Poverty in Scotland 2023

With the Scottish Government still off-track in meeting the child poverty reduction targets, action to reverse the trend of increasing levels of in-work poverty is more vital than ever. Women, disabled people and minority ethnic people in particular are at the eye of a storm of persistent low pay, unreliable and insufficient hours and a struggle to make ends meet. Of course, there are actions government can, and should, take to respond, but employers must hold up their end of the bargain in ensuring work is the sustainable route out of poverty that it should be.

Main findings:

• Over one million people still live in poverty in Scotland, with nearly half of those (490,000) living in very deep poverty.
• The statutory child poverty reduction targets are unlikely to be met without significant additional Scottish Government action.
• While the Scottish Child Payment is likely to reduce child poverty, the growth of in-work poverty is holding back further progress.
• Just over 10% of workers in Scotland are locked in persistent low-pay i.e. they are paid below the real Living Wage – 72% of them are women.
• Five high-priority industries play a key role in maintaining in-work poverty – retail, hospitality, manufacturing, health and social work and the administration and support services.
• We detail several recommendations for the Scottish and UK Governments and provide specific findings and recommendations for the high-priority industries to work with and support their employees to make ends meet.

Targets missed, poverty deepening and a crisis still here

The headline poverty statistics in Scotland are reasonably easy to remember, partly because they are round numbers and, frustratingly, because they have not changed that much recently. Over a million people in Scotland live in relative poverty and around a quarter of them are children. As we highlighted earlier this year, nearly half a million people are in very deep poverty.

The UK Government’s record on poverty is bad and has made things worse; the Scottish Government’s is better but could go much further. As a result, this year’s Poverty in Scotland starts with a further warning that we are at increasing risk of missing the statutory child poverty targets. We seem very likely to miss the interim targets and, without significant longer-term actions planned by the Scottish Government, it is difficult to see how the 2030/31 targets can be met under current plans.

Clearly this would be a significant failure of the Scottish Government and Parliament. But there is still time to change this, and the latest numbers are yet to fully reflect the impact of the Scottish Child Payment. That should put us back on a downward trajectory of child poverty and provide the inspiration to keep going.

We also update our analysis of very deep poverty in Scotland and highlight the continuing trend, which we identified earlier this year (Cebula & Birt, 2023a), that very deep poverty continues to rise and that nearly half of all people in poverty are in very deep poverty, reiterating the absolute necessity for the UK Government to embrace the Essentials Guarantee that both we and the Trussell Trust are advocating.

These underlying long-term trends are still, however, being continually highlighted by the cost-of-living crisis. Last year’s Poverty in Scotland, and our follow-up analysis earlier this year (Cebula & Birt, 2023b), highlighted the extent to which people are struggling to secure even the essentials for their households. The people we spoke with in the preparation of this report repeat the same struggles. We do seem at risk of sleepwalking into another winter of deep struggles for people in one of the wealthiest countries in the world. Both the UK and Scottish Governments need to recommit to helping people through this crisis: slowing inflation does not mean falling prices but it does appear to mean falling political interest.

Is work working?

With that in mind we have chosen to focus this year’s Poverty in Scotland on one of the most powerful potential solutions to poverty: work.

Having introduced, and significantly raised, the Scottish Child Payment, the Scottish Government is quick to point out that poverty cannot be erased in Scotland by social security spending alone. In some respects, it is right. While the inadequacy of the current social security system is well understood, it is also true that a vibrant and accessible labour market could successfully lift people out of poverty and reduce the social security bill in the long term.

But that will not happen by accident, and it will not happen under current business practice and government plans. Much needs to change to make a poverty-proofed labour market, and this report seeks to highlight where things need fixes and suggests how to fix them, because work can be, and should be, a rewarding and engaging part of anyone’s life.

But far too many people, principally women, are trapped in low pay and the accompanying poverty – for them, work is not a route out of poverty, it is a roundabout with few exits.

Of course, for many, work is not even an option. Whether through the all-consuming nature of much unpaid work, overwhelmingly carried out by women, or through ill health and disability, work is not, at least in the immediate term and for many in the long term, an option. We also all deserve the ability to retire in good health and with a decent income.

In that context, the constant refrain of the centrality of work by policy-makers is to ignore the plight of those who cannot take on paid roles, and acts to stigmatise those who are often already marginalised. It also ignores the fact that the struggles that people locked out of work face are caused by government policy, whether through pitiful support through statutory maternity pay (SMP), Universal Credit, Carers Allowance – the list goes on – or through lack of respite care, social care, mental health support and flexible and affordable childcare.

We have written exhaustively on these issues, not least on the crucial call for an Essentials Guarantee in Universal Credit, and the key recommendations in the final part of this report address the government action to assist these families, but this report seeks to examine the reality of those who are able to work and explain the proliferation of in-work poverty.

