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Poverty in London has fallen to the lowest in record – what’s going on?

Manny Hothi thumbnail
Manny Hothi thumbnail

Author: Manny Hothi, CEO

For the second year in a row, poverty in London has fallen to the lowest on record. 24% of Londoners are in poverty. This is still around 2.2m people – nearly double the population of Birmingham.

The proportion of Londoners in poverty has now been falling since 2018/19. There has been a 4 percentage point drop overall. It may not sound like much, but it’s significant because levels of poverty have largely been static for the past 20 years.

Cause for celebration? In some respects, yes. If poverty rates were the same in London now as they were in 2018/19, some 1.2m more Londoners would be judged to be living in poverty. But when last year’s poverty figures were announced, I felt we needed to understand what is going on before hailing it as progress.

Poverty could be going down because incomes (after housing costs) of the poorest, are rising. This is perfectly plausible. We’ve seen impressive hourly pay growth for the lowest paid (see our work on the real Living Wage), and there have been some changes to social security.

But poverty could also be going down because people on low incomes have left the city, and whoever is replacing them are on higher incomes. This type of population change is often labelled ‘gentrification’.

Last year I felt it was more likely to be the latter. This was partly based on the data but I made a lot of conjecture. We wanted a more robust answer.

Have we reached the tipping point?

Looking at the Spring 2024 data with our partners WPI Economics, our view is still that poverty is falling at least in part because of population changes. We think lower-income households are being priced out of the city. The evidence isn’t conclusive, and we are still relying on conjecture, but in this blog we’ll share our thinking.

To see what was changing, we compared current data with historic data. We looked at the numbers from 2016-19, when poverty was relatively high, and compared them with the numbers from 2021-23, when poverty was lower.

The first thing we did was look at changes to poverty across different age ranges.

Poverty rates by age groups (2016/17-2018/19 and 2021/22-2021/23)

This graph shows that for most age ranges, poverty rates decreased. But one range stands out: 30–39-year-olds. For that group, poverty fell by nearly a third (30%).

The graph below looks at the same thing but with actual numbers of people, rather than proportions.

Poverty counts by age groups (2016/17-2018/19 and 2021/22-2021/23)

Across the 0-to-39-year age range, there has been a reduction of around 253k people living in poverty. That means under-40s account for 88% of the total fall in poverty, among age groups where poverty fell. This is most pronounced in the 30-39 age range.

This is our first concrete finding. London’s fall in poverty is driven almost entirely by changes happening to the under 40s, particularly those in their thirties.

If our theory is that people are being priced out of the capital, it makes sense that this is the age range most affected. Your thirties are typically when you want more stability and perhaps start a family (in 2021 the average age of mothers was 30.9 years and fathers 33.7 years). You can't do this if over 50% of your income is going on housing People have always left London at this point in their life, but it looks like the cost of living crisis means it’s happened on a larger scale.

Sharp falls in poverty for Black and mixed-ethnicity Londoners

Another important finding from the data is about ethnicity. The graph below shows there have been significant falls in the poverty rate for Black Londoners (from 45% to 32%) and mixed ethnicity Londoners (from 32% down to 24%). You’re now more likely to be in poverty if you’re in the Asian or ‘other ethnic group’ category.

Poverty rates by ethnicity (2016/17-2018/19 and 2021/22-2021/23)

When you look at the overall fall in poverty, the two ethnic groups that make up the bulk are white Londoners (who account for 45% of total drop in poverty, among ethnic groups where poverty fell) and Black (who account for 37%). Then it’s Asian (16%) and the mixed category (2%).

Poverty counts by ethnicity (2016/17-2018/19 and 2021/22-2021/23)

So, alongside the finding that the reduction in poverty is driven by changes among those under 40, we can say that London’s fall in poverty has mostly been within the white and Black ethnic groups (82%).

Are people being lifted out of poverty?

We do need to explore whether this is really about people having more money, rather than being forced out. If this were happening, it’s time to celebrate: more money in people’s pockets is what tackling poverty is all about.

The two ways in which people in poverty typically increase their income is through earnings from a job, and through benefits. Starting with earnings, this graph shows the average earnings from employment for each 5% of the income distribution (after housing costs). It also plots the poverty line for the 2021/23 period.

Median earnings by income vigntile (2016/17-2018/19 and 2021/22-2021/23)

It shows that there hasn’t really been any change in earnings from jobs for people in poverty (1-4 on the bottom axis). This means that for the 20% of Londoners on the lowest incomes - who make up most of those in poverty – earnings haven’t changed significantly. We don’t think this is a major factor in lifting people out of poverty.

What about benefits? This graph shows there have been some winners and losers, but they cancel each other out. Again, we don’t think this is a key driver of London’s falling poverty rate.

Median benefits by income vigntile (2016/17-2018/19 and 2021/22-2021/23)

Finally, people can have more money in their pockets because their costs decrease. In London, this is really about the cost of housing. Surprisingly, median housing costs seem to be slightly lower in real terms in 2021-23, than in 2016-19.

Median housing costs by income vigntile (2016/17-2018/19 and 2021/22-2021/23)

Could this be driving some of the change? Well, an extra £10 or £20 a week is not insignificant, but it’s unlikely to lift many people out of poverty. We don’t think it’s likely to result in the scale of changes seen in London’s poverty rate - particularly when similar patterns are seen in housing costs outside of London.

Do people who leave London escape poverty?

We don’t have the data to track what happens to people when they leave. If our hypothesis is correct and people are being forced out of the city, they may well be lifted out of poverty because housing in their new area is much cheaper. This would make sense, and would in some respects be good for those households. But many will be reluctantly leaving their lives behind.

It’s not a good thing for a city as prosperous as London if the only way people can lift themselves out of poverty is by leaving.

Where does this leave us?

Combining the two main findings from this data with our theory, we lean towards the view that the reduction in poverty is most likely due to population changes affected Black Londoners and white Londoners, under the age of 40.

We’re trying hard not to be sensationalist, but it feels like London has reached a tipping point, one that was always on the horizon.

Can anything be done? We think it can, and tackling the housing crisis will be a key part of our 2030 strategy that will launch in June. But it comes down to one thing: the next government needs to be bold and act fast.