Earning enough to get by is getting tougher - the Budget could make it tougher still

06 July 2010

It is getting harder for people on low incomes to meet a minimum standard of living, according to new research published today (6 July) by the Joseph Rowntree Foundation (JRF).

A Minimum Income Standard for the UK in 2010 shows that people on low incomes face a much higher inflation rate than shown in the official Consumer Prices Index, which the Budget announced as the future basis for uprating benefits. This means that in real terms, people out of work, relying on these benefits, could become worse off. For people in work, the gap between the minimum wage and the wages needed for a minimum household budget has widened.

The Minimum Income Standard shows how much various households need in 2010 to reach a minimum standard of living, according to members of the public. A single person now needs to earn at least £14,400 a year to reach this standard, and a couple with two children £29,200. These have increased from £13,400 and £26,900 in the past two years.

The research, carried out for the JRF by the Centre for Research in Social Policy at Loughborough University, is based on what ordinary people think should go into a minimum budget. This includes things people need in order to participate in society, as well as physical essentials such as food and shelter.

In the past year, the annual earnings needed to keep up with the minimum income standard have risen by over £1,600 (or 6 per cent) for a couple with two children – much faster than wages. This is partly because personal tax allowances and the rules for getting tax credits have been frozen rather than increased for inflation.

The Budget's announcement of a £1,000 hike in tax allowances from next year will help such a family by making them £320 a year better off, after inflation, if both partners are working. However, all of these gains could be lost by other Budget changes. Cuts in tax credits could cost them up to £300, and the freezing of child benefit about £50 in real terms. The family will also be hit by a rise in VAT, the cap on Housing Benefit if they have a high rent and the slower uprating of benefits generally. Although the freeze in council tax may help contain the rising cost of a family budget, the squeeze on public sector services - which are more used by people on lower incomes - could offset this.

The research also found:

  • The cost of a minimum budget is estimated to have risen by 38% in the past ten years, due to steep rises in the price of food (up 37%), bus fares (up 59%), council tax (up 67%) and some other essentials. But official inflation has only been 23% in total over the same period. This is on the measure that will now be used to uprate all benefits, meaning that people out of work, who have already seen a fall in the value of their basic benefits, could fall further behind.
  • A computer and an internet connection are now cited as necessary for all working-age households – a change from 2008 when they were only needed in households with school-age children. It is still not deemed necessary for pensioner households to have internet access (based on the views of pensioners themselves).
  • Despite the recession, members of the public have not cut back on what they think is required for a minimum standard of living – they continue to believe that alongside physical essentials (food, warmth, shelter) people also need things which allow them to participate at an acceptable level in society (such as transport, social and cultural activities, and one week's holiday a year in the UK).

Donald Hirsch, Head of Income Studies at the Centre for Research in Social Policy, Loughborough University, and one of the report's authors, said:

This new research underlines how people living close to the minimum income standard can end up not having enough if economic trends start going against them. For example, a single person who a decade ago had just enough to get by, and whose income has risen in line with official inflation, cannot afford a minimum budget today. Big rises in the prices of things like food and council tax means that they are nearly £20 a week short of what they need, and must think of what essentials they will go without."

On his first day in Downing Street, our new Prime Minister said that he wants to make sure his government looked after the worst off in this country. The raising of the amount people can earn before paying tax is one way of helping people on low earnings to reach the minimum income standard. However, this will not on its own ensure that more people have enough, if at the same time tax credits and benefits are cut and incomes do not keep up with the real price rises that people face. We must also remember that most people on benefits currently have far less income than they need for a minimum acceptable standard of living."

Julia Unwin, Chief Executive of the Joseph Rowntree Foundation, said:

This research shows what ordinary members of the public think is needed, not just to survive, but to take part in society. It provides powerful evidence for the new government to use as they develop policies to deal with poverty. If they are serious about protecting people in poverty, then clear, in-depth assessments of the cutbacks and their impact will need to be set out, along with realistic long-term plans for meeting their goals.”

An online calculator is available for people to check whether their income meets the minimum standard for the United Kingdom at www.minimumincome.org.uk.

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