise more rapidly than benefit incomes.

69. The report suggests that after 20 years under the present benefit uprating system, "uprating of the income tax allowance in line with prices would leave it 33% lower than in 2006, relative to earnings" 52. The authors predict that as benefits decrease relative to earnings, not only would the percentage of people living in relative poverty increase but depth of poverty would also increase 53. This suggests that the means by which benefits are uprated has a significant impact on the levels of poverty.

70. With respect to income inequality, modelling conducted for the Joseph Rowntree Foundation study predicts that following 20 years under the current benefit uprating system it is those with the lowest income who experience the most substantial decrease; and therefore income inequality would increase 54.

71. While it was noted in evidence provided to the House of Commons Work and Pensions Committee 55 that current uprating of benefits is inadequate, it was also noted that increasing the uprating of benefits would not alleviate poverty itself, a much wider range of policies going beyond, but including the uprating of benefits, is required 56.

Financial disincentives

72. Much of the tax and benefit system is structured with financial incentives to work as an important design criterion. Recent changes, such as the National Minimum Wage and the Tax Credit System, have helped make work more financially rewarding.

73. The New Deal is such an approach aimed at increasing the financial incentives to work. These programmes have been operational since 1998 and take an active labour market approach to reconciling the tensions between targeted benefits and work incentives. These programmes are geared towards preventing people becoming detached from the labour market and from becoming long-term unemployed or inactive. At the same time they aim at maintaining the financial value of unemployment benefits. An evidence paper published by DWP highlights the success of the New Deal in providing good incentives to work 57.

74. The interaction of the taxation and welfare systems can jointly contribute to keep people on welfare payments - a situation referred to as the welfare trap. The OECD58 makes 3 distinctions in the welfare trap:

(i) the unemployment trap occurs when the net income differences between low-paid work and unemployment benefits is less than work related costs, discouraging movement into work;

(ii) the poverty trap refers to the situation when in-work income-tested benefit payments are reduced as income rises and when combined with income tax and other deductions has the effect of discouraging higher paid work, whether that involves working longer hours or acquiring skills; and

(iii) the inactivity trap refers to people of working age not on unemployment benefits but in receipt of some minimum income payment that would be lost if employment was taken up viewing employment as not paying enough to compensate for the loss of benefit.

75. The poverty trap 59 is clearly one element of an explanation for the persistence of poverty among those in work.

76. However, alternative evidence suggests that many people are in a situation where there is little or no financial incentive to work, or to increase hours, or gain qualifications and earn higher incomes.

77. Research published in 2007 by Joseph Rowntree Foundation 60 examined the role of benefits for lone parents working less than 16 hours a week. This report defined employment that required less than 16 hours work a week 'mini-jobs' and found that the financial incentives for lone parents to work in such 'mini-jobs' are very weak 61. For lone parents who receive Income Support, the earnings disregard (that is income that is not counted when calculating entitlement to benefits) is set at £20 a week. If earnings exceed £20 a week, then entitlement to benefit will decrease. However, in order to access Working Tax Credit, lone parents must work 16 hours a week. There is conflict here for lone parents wishing to work 16 hours a week to gain entitlement to WTC but who will then earn more than the earning disregards threshold and lose entitlement to Income Support 62. This conflict in the benefit system acts as a financial disincentive to enter paid employment.

78. Evidence provided for the House of Commons Work and Pensions Committee also discusses the financial disincentives lone parents face, raising concern that childcare provided by Working Tax Credit is withdrawn when entering part time 'mini-jobs'. Childcare represents a cost that was eliminated if not working a 16 hour 'mini-job' and will act to substantially reduce financial gain created from entering employment 63.

79. Part time 'mini-jobs' can be very beneficial to many people, as they help to maintain contact with the labour market and ease the transition into work for people, such as lone parents and parents of disabled children who have been out of work for a period of time. Thus, it is important that part-time 'mini-jobs' provide financial incentives that also alleviate poverty.

