Turn the clock back to the mid-1990s. The UK economy is on the mend after its second deep recession in a decade but the scars are deep. Britain has an unemployment problem and a poverty problem. What’s more, the two are linked because the majority of poor people live in workless households.

Times have changed. The percentage of people in work is now higher than it has ever been and unemployment, using the internationally agreed yardstick, is below 4% and at its lowest since the mid-1970s.

But as the Joseph Rowntree Foundation noted in a report released last week, many of those with jobs are struggling to get by. Britain still has a poverty problem, but now it is concentrated among the employed rather than the jobless.

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The official definition of poverty is someone who lives in a household where the money coming in – typically from pay and benefits – is below 60% of the median income for a similar family type after housing costs. According to the foundation, 56% of those below the poverty line live in a household where someone is working.

In-work poverty is not new. It was there in the late 1990s when Gordon Brown brought in tax credits to top up the earnings of those not making enough to get by from their wages alone. Critics of Labour’s answer to in-work poverty said it would simply encourage employers to pay low wages because they knew the government would provide a top up. Over the years, the bill for tax credits kept on rising, and proved an easy target for George Osborne when he became chancellor in the 2010 coalition government.

As the benefits system has become less generous, people have needed to work longer hours to get by. The Resolution Foundation thinktank estimates that a single parent with two children in a job earning the “national living wage” needs to work 23 hours per week to live free of poverty, compared with the 16 hours required in the absence of benefit cuts made post-2010.

This helps explain why earnings growth has been so weak even as the official jobless rate has fallen to below 4%. Britain looks like a full-employment economy but also has large pockets of under-employment. If demand for labour increases, employers don’t need to pay more to attract new workers; they simply have to offer existing workers more hours at the current rate.

Quick guide Poverty in the UK Show Hide How many people are affected by poverty in the UK? More than 4 million people in the UK are trapped in deep poverty, meaning their income is at least 50% below the official breadline, locking them into a weekly struggle to afford the most basic living essentials. Seven million people, including 2.3 million children, are affected by 'persistent poverty', meaning they were not only in poverty but had been for at least two of the previous three years. The figures were calculated by experts from across the political spectrum who make up the Social Metrics Commission, set up in 2016 to develop a new way of measuring poverty. What are the definitions of poverty in the UK? In cash terms, the Social Metrics Commission says 'deep poverty' is considered to be a couple with two children who have an income of less than £211 a week after housing costs, or a single parent with one child on less than £101.50 a week. A 'destitution' level of income is £140 a week for a couple with two children. How have poverty rates changed in the UK? Although overall rates of poverty have changed relatively little since 2000-01, certain groups – such as children, children of lone parents, and pensioners – have had hardship levels rise since 2013 as a result of austerity measures such as the benefit freeze, reversing earlier downward trends. There has been a dramatic rise in child poverty in families with three or more children, up 9% points since 2013-14. How does having a disability affect poverty rates? Disability is one of the strongest predictors of being in poverty. Nearly half of all those living below the breadline live in a household where someone is disabled. How does being in work affect poverty rates? Work is no longer a guarantee of protection against poverty. The proportion of people with a job who live in poverty went up for the third consecutive year in 2018 to a record high. The Joseph Rowntree Foundation said that while paid employment reduces the risk of poverty, about 56% of people living in poverty were also in a working household in 2018, compared with 39% 20 years ago. Seven in 10 children in poverty are now in a working family Patrick Butler Social policy editor

Two other things have happened over the past decade to intensify the problem of in-work poverty. Firstly, the financial crisis and its aftermath have transformed the labour market: there is more self-employment, there are more people on zero-hour contracts, more people who would work longer if they could.

Secondly, housing has become a lot more expensive for those on low incomes. Most of those affected by in-work poverty are not owner-occupiers, so while ultra-low mortgage rates have kept housing costs down for those who own their own homes, renting has become more expensive. That helps explain why some of the highest levels of in-work poverty are to be found in London.

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Despite all that, analysis of the 2019 general election shows that those once described by Theresa May as “just about managing” were more likely to have voted Conservative than Labour. Boris Johnson now has to deliver for them.

Labour, still trying to work out why it was that working people deserted the party in their droves, says there is a big gap between the government’s rhetoric and what it has actually delivered.

“With wages still below pre-crisis levels and so many people struggling with universal credit, the Tories have singularly failed to deliver the decent wages and strong social security needed to lift people out of poverty,” said John McDonnell, the shadow chancellor.

“The Tories have some cheek to talk about ‘levelling up’ when this report makes clear they have been responsible for levelling down the foundations of a healthy society, including good jobs and social security.”

McDonnell is right to point out the gap between the government’s rhetoric and its record over the past decade. Unless Labour can win back the support of the in-work poor, its political prospects will remain bleak.

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How to do that? The most obvious way to tackle poverty pay is to raise wages. That can be achieved in a number of ways: by raising the skill levels of employees so that they can get better-paid jobs; by increasing the minimum wage by more than they rate of inflation: and by workers organising collectively through trade unions. Britain has under-invested in technical education and training, 16% of workers – around 5 million people – are classified by the government as low paid, and unionisation is weak outside of the public sector.

Another option is to make the tax and benefits system more sensitive to the needs of the in-work poor. It is wrong to think that poverty affects a cut-off group of people forever living below the breadline: half the people enduring in-work poverty exit over a three-year period, while a similar proportion of people fall in. The tax and benefit system should make work pay and be there for people when times get tough.

Finally, there’s housing. One side-effect of quantitative easing – the money-creation programmes used by central banks to combat the financial crisis – has been to boost demand for housing at a time when supply has barely increased. Low-cost homes are extremely hard to come by.

The government’s “First Homes” scheme, which offers key workers big discounts on new homes, is not the answer and will simply lead to higher demand and higher prices. A better solution would be a national infrastructure plan with the provision of low-cost housing at its heart.