Why the 'underemployed' face loss of support for housing costs

One in ten people in the UK is now underemployed, meaning they would like to work more hours to boost their earnings but are unable to find suitable jobs.

The problem of underemployment has bubbled around the squeezed middle debate for some time, but the Office for National Statistics has now crunched the numbers and discovered that more than three million Britons are unable to find sufficient work.

Importantly these workers are not people actively choosing to work part-time to balance child care, studying or other commitments. Around a quarter of part-time workers would like to work more hours, but are unable to find sufficient employment. This has an immediate impact on their wages, with many unable to earn enough to meet essential living costs.

Underemployment jumped [PDF] sharply following the economic downturn, and it is partly because of this trend that the official figures for unemployment have remained more buoyant than many expected, despite the prolonged squeeze on growth.

Households likely to be affected include those who have had their hours reduced by employers as a way to reduce costs and avoid redundancies. The ONS also found that many people returning to the labour market have only been able to find jobs with limited hours, such as bar work or childminding. Analysis suggests many people desperately want to work full-time but are forced to settle for part-time work as it is the only option available.

Underemployment depresses earnings and this is having an impact on families’ ability to meet their housing costs. The number of working households in receipt of housing benefit has exploded since 2008, more than doubling to 929,000 households. Although rising rents are also a factor, it is no coincidence that over the same period an additional 980,000 workers have been classified as underemployed.

So we have a growing group of people who want to work harder but are being let down by a sluggish economy and are increasingly reliant on support to help meet their housing costs. Unfortunately – and many would say unfairly given that these households are already frustrated by the lack of full-time work – it is these same households who are in the firing line for the next round of welfare reform.

Under Universal Credit, households earning below a certain threshold will be subject to conditionality requiring them to increase their earnings. For many people this will be equivalent to full-time earnings. They will be expected to take on more hours, find a second job, or move to a better paid job. If they don’t they’ll face sanctions – losing a portion of their Universal Credit, including the support they receive to pay their rent.

Additionally, underemployment will make it more likely working families will be caught by the overall benefit cap. Ministers had said that only ‘non-working’ households will be subject to the cap. But to count as ‘working’, households must work a set number of hours per week. Many families will be frustrated part-timers, meaning that from April 2013 they may no longer qualify for sufficient housing benefit to pay the rent.

Conditionality and sanctions are established realities for job seekers, but extending the same rules to low-income workers is a radical shift. Ministers have produced zero evidence that part-time workers are deliberately suppressing their earning power and letting tax credits and housing benefit pick up the slack. This analysis by the ONS further suggests that for many workers additional hours just aren’t available.

Yesterday’s figures are yet another piece of evidence that ordinary households are struggling with basic living costs in an economy that isn’t providing sufficient full-time work. But they are particularly ominous for the low paid workers about to find themselves the target of the next phase of welfare reform.

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