80. After entering paid employment, entitlements to certain non-cash benefits, including free transport and free school meals may be lost. This loss is not covered by an increase in income or from 'in-work credit' and acts to maintain the poverty trap 64.

81. Certain benefits, such as Council Tax Benefit and Housing Benefit, operate with tapers. The combined taper rate for Council Tax and Housing Benefit is 85 per cent so an increase in gross income of £1 from work is offset by the withdrawal of 85p of HB and CTB. As reported in evidence provided for the House of Commons Work and Pensions Committee, "high taper rates on benefits act as a major disincentive to taking up work and can therefore work to increase poverty, both by allowing parents to keep less of their income, and by discouraging them from increasing their hours" 65.

Benefits administration

82. The complexity of the benefits system makes it more difficult for individuals to make informed choices regarding the trade offs between benefits and work. For benefit recipients this can increase the perceived risks of gaining employment or increasing hours of work.

83. A report published in 2008 by the Joseph Rowntree Foundation 66 highlighted significant issues in the design of the benefits system that lead to delays or non take-up of benefits. Problems include, but are not confined to, complexity of forms, administrative error and lack of personal contact during the claims process. This can result in financial hardship and increased uncertainty for households experiencing changed circumstances 67.

84. In 2005/6, it is estimated that £1.7bn was overpaid in working tax credits, due to clerical error, fraud, or households experiencing altered work or family situations between annual awards. Up to March 2007, HMRC had collected £2 billion in overpaid tax credits, had written off £700 million and was still attempting to reclaim a further £3.3 billion 68. Around half of all outstanding overpayments are due from low-income families. 69 The Citizens Advice Bureau and Parliamentary Health Services Ombudsman have both found that retrieving these overpayments has caused real financial insecurity for families. 70, 71

85. A study conducted for the Joseph Rowntree Foundation, it was found that as a consequence of poor service delivery "a number of people said that they felt unable to return to work because they worried that they would not receive the in-work benefits they were entitled to, or that their current benefits would not be reinstated if they subsequently stopped working" 72.

86. The complexity and variable service delivery of the benefits system decreases security of income that people receive from benefits or work and increase the risk, and their perception of risk, of entering poverty.

Difficulties in gaining access to benefits

87. Benefits provide an indispensable source of income when paid employment is not possible. However, certain social groups have more difficulty in gaining adequate access to benefits.

88. Research has suggested that people who are likely to move in and out of paid employment (what is referred to as 'employment churn') can face particular difficulties accessing benefits. As discussed at the House of Commons Work and Pensions Committee 73, there is evidence to suggest that the benefit system can fail to keep pace with the 'churning' in employment. This may delay benefit payment and have the potential to lead to financial hardship and reduces the financial incentives of entering paid employment.

89. Parents, and especially lone parents, have also been identified as having difficulty in accessing the benefit system. Research indicates that the financial incentives for lone parents to move into paid employment can be weak.

90. For example, research carried out for the Joseph Rowntree Foundation 74 suggested that lone parents want to work more hours but are deterred due to the loss of certain benefits when increasing hours of paid employment. If lone parents work 16 hours a week to gain access to Working Tax Credit they will simultaneously reduce their entitlement to Income Support, which reduces the financial incentive to enter paid employment 75.

Poor take up rates

91. Evidence presented at the House of Commons Work and Pensions Committee suggests that there is a lack of understanding of entitlements to benefits 76. Coupled with the complexity and variable delivery of the benefits system, evidence indicates that at a UK level, benefit take up rates are low, leaving many benefits unclaimed.

92. DWP have examined UK benefit take up rates in several reports. This analysis has not been repeated for Scotland. At a UK level, however, take up of benefits is well below entitlement. Evidence reported to the House of Commons Work and Pensions Committee states that for 2005-06 " DWP estimate that £9.4 billion is not being claimed in means-tested benefits by those who are entitled to them" 77.

