People with mortgages are the 'new poor'

WORKING families with mortgages and the struggling self-employed are the 'new poor' to emerge from a select committee report on poverty during the Thatcher years.

The report, Low Income Statistics: Low Income Families 1979-1989, published by the Social Security Committee yesterday, shows a striking new trend in the type of people classified as living below the poverty line.

The figures, which the Government did not want published, show the number of families that have a full-time worker living on incomes of less than the basic unemployment benefit rate has doubled from 470,000 to almost one million over a decade.

Researchers from the Institute for Fiscal Studies revealed that about half the 970,000 families with a worker living below this poverty line were self-employed and two-thirds of them - 620,000 - had mortgages. In 1979, of the 470,000 working families below the poverty line, fewer than half - 200,000 - had a mortgage.

Home owners on low incomes have been ensnared in the poverty trap because of benefit rules. If they were unemployed and receiving Income Support, the Department of Social Security would pay the mortgage interest. But interest will not be paid for those in full-time work - defined as working over 16 hours a week.

Also, people on low incomes who live in rented accommodation are entitled to Housing Benefit, which pays a substantial proportion of the rent, but working people with mortgages get no such assistance.

Steve Webb, an economist who conducted the research, said that if the DSS paid building society interest for employed people with mortgages, almost 500,000 of the 620,000 would not be below the poverty line.

He said: 'The groups we have traditionally thought of as being poor, such as pensioners, are tending to get better off and their place is being taken, in part, by a new poor such as lower paid workers with mortgages and the self- employed.'

Charities working with families living below the poverty line, such as the National Association of Citizens' Advice Bureaux and the Children's Society, confirmed that the biggest increase in poverty was among people with mortgages. Ian Sparks, the Children's Society director, said: 'Unlike families on Income Support, those in low-paid work get no help with mortgage interest repayments. They get into extreme difficulties and this often leads to the repossession of their homes.'

Ministers believe the Government will have to tackle the plight of house-owners who cannot afford their mortgage repayments as a priority for winning back wavering Tory voters.

They fear the collapse of confidence in the housing market has undermined support for the Tory party among many home-owners who purchased their homes under the Thatcher right-to-buy legislation.

One former ministerial policy adviser said the Government should consider replacing mortgage tax relief - no longer regarded as a taboo area - with a new benefit directed at the low-paid facing difficulties in paying.

Peter Lilley, Secretary of State for Social Security, is believed to be preparing a wide-ranging review of benefits.

Launching the report, which showed that the number of people living on incomes even lower than state benefit rose by almost 50 per cent to three million, Frank Field, the committee chairman, called for a review of the effectiveness of the welfare state, which spends pounds 80bn on benefits a year.

Low Income Statistics: Low Income Families 1979-1989; HMSO; pounds 10.