Barbara Delaney worries constantly about how she is going to pay her bills. She is in arrears with her electricity and rent, and takes Prozac to help deal with the stress.

At 35, Barbara is the eldest female in a family of 11 children from Coolock, north Dublin, who describe themselves as "working class being pushed into poverty".

She lives with her 10-year-old daughter Jessica a few houses away from the neat three-bedroom terrace house that her widowed father shares with three daughters, one son and three grandchildren.

Barbara has assumed her late mother's role, doing the shopping, cooking and cleaning for her father's household, as well as working part-time as a cleaner on a local community employment scheme.

The household finances are precarious. Only one of the adult children works at the moment and they get by largely on State support. They count every penny and turn to the "loan man" three times a year. For every £100 they borrow from him, they must pay back £125.

"I do go to the loan man to try to put in the house what other people have," says Barbara. It's a daily struggle and Barbara, though clearly resourceful, confesses she has sometimes felt unable to cope.

"I'm on Prozac because I did try to kill myself," she says. "The bills were on top of me. My mother didn't like running up bills and I tried to hide it from my dad and he took it out on me."

The finding in this week's report by the Economic and Social Research Institute (ESRI) that the rich-poor divide is widening in Ireland comes as no surprise to the Delaney family.

The report's publication has rekindled debates about the kind of society the Government's economic policies are creating, coming as it did a week after a United Nations report showed Ireland has the highest level of inequality in the industrialised world outside the UK and the US.

The ESRI report found 25 per cent of households were in "relative income poverty" in 1998, living on below half the average income. This compared to 18.6 per cent in 1994.

Yet the report also revealed deprivation levels have decreased. The proportion of people living in "consistent poverty" fell by about half from 15 per cent in 1994 to 8 per cent in 1998.

Someone in consistent poverty is living below the relative income poverty line and is deprived of basic necessities, such as a warm coat, a second pair of shoes or regular nutritious meals.

The ESRI report was based on 1998 figures but one of its authors, Dr Richard Layte, says there is nothing in provisional statistics for 2000 to suggest that the trend of widening income inequalities "is not continuing and becoming more exacerbated".

The report says relative income poverty is "a serious structural problem" that needs to be tackled while resources are available.

"What would be best is that, as well as deprivation going down, inequality would remain the same or decrease," says Dr Layte. "You really don't want the two things going in different directions, with society in general getting better off but the people at the bottom of income distribution getting further and further away from the top."

While anti-poverty groups have welcomed the drop in consistent poverty, they warn of the undesirability of a society where income inequalities between citizens are increasingly pronounced.

"If we don't begin to stop the trend of inequality and reverse it, the legacy of the Celtic Tiger in 10 to 15 years' time will be a fairly ugly looking society," says Mary Murphy from the Society of St Vincent de Paul.

"We will have the 25 per cent who are living below the poverty line having a very, very different lifestyle and experience than the rest of the country. That is bad for those people and unfair in itself, but it will also affect the quality of life of the 75 per cent in terms of overall social cohesion."

Ms Murphy says the drop in consistent poverty is visible in the society's work with disadvantaged communities, with fewer people currently requesting money to meet pressing needs.

"That's a direct result of people moving back to work and more work being available for families and children, but at the same time we are seeing that a lot of families have other kinds of needs that aren't being met, particularly around health, education and childcare," she says.

Anti-Poverty groups say one of the main ways of arresting growing inequalities is to redistribute wealth through increased social welfare payments, instead of ongoing tax cuts that benefit the better off.

While social welfare rates have risen more than prices in recent years, they still lag behind the average wage.

"Our primary concern in setting social welfare rates is to make them high enough for people to live in dignity," says Ms Murphy.

"The Government's primary concern is to fix them at a level to maintain the incentive to work and competitiveness, and that's more the Boston than the Berlin model."

Ms Murphy says other measures to tackle inequalities would include an overall improvement in public services and more targeting of public expenditure, such as is done for 25 deprived urban areas under the RAPID programme, which administers National Development Plan funds.

Anti-poverty groups say the Government should also set targets in its revised National Anti-Poverty Strategy, due out in November, to reduce levels of both consistent poverty and relative income poverty.

Reducing the consistent measure will tackle the material effects of poverty while lowering relative income poverty will mean we will have addressed its structural causes, says Ms Murphy.

The ESRI report shows in stark terms how consistent poverty and relative income poverty are intrinsically linked. One in 10 of those living for one year below the poverty line of half the average income was also deprived of one or more basic items such as a second pair of shoes, enough warmth or nutritious meals. This deprivation rate rose to five in 10 when people lived below the poverty line for five years.

The report also highlighted something Barbara and her family have known for years: poverty is often accompanied by increased distress.

This week, Barbara is upset because a social welfare official recently told her she could not get money to buy a single bed for Jessica so they would no longer have to share a double bed.

"I felt very low and came down the road crying," she said. "I'll struggle and get the money myself to buy the bed."