93. Despite such issues, take-up of Child Tax Credit ( CTC) remains higher than other means-tested benefits. In 2005-06, take-up was approximately 91 per cent by expenditure and 82 per cent by caseload. For Working Tax Credit overall take-up was 82 per cent by expenditure and 61 per cent by caseload. However among households with no children take-up was just 28 per cent by expenditure and 22 per cent by caseload. Evidence shows that in general, the take up rate of benefits is lower among those with small entitlements 78.

94. Widespread misunderstanding of eligibility conditions has been shown to negatively impact on take-up levels of Pension Credit 79.

95. Across Great Britain, take-up of Pension Credit is within the region of 60%-69%. Take-up is lower for the Savings Credit only (42%-48%). Older pensioners (over 80) are less likely to claim their pension credit than pensioners in their 60s. Pensioners who own their own homes or have other sources of income (indicating lesser need and eligibility for lesser amounts) are less likely to claim. More than three-fifths of entitled non-recipients are in low income households. 80

96. It is important that the benefit system is made simple and accessible to ensure that those entitled to support receive adequate benefits and assistance to alleviate poverty or to avoid entering poverty.

Longer Term Drivers - Breaking the Cycle

97. Evidence suggests there are longer term deep-seated drivers, which act to reinforce disadvantage through generations. If left alone, these deep-seated drivers will act to perpetuate long term and severe poverty and maintain an inter-generational cycle of poverty.

98. Longer term drivers of poverty and inequality include:

  • inequalities in the attainment and aspirations of children and young people;
  • health inequalities;
  • inequality resulting from discrimination and bias; and,
  • housing

Inequality in attainment and aspirations of young people

99. There is a well established evidence base in the literature suggesting that poverty has an intergenerational dimension, having the potential to lead to inequalities in terms of the attainment and aspirations of children and young people.

100. For example, a report published by the House of Commons Scottish Affairs Committee - Child Poverty in Scotland81 - states that "disadvantage early in life can lead to lower educational achievement, which can itself mean lower wages as an adult and eventually a lower pension. In this way, poverty can persist through a lifetime" 82.

101. The early years of a child's life are the most important ones for their future development, prosperity and economic success. The foundations of a child's educational attainment are set even before they start attending school.

102. This cyclical and generational effect of poverty is emphasised in research carried out for the Joseph Rowntree Foundation, which demonstrates that children who grow up in poverty, or in a deprived situation, are more likely to have difficulties in moving out of poverty themselves 83. Furthermore, they are more likely to have children who suffer from poverty, thus reinforcing the cycle unless positive intervention breaks this repetition.

103. This emphasises the importance of early years experience as a crucial component in driving poverty and inequality. For example, a negative early years experience can be carried forward into secondary school, creating yet more disadvantage which "feeds directly into unequal chances when entering the labour market" 84.

104. This evidence suggests that if problems that can be corrected at an early age are left unaddressed, these will affect a child's attainment all the way through the educational system, and will likely result in poorer academic attainment, fewer and poorer qualifications, and the increased likelihood of being in poverty as an adult 85.

Health Inequalities

105. An additional factor acting as a longer-term driver of poverty and inequality emphasises the impact that health inequality has on accessing and sustaining employment.

106. For more detailed discussion of Scotland's health inequalities please refer to the Scottish Government's Equally Well: Report of the Ministerial Taskforce on Health Inequalities which provides a detailed annex of evidence concerning the relation between disadvantage and health inequalities in Scotland 86.

107. Low pay, poverty and low income are all linked with ill-health and health inequalities. Recurrent health problems, medical appointments, treatments and recovery may require intermittent periods out of employment and can affect productivity in various ways.

108. Research suggests that people with physical and mental health problems may face attitudinal barriers due to discrimination, which place constraints on work options 87.

Discrimination and Bias

109. Evidence emphasises that within the equality strands - that is age, gender, race, religion, disability and sexual orientation - different groups often face employment discrimination, which can impact negatively on experiences of low income and poverty.