Our findings provide both a challenge but also a possible guide for businesses and government to help make work the important buffer from poverty that it should be. We examine the key factors which drive in-work poverty and the industries within which they are most likely to show their head. We also show which sort of families are most likely to be experiencing in-work poverty and where they work.

Trapped in low pay – built on gender discrimination

While the National Minimum Wage and the National Living Wage (NLW) have created a more predictable floor within pay levels, the real Living Wage (rLW) is now the widely accepted minimum rate for good employers to pay or aim for. When we refer to ‘low pay’ in this report, we mean pay below the rLW.

Knowing the importance of the rLW, we show that 1 in 10 workers are in persistent low pay, that is, that they have earned below the rLW for at least four of five years. Very few people in low pay are able to sustainably move out of low pay with only 1 in 20 moving to pay above the rLW in the same 5-year period.

Chart source: JRF analysis of Understanding Society

Many argue that low pay is simply a stepping stone to higher wages given time and experience: this is not true. Our analysis simply does not support this conclusion and must alert employers and policy-makers to the persistent nature of low pay.

One particular finding is startling. Of those people trapped in persistent low pay, 72% are women, which highlights, in the starkest possible terms, the structural discrimination against women in the workplace. This is not only morally unacceptable but also a key cause of in-work poverty in our society.

Similarly, single parents, disabled people and carers are often trapped in low pay – highlighting the intersectional nature of the discrimination that women face. The analysis on persistent low pay also underlined a consistent finding on in-work poverty, that is, the undervaluation of part-time work. This chimes with previous findings by Close the Gap (2022) which showed a 32.4% pay gap between women who work part-time and men who work full-time.

The industries where in-work poverty is most prevalent

We also analysed which industries had the largest number of people working in them whose families were experiencing in-work poverty. This identified five ‘high-priority industries’. We called them this because of their centrality to our economy but also because things have to change.

Nearly three-quarters of people experiencing in-work poverty have someone in their family who works in hospitality, health and social work, retail, administrative support and/or manufacturing. Linked to that, 80% of people locked in low pay work in one of these industries.

Each of these industries face headwinds in the current climate, whether it is increased costs of raw materials, public sector austerity or changes in the way people shop and relax. It would be naïve to suggest that each of these sectors can just up and change their business models overnight. But these findings should give them significant cause for concern, particularly in such a tight labour market. With high proportions of people turning up for work while struggling to make ends meet at home, the fragility of the workforce is unsustainable.

The issue of pay is a fairly consistent feature of in-work poverty in each of these industries. For example, in retail, low pay is common and while women make up just over half of the workforce, they make up nearly 60% of the low-paid workforce. In the health and social work industry the story is slightly different, with the risk of low pay being about the average we see across the economy, but with women, who already dominate the workforce, making up 82% of all low-paid workers in the industry.

For other industries, one of the key features affecting earnings is insecurity of contracts and under-employment (that is, employees wanting more hours but unable to get them), such as in hospitality, where nearly 2 in 10 workers would take more hours if they were offered them.

Part-time work is also a significant warning sign for in-work poverty – not just because of lower numbers of hours but also because of low pay. In retail, for example, there is a high proportion of part-time workers (43%), and they represent over half (53%) of low-paid workers. The story is similar in the health and social work sector, with around one in three of all workers being part-time but over two in five (42%) low-paid workers working part-time. Can we really defend the massive difference in pay for part-time work versus full-time work?

For sectors such as manufacturing the situation is harder to unpick – largely due to the data available. Low pay is less common in manufacturing than it is in the other high-priority sectors, but the industry has the highest risk of poverty amongst its workers and their families. The workforce is also dominated by men, suggesting that the issues are in the makeup of work and caring roles within families rather than just the terms of employment for people in the industry. As a result, employers should also explore with their employees whether there are particular issues around the terms and conditions of employment within the manufacturing industry that preclude other family members from working.

The families who are most likely to experience in-work poverty

We are also able to analyse which families are most likely to experience in-work poverty. Again, the findings are consistent with who experiences low pay, fewer hours and barriers to working in the first place. One in four people in working single-parent families are in poverty – around 10 percentage points higher than the average poverty rate for families where someone works.

Larger families, that is, families with three or more children, also face an in-work poverty rate of around one in four. And while couples with children face a lower risk of in-work poverty, they still make up around half of the families experiencing in-work poverty, with more than 1 in 10 people experiencing in-work poverty that live in couple families with children having both parents in full-time work. This is further proof of the perverse situation where having children is a consistent risk factor of being in poverty in Scotland.

