What causes poverty in London?

In general, the causes of poverty might seem easy to explain, but it's a complex issue. Someone is likely to fall into poverty because they haven't got enough money coming in, and too much going out - but the reasons for all of this are often complicated.

In this section of our Understanding poverty in London series, we explore the specific drivers behind poverty in London. By knowing the specific reasons behind high levels of poverty, we can understand the solutions to tackling it.

We explore:

• Extortionate housing costs
• Low pay and insecure work
• Inadequate levels of social security
• Systemic inequalities

High housing costs

Every region has its own local dimensions to poverty. In London, poverty is made worse by the extortionate cost of living here.

In the past people on lower incomes would often rely on social housing. Now, there are more than 300,000 households across the city on social housing waiting lists.

This means that Londoners increasingly rely on the private rental sector for a home, which can be very expensive. Rent on its own can come to a huge portion of someone’s income.

The chart below shows that housing costs a lot more in London, across every sector. A one-bedroom home in the lower quartile of the private market (i.e. a property that is more affordable than 75% of others in London) cost £1,100 in 2022/23 - compared to £560 in the rest of England.

These huge housing costs leave many Londoners with very little disposable income – and are a key factor behind many people falling into poverty.

The chart below illustrates this. It shows that when housing costs are taken into account, London’s poverty rate rises by 11 percentage points - from 15% to 26%. Put another way, this means that accounting for the high housing costs in the capital leads to almost one million more people being judged to be in poverty.

This is significantly different to the rest of England, where the poverty rate rises by just 4 percentage points when housing costs are taken into account.

As we found out in the previous section, Who is in poverty in London?, half of Londoners in poverty are in work.

A key cause of poverty in London is low pay. Across the city, 17.5% of working Londoners are paid less than a London Living Wage – the amount needed for a decent standard of living. That's more than 500,000 workers. This has increased slightly in the last year.

Part time jobs are especially likely to be low paid. 41% of Londoners working part-time are low paid.

In some boroughs this problem is even worse. In Brent, more than one in four workers are low paid. See low pay by London borough here.

Does the rising minimum wage make a difference?

Over the last two decades, pay for those on the lowest incomes has steadily increased as the government has increased the minimum wage. This is hugely important.

But in London, this has less of an impact on reducing poverty. This is because costs are much higher in London, but the minimum wage is the same. Incomes need to be higher in London to match the cost of living.

This is reflected in the Living Wage movement, which encourages employers to pay a 'Real Living Wage'. Unlike the minimum wage, this wage rate is solely based on the cost of living. It also has a separate 'London Living Wage' which is slightly higher to reflect the higher cost of living. It's voluntary, but more than 16,000 UK employers have already signed up.

It's not just about pay

As well as low pay, insecure work contributes to poverty.

Many Londoners work jobs with unstable hours - for example unpredictable shifts, which can be cancelled at short notice.

Others are unable to take on more hours, even though they'd like to. For example, single parents might not be able to work additional hours because of childcare costs, which limits their income.

Even if people earn a decent wage, such as a real Living Wage, if they're unable to work sufficient hours, they may find themselves trapped in poverty.

We explore this in more depth in our blog 'How has pay changed over time?'.

The cost of essentials

There are certain essentials we all need. We've already talked about the cost of housing, but we also all need to buy food, to pay our energy and water bills, to travel to work.

If you're on a low income, these essentials take up a higher portion of your budget.

For example, research from IPPR found transport costs take up twice the share of income for the least well-off.

And our own research found that before the pandemic, just under a quarter of lower income households' expenditure went on food and energy bills - compared to 10% for those on the highest incomes.

This means that when prices go up, as we have seen happen repeatedly in the last few years, those on lower incomes have less room to cut back and can be dragged into poverty.

Many essentials cost more in London than elsewhere. Childcare, for example, is far more expensive in London than in other cities.

A social security system that falls short

Many Londoners rely on the social security system to get by. This includes people who are unable to work, or find themselves out of work temporarily. But it also includes many working Londoners, whose wages fall short.

Social security - also called benefits, or the welfare state - is meant to be our society's safety net, which prevents people from falling into poverty. Like the NHS, it's there to support all of us when we need it.

But over time, the amount of support people can receive has dwindled. The current system doesn't provide people with enough money to reach even a basic standard of living. And rules have been put in place - such as the two child limit - to cap people's incomes.

This means that many people on social security find themselves in deep poverty. The Joseph Rowntree Foundation finds that around 5 in 6 low-income households on Universal Credit are currently going without essentials.

Other factors that push people into poverty

These four factors – high housing costs, low pay, the cost of essentials and a lack of a proper safety net – go a long way to explain why in one of the wealthiest cities in the world, with more billionaires than almost any other, so many people are in poverty.

But they aren’t the only reasons. There are many other factors, which it isn’t possible to cover extensively here. Two key areas that its worth mentioning are systemic inequalities and the migration system.

Systemic inequalities

As we saw in the previous section Who is in poverty in London?, some groups – such as Black and minority ethnic Londoners and Disabled Londoners - are more likely to be in poverty. This isn’t anything about the people that make up these groups. Rather, it’s because of the way society works.

For example, systemic racism means that Black Londoners have significantly worse job outcomes than their white counterparts – even when they have the same qualifications.

Black households have also historically been excluded from opportunities to build wealth over generations, meaning that current generations are less likely to, for example, own a home.

Single parents might be unable to take on enough work, because of caring responsibilities and the high cost of childcare. This contributes to many women being in poverty.

These systemic inequalities mean that many people are more likely to face hardship, just because of who they are.

The migration system

London is home to many more migrants than other parts of the country. Our migration system is complex, expensive for migrants and punitive. You might have heard this referred to as the 'hostile environment' - policies that make things difficult for migrants.

One example is No Recourse to Public Funds, a condition added to the visas of many migrants to the UK.

It means that they can’t access a range of financial support – such as housing benefits, child benefits, and universal credit. This means that even if you’re working and paying taxes you’re blocked from accessing many public funds. It leaves many Londoners without a safety net and contributes to many thousands being pushed into poverty.

Head to the next section to learn about the different ways being in poverty can affect your life.