110. Issues of equality are very complex and it is beyond the scope of this paper to provide detailed analysis of the different impacts discrimination and bias may have on the risk of entering poverty. Instead the following section will provide an overview of available statistical evidence which suggests where attitudes of discrimination may impose a barrier to paid employment.

Gender

111. Evidence referred to earlier in this paper shows an over-representation of women in low paid employment. One likely cause of this is the higher incidence of primary care responsibility among women. As a result, women are more likely to take time out of their careers or to work on a part-time basis 88.

Disability

112. Disabled people can face various barriers to employment. For instance, they often have lower qualifications with evidence suggesting 25 per cent of disabled people of working age have no qualifications compared to 11 per cent of non-disabled people 89.

113. Additionally, disabled people frequently face attitudinal and physical barriers in the workplace. For example "89% of disabled people in Leonard Cheshire Disability's Disability Review 2007 felt that there was discrimination and prejudice towards disabled people in the UK" 90.

114. Furthermore, details from the Labour Force Survey shows that disabled people may be more at risk of poverty. "Disabled people who are in work are at a substantially higher risk of in-work poverty, on average earning less than their non-disabled peers and being more likely to work in low skill, low paid jobs" 91.

115. Table 1 presents data from the Households Below Average Income datasets, which provides support for the proposition that people who live in a 'disabled household' (a household in which at least one adult self-reports a disability) are more likely to be in poverty than households in which no adults are disabled.

Table 1: Number and percentage of people in disabled households living in relative poverty before housing costs92,

year

Individuals in poverty living in households with a disabled person (000s)

Percentage of people in households containing a disabled person who are in poverty

Percentage of people in households not containing a disabled person who are in poverty

2002/03

340

26

18

2003/04

350

25

16

2004/05

320

25

14

2005/06

320

23

15

2006/07

310

23

15

Source: Households Below Average Income dataset 2006/07

116. It is important to note that the income used in the Households Below Average Income datasets is equivalised 93. There is a body of literature that argues that the standard equivalisation scales do not go far enough in adjusting for need, because they do not consider the extra costs associated with having a disability, such as paying for adaptations to the home or mobility and communication aids , 94, 95.

117. If this argument regarding the inadequacy of the equivalisation scales is accepted, then Table 1 above underestimates the extent to which families with disabled members are overrepresented at the lowest end of the income distribution and the extent to which disabled people are more likely to be poor.

Ethnicity

118. The evidence base on poverty among ethnic minorities in Scotland is relatively weak. However, existing UK research points to employment discrimination that can have the potential to increase the risk of poverty and low income for ethnic minorities. Nineteen per cent of employed minority ethnic respondents to the 2005 Citizenship Survey 96 said they had been discriminated against at work with regard to promotion or progression in the last 5 years, compared with 9 per cent of employed White respondents. Fifty per cent of minority ethnic respondents who said they had been discriminated against at work said this was for reasons of race, compared to just 5 per cent of White respondents.

119. Recent qualitative research suggests that visible minority ethnic women are often victims of multiple discrimination, with racism and sexism both having a negative impact on their experiences in the labour market 97.

120. In addition, minority ethnic business ( MEBs) owners in Scotland have reported experiencing racism 98. Some also felt that it is generally more difficult for MEBs to do business, and that it is often easier to do business with English companies rather than White-owned Scottish companies.

Religion

121. Evidence covering religious discrimination and poverty in Scotland is relatively less developed than other potential groups at risk of poverty. This is linked to the lack of ethnicity data mentioned above, as there is a clear overlap between ethnicity and religion.

122. The Family Resources Survey does not collect information about the religion of respondents. However, analysis of data from the Scottish Household Survey indicates that people who do not have a religion have a higher percentage of people earning in excess of £20,001 compared to all other religions and the lowest percentage of people in the £0-6,000 bracket (Table 2).

123. Muslims have the lowest percentage in the over £20,000 while Other Non-Christian religions have the highest percentage in the £0-6,000 bracket 99.

Table 2: Religion and Income 2003-2006.

