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Why are so many Londoners trapped in poverty, and what can we do about it?

Christian Cross picture of people on the tube

Photo by Christian Cross

Christian Cross picture of people on the tube

Photo by Christian Cross

London is one of the richest cities in the world. But millions of people that call the capital home don’t get to see the benefits of its prosperity. One in four Londoners live in poverty, and our data shows that poverty has remained stubbornly high for over twenty years.

So why, in a city with more billionaires than any other, do so many people struggle to get by? And what can we do about it?

Proportion of people in poverty over time after housing costs (1996/97 - 2019/20)

The cost of living in London

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

For the last twenty years, London has consistently had the highest rate of poverty in the country. This isn’t because London attracts people in poverty – it's because it’s unfairly expensive. In particular, housing costs push millions of Londoners into poverty.

Proportions of people in poverty before and after housing costs (2019/20)

Simply, London doesn’t have enough homes. A lack of social housing means that Londoners need to rely on expensive private rented accommodation. Rent on its own can come to a huge portion of someone’s income. In every London borough, the average rent of a one-bed flat costs at least 35% of the city’s median salary.

Extortionate rents and London’s reliance on the rental market mean that millions of Londoners on incomes considered decent are squeezed hard. A poll in January 2023 found 80% of London’s tenants said they were struggling to pay their rent.

It’s not just about high costs - homes in London can often be poor quality. 16% of Londoners live in poor quality housing – more than any other region in the UK. Of those privately renting, 15% live in overcrowded conditions.

London’s problem with low pay

Paid work plays a vital part in lifting people out of poverty. But in London, almost half of people in poverty are already in employment. This is because so many jobs do not pay a decent wage. That’s why we need more good quality, fulfilling jobs that pay at least the London Living Wage.

In 2022, 17% of Londoners in work were paid below the London Living Wage. This means almost one in five working Londoners were paid an hourly wage below what it costs for an acceptable standard of living.

And if you’re in a cycle of low-pay, it can be hard to get out of it. Many low-paid jobs suffer a lack of progression. And many Londoners struggle to find enough work. 10% of Londoners want to work more than they currently do – either because they can’t find the opportunity, or are unable to work.

The cost-of-living

London’s problem with low-paid work means that millions of households are on the edge, trapped in a cycle of living pay-check to pay-check, only able to afford the essentials.

Our data shows how spending habits differ between people who are living in poverty and those who aren’t. In the three years leading to March 2020, households in poverty in London spent almost half (47%) of their weekly expenditure on three essential categories: rent, food and energy bills. For households not in poverty, the figure was 23%.

Average weekly spending on goods and services, in pounds, for London households by poverty - baseline (April 2017 - March 2020)

People on higher incomes tend to be able to save money that they can use when times get tough. People in poverty struggle to do this, because all of their budget already goes on the essentials – things like food, bills, rent and transport.

The cost-of-living crisis is so bad that we know people are having to choose between heating their homes and eating. But even when people in poverty can afford these bare essentials, they can’t afford to save and earn their way out of the poverty trap. What we’re experiencing right now is not a new poverty crisis. It’s an already dire reality, made worse by rising costs.

The additional costs of being poor

If you’re in poverty, the problem isn’t just that a larger proportion of your budget goes on essentials, it’s that these essentials often cost more because you are in poverty. This is called the poverty premium.

For example, if you can’t pay a large lump sum up front for your insurance, you have to pay in monthly instalments. The insurance provider may charge you more if you do this – this is what we mean by poverty premium.

Another example is the cost of borrowing money. People in poverty more regularly rely on high interest credit options to cover the cost of essentials, with crippling repayment plans.

Across the country, people in poverty typically spend an extra £430 a year due to the poverty premium. In total, this costs Londoners on the lowest incomes a combined £368 million a year.

Fair by Design poverty Premium map of London

Fair By Design’s interactive map shows how much the poverty premium costs each constituency in England, Scotland and Wales.

Working hours of low-paid, unfulfilling work so that you can pay extortionate living costs and barely get by can make escaping the poverty trap seem like an impossibility – especially combined with other factors such as structural racism and stigma towards those in poverty. Life for low-income Londoners can lead to exhaustion, worsening health and mental wellbeing.

So, how can we fix it?

In recent years, crisis support, like food banks, have become more normal. But we can’t allow the fact that millions of people can’t afford to eat to be ‘normal’. Whilst we need to provide immediate help to people who are experience poverty, we also need to tackle the issues that push people into poverty in the first place.

It may sound surprising, but we pretty much know how to eradicate poverty. Work that pays at least the living wage is essential. The Living Wage Campaign has helped lift the wages of thousands of people on the lowest pay since it began in 2008. We’re also funding the Social Market Foundation (SMF) to create a new framework for businesses that want to do more to tackle poverty. Their research finds that many employees want – and need – their employers to do more to help tackle poverty, and that many business want to help. But at present there isn’t always guidance available for employers. SMF’s work will help to provide London’s businesses with the tools and resources to help their employees.

Those who are unable to work need a safety net that prevents them falling into poverty – what is known as social security. We’ve been working with a group of current and former benefit claimants called the Commission on Social Security. Through their own experiences, and with research carried out with more than 1,000 members of the public and civil society, they have created a blueprint for better social security system.

Many of the other groups we fund are working to tackle the issues we have outlined in this blog. For example, Positive Money are campaigning to tackle the housing crisis – not just by building new homes but in other ways too, such as through progressive land and property taxes. We also fund Fair by Design, whose mission is to end the extra costs of being poor. They set out the poverty premium and how it can be ended here.

There are other things that we need too, like an NHS that has the capacity to help people who are not well enough to work, an education system that closes the gap faced by disadvantaged pupils, and an end to discrimination in the workplace.

You may ask, if we know how to solve poverty, why haven’t we? Well for us, the answer is a collective will for change. Poverty isn’t inevitable, but until we all make it a priority to eradicate it, it will remain with us. Following years of crisis and deep concerns about the direction of travel this collective effort is more important than ever.