The Budget must improve living standards for struggling families

16th Nov 2017

The Government must use the Autumn Budget to lift the benefit freeze and reverse work allowance cuts to help people who are struggling.

When Theresa May first formed her Government she talked about being on the side of the just about managing. Against a turbulent political backdrop, her Government’s Budget on 22 November will set the tone for the rest of this parliament and the post-Brexit economy and society. 

The context is challenging. Prices are rising, pay increases are struggling to keep up and most working age benefits are frozen, putting pressure on family budgets. Without action, the IFS has projected that poverty will rise.

Room for manoeuvre in this Budget is going to be tight: it is essential to be clear about what the priorities are.

New analysis, presented in our new Slideshare from JRF and Loughborough University, shows how the public policy decisions of recent years mean more money in the pockets of some families, while others are hit hard. Those losing out are the working and out-of-work families that had less to begin with – those that might be characterised as only just managing, or in danger of not managing at all. It is these families that the Budget must prioritise.

The trajectory of living standards over the rest of this parliament

Some 19 million people in the UK have less income than they need to cover the cost of a decent standard of living, as defined by the general public – this standard is known as the Minimum Income Standard (MIS). Those unable to afford MIS are often getting by day to day but have pressured budgets, meaning the smallest unexpected cost can knock them off course. The further below MIS a family is the greater the likelihood that they are unable to meet their basic needs.

Since 2008/09 the number of people living below MIS has increased by 3.4million. Our latest report on who lives below MIS shows 44% of children – and 75% of children living in lone parent families - were living below MIS in 2015/16 (the last year data was available). There was a brief improvement, when inflation was low and wages were rising between 2013 and 2015, but the respite was short-lived. In 2016 pay increases slowed and prices increased sharply, just as most working-age benefits were frozen.

Looking forward, Figure 1 shows how far short of MIS different families are projected to be in 2022 - the 2010 figures are shown for comparison. The shortfall is large and growing for all the out-of-work households looked at. These figures mean some out-of-work families will have less than half of what they need for a decent living standard in 2022, and an out of work single person just over 30%.

But many families with children are facing greater shortfalls even if they are in work. Among working households, single people working full-time on the National Living Wage and couples where both adults work full-time will see their living standards improve. Lone parents, however, will see their living standards decline sharply even when they’re working full-time, and couple families with a single breadwinner will see their incomes move further away from what they need.

Figure 1.

Figure 1. Shortfall in weekly income compared to the Minimum Income Standard in 2010 and 2022 (all in 2017 prices)

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Policy changes

Figure 1 assumes all workers are earning the National Minimum Wage for over 25s; families all have a seven-year-old and a four-year-old; families live in social housing and childless singles in low-cost private rented sector.

Policy changes provide more help to those that need it less

Substantial changes to public policy in recent years have combined to help some family types and hinder others. We assessed the impact of three positive and three negative policy changes that have wide spread effects for working families (see table).

Positive Change Negative Change

Introducing the National Living Wage

Benefits not keeping up with prices
Raising the Personal Tax Allowance Cutting the Work Allowances in Universal Credit and not increasing them with earnings
Reducing the taper in Universal Credit Abolishing the First Child Premium in Universal Credit

The net beneficiaries of these six changes are those that were better off to begin with. Families that have more workers will be better off in 2022 as a result of these policy changes (see Figure 2), although it should be noted that the analysis assumes low housing costs which are not available to all families. The families that lose out are single earner couples and lone parents. The losses for lone parents are particularly stark, as they are worse off than in 2010 even when working full-time.

Figure 2.

Figure 2. Net effect of six policy changes

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Incentivising more work

Figure 2 assumes all workers are earning the National Living Wage; families pay a typical social rent and all families have two children aged seven and four. Figures are in 2017 prices.

Incentivising more work

Helping people keep more of their money if they increase their wages reinforces work incentives. But for these incentives to be helpful, people need to be able to take up more work or increase their earnings in the first place. 

Recent JRF analysis of families in working poverty where the adults aren’t all in full-time employment found over 4 in 10 have children of primary school age or below, and 3 in 10 have a disabled family member. Caring responsibilities can make it difficult for people to work full-time, something that the benefits system recognises, and the parents of young children and carers are only expected to seek part-time work.

For lone parents already working full-time their only option to improve their living standards would be to find a better paid job. This is easier said than done given only one in six low paid workers successfully escape to higher pay in a 10 year period

The Budget must prioritise the only just managing

Families facing falling living standards and constrained opportunities to better their circumstances should be the priority in the Budget. To help these families the Chancellor should:

  • Lift the freeze on income related benefits so the incomes of the least well off keep up with the rising cost of essentials.
  • Restore the original work allowances so working families can keep more of what they earn, with lone parents being made first priority for this help.

Those struggling to get by lack faith that politicians are addressing the real problems they face. Failure to act in the Budget will mean the refrain that the Government is on the side of the just about managing will ring hollow.