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London's poverty rate is falling, but it's probably not the good news you think it is

Couple moving into new house
Couple moving into new house

Author: Manny Hothi, Chief Executive

London's poverty rate is falling. Are people escaping poverty? Or does this mean something more worrying - that low-income Londoners are being priced out of the city?

According to the latest Office for National Statistics (ONS) data, poverty in London is falling.

Between 2018/19 and 2021/22, the poverty rate has fallen from 28% to 25%. It’s now lower than at any other point since the current measure began in 1996/97.

Proportion of people in poverty over time after housing costs (1996/97 - 2021/22)

London also no longer has the highest poverty rate in England. The West Midlands now occupies this unfortunate position, with a poverty rate of 27%.

Poverty rates by region (2021/22)

The fall in poverty has been spread across a range of demographic groups, but not evenly. White Londoners experienced a 7% drop in poverty, while BME Londoners experienced a 6% drop. Poverty among men has reduced by 5%, but only 2% for women. Couples with children and single people with children saw a drop of 5% and 6% respectively.

There has been a 4% reduction in poverty amongst working families, but no change for the poverty rate of workless families.

And one group has seen a 2% rise in poverty – single pensioners.

Poverty rates by demographic characteristics in London (2021/22)

It pains me to say, but we're not sure if this is good news

We really, really want to celebrate this news, but until we know more about what is going on, we don’t think we can. And here’s why.

Poverty in London has long been defined by the city’s high housing costs. In fact, if you look at poverty before taking account of housing costs, London now has the joint lowest rate of poverty in the country.

Notably, there’s been a sizeable reduction in the proportion of people in the private rented sector living in poverty. In 2021/22, 30.6% of private renters were in poverty – the lowest rate since the data has been reported by DWP (2004/5) and a 12% decrease over the last decade.

And whilst there has been a reduction in the number of people in poverty living in social housing, the 2021/22 poverty rate (48.9%) is pretty much the same as ten years ago (49.1%).

Number of people in London in poverty by housing tenure (2004/05 - 2021/22)

A turning-point: is the cost of renting pushing more people out of London than ever before?

We're worried that the reduction in the poverty rate is a sign that low-income Londoners are being forced out of the city in unprecedented numbers.

Why do we think this? First, how can the poverty rate in the private rented sector be lower than ever before when the cost of renting is going up?

The only plausible answer is that people in poverty are being pushed out in favour of those on higher incomes who can pay higher rents.

Second, if people are being pushed out, it’s likely that many of those that stay in the UK will be moving to areas surrounding London. This fits the typical pattern for population movement in the city – people tend to move outwards, rather than towards the centre.

The data for the South-East adds some credence to this theory. In 2021/22, it shows a rise of 400,000 within the bottom 40% of the population in terms of income. Not conclusive proof, but something to investigate.

Are we sure it isn’t good news?

Alongside our hypothesis that rents are forcing people out on an unprecendented scale, there are other dynamics we want to explore.

If more people on low incomes are leaving London, they might be better off due to lower housing costs. But many of them will still struggle with poorly paid, insecure work, and housing costs that leave them with little disposable income.

And we don’t think we’re being too idealistic in believing that London should be a place where people on low incomes can live.

An alternative hypothesis might be that low-income people are being paid more. Rises in the National Minimum Wage and Real London Living Wage led to hourly pay increasing by 7.8% for the bottom 10% of earners between 2017 and 2022.

There may also have been a temporary increase in incomes for benefit claiments from the Universal Credit £20 uplift. This would lend itself as an explanation for the fall in the number of people in the social rented sector.

However, these increases in income would have been temporary. Inflation will have devastated real-terms pay, and the £20 uplift is now gone (although benefits did increase in-line with inflation).

And while the minimum wage increases and £20 uplift were good government policy, there is plenty of bad policy to throw into the mix. As explained, London’s poverty rate is driven by the cost of housing – and the government is making this worse by freezing the Local Housing Allowance rates. The Institute for Fiscal Studies have also reported that affordabilty across the whole country had declined for housing benefit recipients.

And all this data is from before the impact of inflation really took hold. All our living standards have taken a hit in the last 12 months, more so if you are on a low income. The only effect that is likely to have remained - and probably accelerated - is the reduction in poverty in the private rented sector due to increasing rents.

What next?

We know poverty has decreased. But until we know more about what is going on, we aren't going to be celebrating. Over the coming months we’ll explore this some more and share what we find. And perhaps we won't know for sure until next year's poverty data is released.

For now, I can’t help but think we’ve finally hit a major turning point in this City – one that can only be fixed by a once-in-a-generation push to sort out this country’s housing crisis.