Finance

In-work poverty affects 1 in 5 UK employees

By KPMG
Finance
Published: 7 November 2017

One in five people (21%) in the UK are still earning below the real Living Wage*, meaning that an estimated 5.5 million employees are struggling to get out of in-work poverty, according to a new report published by KPMG

The research, conducted by IHS Markit for KPMG, found that the total number earning below the real Living Wage is down slightly by 100,000 compared to last year, when an estimated 22% of all jobs and 5.6 million roles paid less than the real Living Wage. This is the first reduction in five years, but still leaves the total of one million more people earning below the real Living Wage than in 2012.

For five years in a row, the research finds that women are considerably more likely to be paid below the real Living Wage than men. With nearly 225,000 more women in work than last year, this year’s data shows that just over one in four (26%) of female employees earn less than the real Living Wage, compared to 16%of all males. In numerical terms this equates to 3.4 million female employees versus 2.1 million male employees.

Around 3.1 million part-time employees earn less than the real Living Wage, compared with 2.4 million full-time workers. Part-time jobs are around three times more likely to pay below £8.45 per hour (or £9.75 in London) than full-time roles. Some 42% of part-time workers now earn less than the real Living Wage, compared with 13%full-time workers. Indeed the difference is so stark that despite accounting for less than one-third (28%) of all UK jobs, part-time roles represent more than half (56%) of all jobs paying less than the real Living Wage.

Regionally, Northern Ireland has the highest proportion of jobs earning below the real Living Wage at 26%, followed by the East Midlands, Yorkshire and Humber, Wales and the West Midlands all at around 24%. The lowest proportion of employees earning less than the Living Wage is found in the South East at 17%, Scotland at 18% and London at 19%.

However, by number of people rather than proportion, London at around 750,000, followed by the South East and North West at an estimated 635,000 each are the areas with the highest levels.

Commenting on the number of people earning below the real Living Wage, Andy Bagnall, Director at KPMG UK, said: “These figures show that more work needs to be done if we are to eradicate in-work poverty. It’s unfortunate that in 2017 more than 5 million working people in the UK are earning below the real Living Wage and cannot enjoy the standard of life so many of us take for granted.

“In the past, many businesses were worried that increased wages would hit their bottom line, but there is ample evidence to suggest otherwise. By paying the real Living Wage since 2006 KPMG has seen improved staff morale, a rise in service standards, improved retention of staff and increased productivity. More importantly, it has been an enabler for social mobility.

“It is clear that it may not be possible or practical for everyone, but businesses need to do what they can to address the problem of low pay. Of course, change cannot happen instantly, but making an initial assessment is an important first step.”

Katherine Chapman, Living Wage Foundation Director said: “The figures show that, whilst moving in the right direction, there are still 5.5 million people earning less than the real Living Wage across the UK and with the cost of living increasing as inflation rises, those on lowest incomes are really feeling the squeeze. The new Living Wage rates will be announced and with tough times ahead it’s more important than ever that great employers are stepping up to ensure that their staff earn a wage that ensures workers can live with dignity.”

Household finances survey
The analysis also explored household finances of both those earning below the Living Wage and those earning the Living Wage and above. It revealed that even though the number of people earning below the real Living Wage has slightly decreased, around four times as many respondents earning less than the real Living Wage indicated that their household finances had worsened (27%) as those that experienced an improvement (7%) in October 2017.

It also found:

  • A sharp increase in the cost of living for those earning below the real Living Wage, with around 59%of those earning below the threshold reporting an increase, compared to only 3%that signalled a decline.
  • Nearly twice as many (17%) of those earning below the real Living Wage noted a decline in pay compared to those that recorded an increase (9%). This contrasted with the picture seen for employees earning above the real Living Wage, who registered an upturn in pay (as has been the case since 2013).
  • At the same time, people earning less than the real Living Wage recorded a steeper fall in job security compared to a year ago. More than one in five (21%) of employees earning below the threshold signalled a drop in job security, compared with just 8% that noted an improvement.

Looking ahead, UK households believe that the cost of living will continue to rise markedly over the coming year. Notably, expectations for living costs over the next 12 months were at a four-year high for both those earnings above and below the real Living Wage in October 2017. Nearly four out of five (78%) employees earning less than the real Living Wage forecast a further hike in living costs over the next year, while just 2% anticipate a fall.

“Even though the number of people earning below the real Living Wage has slightly decreased, the reality is that those at the bottom of the pay scale are really feeling the squeeze due to increases in the cost of living and decline in pay. Looking ahead, a rise in inflation levels will further eat into the pay-packets of those already struggling – it’s time for the business community to play its part to help those working earn a respectable wage”, concluded Bagnall.