Religion (%)

Income (£)

None

Church of Scotland

Roman Catholic

Other Christian

Muslim

Other Non-Christian Religions

0 - 6000

6

8

7

8

9

11

6001 - 10000

15

21

20

18

19

19

10001 - 15000

20

21

23

21

23

21

15001 - 20000

15

14

15

13

18

15

20001+

43

36

35

41

32

35

Based on the Scottish Household Survey household data set, combined data sets 2003-2004/2005-2006.
Buddhist, Hindu, Jewish and Sikh are included in the 'other religion' category.
Income is based on that of the highest earning household member and their spouse or partner. Income is not equivalised.
Religion is based on that of the highest earning household member and it may have been recorded by their spouse or partner.

Sexual Orientation and Transgender

124. To date there is little available information concerning Lesbian, Gay, Bisexual and Transgender ( LGBT) issues in reference to income and poverty. However, there is a significant evidence base describing homophobic discrimination in the workplace 100. Research for UNISON describes how discrimination can lead to discrepancies in promotion and job allocation, and can subsequently have a negative impact on productivity. This study, based on a UNISON survey, found that over half of LGBT respondents felt they had experienced some form of discrimination in the workplace 101.

125. This report also stated that nearly one in ten of the members experiencing this discrimination decided that the only way to stop it was to leave their job 102.

126. Due to such experiences of discrimination in the workplace, it is believed that one in three LGBT staff hide their sexuality at work 103 yet there are indications that employees that are 'out' in safe environments earn up to 50 per cent more than their closeted peers 104.

127. In addition, evidence has suggested that LGBT discrimination in the workplace can lead to periods of ill health. The Scottish Transgender Alliance 105 published a report in 2008 on transgender experiences in Scotland, which highlights the range of problems faced in the work place.

Stigma of poverty

128. In addition to employment discrimination, there is also evidence to suggest that those living in poverty feel socially stigmatised. There is quantitative data available at a GB level 106 and qualitative research conducted in Scotland 107. Analysis of the British Social Attitudes Survey conducted for Joseph Rowntree Foundation 108 suggests that the majority of those sampled held negative perceptions of those living in poverty. According to this report, 32 per cent of respondents felt poverty 'is just an inevitable part of modern life' and 28 per cent believed that it 'reflects laziness or lack of will power on the part of those affected'. These represented the most common views of the causes of poverty.

129. In addition, the Poverty Alliance conducted qualitative research 109 into public attitudes to poverty and suggested that there is a gap between the occurrence of poverty and public attitudes on the experience of poverty. The authors argue that Scotland is positioned more towards the political left, and correspondingly has tended to be perceived as a more egalitarian society. However, the authors also state that analysis of the Scottish Social Attitudes Survey suggests there has been a reduction in the number of people supporting redistribution of income, a view associated with those positioned to the 'left'.

130. While this evidence suggests negative public attitudes to poverty, there is a lack of robust quantitative evidence for Scotland on the prevalence and reasons behind perceptions and attitudes towards poverty and inequality.

Housing

131. The links between housing and poverty are complex and interlinked. The following discussion highlights some of these key issues.

Social Housing and Deprivation

132. The last quarter of the century has seen a change in housing tenure in Scotland. In the early 1980's only a minority of households were owner-occupiers, a far smaller share than the social rented sector. By 2005, however owner occupation was the tenure of 67 per cent of the housing stock. Although this pattern of change is seen across most of Europe, the change has been most dramatic in Scotland, where the level of home ownership has risen by 31 per cent since 1982.

133. As illustrated in Figure 16, as owner-occupation has grown, social housing as a whole has declined as a proportion of total housing stock, from over 50 per cent in 1981 to its current level of around 25 per cent. The decline in social housing has been accompanied by substantial changes in the profile of its tenants and of those wishing to become tenants. In 1981, the profile of social landlords' tenants matched closely to the profile of households in society generally, in terms of their size, composition and social and economic characteristics.