People from a minority ethnic background also experience a rate of in-work poverty that is three times that of the rate of white workers. Workers in minority ethnic families where everyone works full-time are also nearly twice as likely to experience in-work poverty than white workers. This chimes with our previous reports highlighting gaping pay gaps between minority ethnic and white workers and the discrimination that minority ethnic workers face in the workplace (Yaqoob & Shahnaz, 2023; Cebula & Evans, 2021).

Finally, households where someone is disabled and/or someone is a carer also face an increased risk of in-work poverty. For some families this will be due to the disabled person either being unable to work or having been excluded from the workforce by inaccessible employment. For example, a family where someone is disabled is half as likely as a family where no one is disabled to have everyone in full-time work.

Families not in work

While in-work poverty rates are still far too high, the poverty risk for those living in a household where no one works are outrageous. Life can trip any of us up at any time, yet the basic level of Universal Credit is not even enough in many cases to afford the bare essentials.

For others who are unable to access work for whatever reason (from parenthood to ill health), they are often exposed to poverty by an inadequate social security system or by systematic barriers to entering the labour market.

It is also notable, though, that many of the people who are most likely to be in poverty and not in work are the same groups of people who are likely to experience in-work poverty. For example, while also seeing worse labour market outcomes, over half of all families where no one is working have someone in the family who is disabled. Similarly, single-parent families who manage to secure work struggle to earn a decent income from it, while single-parent families also make up 20% of the people in poverty where no one is working, underlining the structural nature of the poverty that far too many families face.

The role of costs and in-work poverty

Like all families, the biggest cost that families in work will usually face is their housing costs. In some ways the housing market has started to work as it should in so far as it relates to low-paid workers. In the early part of the millennium, the private rented sector increased significantly, creating a peak in rates of in-work poverty caused by housing costs alone (that is, with more affordable housing costs, people’s incomes would have been enough to avoid poverty otherwise).

In 2011–14, almost one in three people experiencing in-work poverty were pulled into poverty due to their housing costs alone, but in recent years this has fallen to one in five. That still means that around 110,000 people are experiencing in-work poverty due to their housing costs but also shows the potential for reduced housing costs to lift people out of poverty. This is likely at least in part due to the Scottish Government’s commitment to building affordable and, in particular, social homes over this period – although this is difficult to substantiate without the much-delayed Scottish Household Survey (that has not reported in full since 2019).

We also conducted two focus groups to gain insight into more recent challenges facing those experiencing low pay, and they highlighted how fragile the Scottish housing market is. Firstly, the recent significant rises in interest rates are front and centre of homeowners’ minds. While homeownership, with or without a mortgage, has generally provided a buffer against poverty, it is likely that the significant rises in repayments that many households are currently paying or likely to face will push more into poverty.

We also heard about how the lack of choice in housing also limited work opportunities because families were reluctant to add significant travel costs or less secure housing tenure to take up work opportunities. The current halfway house between working at home or not was also of concern – with travel costs, again, decreasing families’ abilities to make ends meet.

How to turn work around

In the final part of this report we focus on the solutions and recommendations for business and government.

Businesses

For businesses, the solution is in this respect simple. It is to consult and listen to their employees. As we highlight in this report, in-work poverty does not have a single solution, and it is highly individualised. As a result, the relationship between employees and their line managers and those who run businesses is key. Where employee voice is heard, employees do better.

• Businesses also need to have a serious look at how their employment practices and policies are affecting women. You are far more likely to be on low pay if you are a woman. You are more likely to be part-time. You are likely to get paid less than men. You are less likely to progress in your role. You are more likely to undertake unpaid work. In light of these litanies of unfairness, greater regulation is required, but businesses do not need to wait for government to catch up with these gross inequities.

Businesses also need to work on:

Pay

• Payment of the rLW should be a goal of all employers.
• Committing to higher cost of living pay increases and where possible one-off bonus payments, or direct help with key costs, to help with the cost of living.
• Playing a role in increasing employees’ income by being proactive and encouraging employees to ensure they are in receipt of all benefits available to them.
• Adopting enhanced maternity pay and also work to increase take-up, and adequacy, of paternity pay for low-paid men.

Progression

• Target training and progression opportunities at employees on lower pay.
• Reduce costs and barriers to training for staff – ensure barriers are not put in place for low-paid employees.
• Understand when progression might not be appealing. This is partly about marginal increases in pay for disproportionate levels of work and responsibility. For example, if management positions move from hourly pay to salaried, yet there is a culture of managers continually working beyond their contracted hours. Additionally, the interaction with Universal Credit should also be considered by employers. When presenting opportunities for increased pay, employers should understand taper rates.
• Flexibility as a tool and not an end in itself. Employers should try to create flexible roles within organisations that are targeted at offering more progression opportunities.

