The Institute for Fiscal Studies (IFS) says there is a challenge ahead to raise incomes for the “new poor” – increasingly households with at least one person working.
The IFS said that was down to record employment levels but it meant that the problems of low income were now increasingly associated with working households rather than those living solely on benefits.
Its analysis of official data showed the proportion of children living in a household where there was no one working had fallen from nearly one-in-four in 1994-95 to fewer than one-in-six in 2014-15.
But the IFS said it believed that the poorest households were now the most vulnerable to any downturn in the labour market in the wake of the UK’s vote to leave the EU.
It added that the incomes of a second earner were proving crucial to lifting families out of poverty because of weak wage growth but inequality had eased, it said, because pay rises among middle earners had grown at a slower rate.
IFS director and co-author of the report, Robert Joyce, said: “Tackling low income is increasingly about tackling the problems faced by low-earning working households.
“In the short term this would be aided by a continued recovery in the number of hours worked by those on low wages or by more second earners entering work.
“Ultimately substantial progress will depend crucially on economic policies that push up productivity. Economic uncertainty following the Brexit vote will only serve to make these challenges all the tougher”.
On becoming Prime Minister last week, Theresa May put social justice at the heart of her ambitions in Government.
Work and Pensions Secretary Damian Green responded to the IFS report: “We now have record numbers of people in work, falling unemployment and wages rising faster than inflation.
“But we need to go further, which is why we have committed to increase the national living wage to benefit the poorest in society, we are taking the lowest paid out of income tax and our welfare reforms are ensuring it pays to be in