Figure 16: Estimated stock of dwellings by tenure in Scotland 1984 to 2008

Figure 16: Estimated stock of dwellings by tenure in Scotland 1984 to 2008

Source: Scottish Government, Housing Trends in Scotland: Key Information and Summary Tables 1984-2008

134. As Figure 17 and Figure 18 illustrate, this is no longer the case. Households in social housing are now far more likely to consist of single pensioner, single parents and other single adults. Tenants of social landlords are less likely to be in employment than those in households generally, with over half of tenants of working age without work. They are more likely to be retired or unemployed or permanently sick than other households. Consequently, almost three quarters have incomes below £15,000 a year and two-thirds are dependent to some extent on housing benefit.

Figure 17: Economic activity - social housing tenants diverging from the mainstream

Figure 17: Economic activity - social housing tenants diverging from the mainstream

Source: 1981 Census, 2004&5 Scottish Household Surveys

Figure 18: Household type by tenure

Figure 18: Household type by tenure

Source: Scottish Household Survey 2005&6

Figure 19: Dispersion of social rented sector by area deprivation

Figure 19: Dispersion of social rented sector by area deprivation

Source: 2001 Census, Scottish Neighbourhood Statistics

Social Housing, Deprivation and Life Outcomes

135. There is an acknowledged and strong relationship between social housing, poverty and deprivation but there is no strong evidence that social housing causes this deprivation and poor life outcomes. Recent UK longitudinal analysis 110 looking at the relationship between housing in childhood and later outcomes has shown that:

  • As social housing has residualised, negative outcomes associated with it have become stronger.
  • People who moved into social housing as children had worse outcomes than people who moved out, suggesting that the circumstances in which people experience a particular tenure is important as well as characteristics of the tenure itself.
  • Adult outcomes for people growing up in social housing are consistently worse across many domains of life, than they are for people growing up in other tenures. As social housing has been most targeted, the concentration of problems in the sector has increased, increasing the need for more support from other areas of social policy.

136. However, as the evidence highlights, it is hard to isolate these factors either from the characteristics of the people in particular tenures or from the wider context. The research suggests that interventions to manipulate conditions of tenancy are likely to have limited effect and emphasises that if we expect housing policy to contribute to other social and economic goals, attention needs to be given to wider ranging measures to reverse social housing's residualisation: including addressing stock condition, neighbourhood characteristics, availability and access. Other areas of social policy, such as childcare and education, need to respond better to the increasing concentrations of childhood disadvantage in social housing, to avoid perpetuating cycles of tenure-related disadvantage for future generations.

Fuel poverty111

137. The term 'Fuel Poverty' refers to the situation where a household cannot afford to heat their home to an adequate level. The Scottish Government uses the following definition of fuel poverty as set out in the Scottish Fuel Poverty Statement published in 2002 112

"A household is in fuel poverty if it would be required to spend more than 10% of its income (including Housing Benefit or Income Support for Mortgage Interest) on all household fuel use" 113.

138. Extreme Fuel Poverty' can be defined as a household having to spend more than 20 per cent of its income on fuel. In 2007 586,000 households in Scotland were in fuel poverty. Of these just over one third or 172,000 households were in extreme fuel poverty.

139. As Figure 20 below shows from 1996 to 2002 the number of fuel poor households in Scotland fell substantially from around 36 per cent to 13 per cent. However in subsequent years the number has started to rise.

140. Changes in fuel prices were an important factor in both the reduction in numbers in fuel poverty between 1996 and 2002 and in the subsequent increase. At the time of the 2002 survey it was estimated that of the 26 per cent fall in fuel poverty between 1996 and 2002, 9 percentage points was due to the fall in fuel prices over the period, 4 per cent to improved energy efficiency and 13 per cent to real increases in incomes 114.

Figure 20: Fuel poverty Scotland: 1996 - 2005/06

Figure 20: Fuel poverty Scotland: 1996 - 2005/06

Source: Scottish House Condition Survey

Note: The definition of fuel poverty changed in 2002, and figures for 1996 are therefore not comparable with later years