Hours and employment security

• Employers should aim to become Living Hours accredited.
• Employees should be offered contracts that reflect their hours of work.
• Give employees minimum of four weeks’ notice for shifts.
• Pay staff in full for any changes or cancellations in shifts.

Scottish Government

The Scottish Government, in some ways fairly, complains of its lack of direct powers in this area. But that is to deny its direct responsibilities for things like employability, economic development, skills, and so on. As a result it must:

• Operationalise Fair Work rather than talk about it. For 10 years the Fair Work policy agenda has made several welcome interventions. The current tactic for implementation of the many ideas, reports, working groups, industry leadership groups on Fair Work mainly appears centred on putting reports online. With an untrusting (of Scottish Government), busy and under pressure audience, this will never move the dial. Investment in dedicated teams of people, independent of government, focused on working with employers to make changes on specific fair work components while, at the same time, feeding back concerns from on the ground is not novel or glamorous but must at least be attempted.
• Prioritise progression. This report should be the last word on the notion that low pay is a necessary stepping stone. We show that, over a 5-year period, 1 in 10 workers are trapped on low pay and just 1 in 20 are escaping low pay. We have shown that employers have a vital role to play in addressing this, but there is a role for Scottish Government too. Progression should have equal status with participation when it comes to employment support strategy and services that are designed with people with lived experience of in-work poverty.
• Redesign and enhance employment support offer. The ambitions outlined in the most recent Tackling Child Poverty Delivery Plan are inadequate in comparison to the scale of change needed. It must be to forge a safe and positive path for people into good work. This requires the services to shift focus from the individuals as needing to fit in to the labour market and specific employers to be more proactive in advocating and creating changes to how jobs are designed.
• Childcare is still not working for the parents we speak to. The lack of availability and flexibility is a barrier to work. As we have highlighted in previous reports, parents are fed up repeating their issues with childcare. We are currently investigating this in a separate report due to be published in 2024.
• Creation of an independent agency that exists to deal with instances of racism in the workplace. The lack of trust that workers have in reporting racism to their employers can result in poor outcomes. Scottish Government should support the creation of an independent agency where employees would be able to report and receive support anonymously. The agency would be able to signpost to legal support if required but also offer training for employers.

UK Government

The UK Government still holds significant powers over employment law, equalities legislation and the social security system. It needs to use them to poverty-proof the labour market:

• A real Living Wage for all workers aged 18 and up should replace the National Minimum Wage and NLW. A new wage floor calculation tied to what people need to lead a dignified life should be the statutory minimum; the calculation of the rLW is tied in this way by the Minimum Income Standard.
• Create a new Statutory Carer Pay entitlement, which mirrors statutory maternity pay and provides earnings-related financial support for carers with high-intensity caring demands for up to nine months.
• Increase Statutory Maternity Pay (SMP). A first step to increasing SMP would be to have it replicate enhanced maternity pay, a policy which is already well known with employers.
• Increase Statutory Paternity Pay. We support the proposal put forth by Pregnant Then Screwed and the Centre for Progressive Policy that Statutory Paternity Pay is increased to a minimum of six weeks, during which employees would be paid 90% of their salary, aligning with the existing SMP.
• Make flexible working the default from day one of employment, and reconsider the business exemptions for refusing a request, so jobs work around caring responsibilities and health needs; this would shift the onus onto employers to think about what flexibility they can offer.

Broader actions relating to poverty reduction and cost of living

While we have focused on in-work poverty and the role of the workplace in causing it, there are clearly actions that government needs to take outside the workplace. This is not a comprehensive list of all actions that both the UK and Scottish Governments can and should take, but we focus on actions that are both necessary for long-term poverty reduction and the current cost of living crisis.

UK Government

The UK Government should:

• Adopt the Essentials Guarantee and ensure that Universal Credit provides at the very minimum enough to secure the bare essentials.
• End the most pernicious elements of the Universal Credit such as the two-child cap, the benefit cap and the current sanctions and deductions scheme.
• Raise the local housing allowance to a more realistic reflection of housing costs.
• Consider what additional support families require in the face of the continuing cost-of-living crisis – including a focus on the families at the greatest risk, including low-income families, single parents, large families, minority ethnic families, disabled people and private renters.

Scottish Government

The Scottish Government should:

• Re-commit to their Minimum Income Guarantee project, including considering prioritising groups for initial roll-out or trials, such as families with babies.
• Continue to increase the Scottish Child Payment to assist in meeting the child poverty targets but urgently commit to making it a standalone payment, separate to Universal Credit, that can taper with individuals’ earnings.
• Bring forward its appraisal of the adequacy of disability assistance payments.
• Re-instate levels of social house building funding.
• Consider repeating the cost-of-living payments they made last year, particularly for families who do not have children (who will already benefit from the Scottish Child Payment).