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Most British people who live in poverty have a job

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More working households are living in poverty in the U.K. than non-working ones for the first time, according to a new report.

As news emerged that the U.K. parliamentary watchdog plans to award lawmakers an 11 percent pay rise, poverty action group the Joseph Rowntree Foundation reported that just over half of the 13 million people in poverty -- some 6.7 million people -- live in a family with at least one working adult, an increase of 500,000 on last year.

On top of that, 6.3 million people living in a family with either an out-of-work or retired adult live in poverty – which is defined as £220 ($360) per week, the foundation reported.

Meanwhile, Parliamentary watchdog Ipsa, who is responsible for coordinating MPs pay, plans to award politicians a £7,600 ($12,426) salary rise, bringing their pay packet to £74,000.

(Read more: Almost 1 in 3 Europeans could be poor by 2025)

The annual Monitoring Poverty and Social Exclusion report is in sharp contrast to the message of the coalition government. Last week, the U.K.'s finance minister George Osborne delivered an upbeat economic message in his Autumn Statement. Meanwhile the opposition Labour party has been campaigning that there is a "cost of living crisis".

The JRF report, written by the New Policy Institute, said families had suffered a "sustained and unprecedented" fall in their living standards.

Among those in work, the number paid below the so-called "living wage" – which is set at £7.40 per hour and defined as the amount an individual needs to cover the basic cost of living - rose from 4.6 million to five million in 2012. Half of working families in poverty have an adult paid below the living wage.

Average incomes have fallen by 8 percent since their 2008 peak. As a result, around 2 million people have incomes that while above today's poverty line, would have been below the poverty line in 2008.

"Hard work is not working. We have a labour market that lacks pay and protection, with jobs offering precious little security and paltry wages that are insufficient to make ends meet," Julia Unwin, chief executive of JRF, said in a statement.

(Read more: $2,800 a month for every Swiss person …even if you're inwork)

"While a recovery may be gathering momentum in the statistics and official forecasts, for those at the bottom, improving pay and prospects remain a mirage."

The report did however present some posive findings. Pensioner poverty is at its lowest level for 30 years, falling to 14 percent in 2011/12, while the job market is improving and underemployment is falling.

"Despite claims to the contrary, work absolutely remains the best route out poverty – children in workless families are around three times more likely to be in poverty than those in working families," a Department for Work and Pension spokesperson said in a statement.

"Our welfare reforms are designed to further increase work incentives and improve the lives of some of the poorest families in our communities."

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