Middle-income Families: Receiving More Benefits, Less Likely to Own Home

14/07/2016 12:25 | Updated 14 July 2016
Howard Brundrett/Eye Ubiquitous

We all know about differences between children from rich, poor and middle-income families. Or at least we think we do. But new research that we have undertaken at the Institute for Fiscal Studies shows that these differences have changed dramatically. In terms of their sources of income and rates of home-ownership, middle-income families look much more like poorer families, and much less like high-income families, than they used to.

In the mid 1990s, lack of employment explained most child poverty. 60% of the poorest fifth of children lived in a household with no one in paid work. Almost three-quarters of the household income of that poorest fifth came from state benefits, and just over one quarter from their parents' earnings.

Today, that picture is very different. Parental employment has risen dramatically. By 2014-15, the fraction of the poorest fifth of children that live in a workless household had fallen to only 37%. The huge fall in household worklessness is an important good news story. It has been a key driver of rising living standards for poor children - whose household incomes have risen by over 40%, after adjusting for inflation, over the last 20 years - and it has helped them catch up somewhat with middle-income families. It also means that parents' earnings are ever more important as a source of income for poor children, now making up more than 40% of household income for the poorest fifth.

While parental earnings have become a more important source of income for poor children, they have actually become a smaller share of household income for children in middle-income families. This is not because parents' earnings have fallen for that group, but because they have risen considerably less quickly than their benefit and tax credit receipts. Reforms under the Labour governments sharply increased the generosity of state support for working families. Despite cuts to benefits in recent years, they now make up 30% of household income for middle-income children, up from 22% in the mid-1990s.

Proportion of children's household income coming from benefits


So in terms of where their household income comes from, poor and middle-income children are much more similar than they used to be. Looking at home-ownership rates yields a similar story. Twenty years ago over two-thirds of middle-income children lived in owner-occupied housing, compared to 40% of the poorest fifth of kids. Today only half of middle-income children are in owner-occupied housing. Meanwhile home-ownership rates among poor families have barely changed. But they have shifted away from social housing towards private rented accommodation, which - you've guessed it - is where those in the middle are increasingly found as well.

Proportion of children in different income groups in owner-occupied housing


For high-income families, by contrast, earnings still make up almost all of household income and home-ownership rates are still around 90%. The income gap between middle-income families and those towards the top is not any wider than 20 years ago, largely because of the extra benefits going to the middle. But with high house prices and stagnant earnings, the gap may feel harder to bridge.

On 19 July IFS will publish its annual flagship report: 'Poverty and Inequality in the UK', funded by the JRF and the ESRC. You can sign up to the publication launch here