George Osborne’s Summer Budget has changed the course of future living standards for low-income families, says Katie Schmuecker.
New analysis from the Joseph Rowntree Foundation and Loughborough University reveals the radical impact that the mix of wage rises, tax changes and welfare reform will have on people’s ability to afford a decent standard of living. Pensioners and low-paid working adults without children will likely see their living standards rise over the course of the first fully-Conservative government. But whether these policy changes help or hinder families depends on working patterns, family make-up and how parents choose to organise their family’s life.
It is good news for families where both parents work full time. Where they earn the National Living Wage (NLW) in full, many will see their living standards improve considerably over the next five years, especially if they have low housing costs. According to the public, a family with two parents and two young children needs £386 per week for a minimum socially-acceptable standard of living. In 2015, this family would have been £75 short of what they needed every week if both parents worked full time on the minimum wage. In 2020, the same family with the same jobs will be closing the gap and only £34 short, as NLW pay rise along with additional support for childcare outstrips their losses from benefit reductions. This is part of the shift to a higher-pay, lower-welfare society the Chancellor talked about.
The changes in the Summer Budget have also strengthened the financial incentives to work for couples with one or two children. Today, the same full-time, dual earning family with two children is £118 per week better off than they would be out of work. This gap will rise to £187 in 2020 (in 2015 prices). The increased incentive is partly brought about by higher pay and increased help with childcare costs but also by benefit reductions that mean the family is worse off when out of work.
While this is good news for parents who both work full time, this is not a common working pattern for families with young children. Only six per cent of low income families with children, and a minority of families higher up the income scale, have both parents in full-time work. A far more common way to organise family life is for one parent to work full time and the other part time. If the same family with two children chose to work this way rather than both working full time, the picture is very different. Today, on the minimum wage, they are £90 short of what they need. By 2020 on the NLW they will be £82 short. The picture is worse for a lone parent with one young child, who will be £80 short in 2020 compared to £39 today.
For couples with children the message is clear – to have a better standard of living, parents on low incomes will both have to work full time. This will be fine for some families, but others will face a difficult balancing act.
For all families to be able to benefit from the Summer Budget, the government will need to make it easier for families to afford the essentials and strike a balance between work and family life. This means adequate in-work benefits need to go hand-in-hand with more flexible and higher-quality childcare. It also means we need a strategy to boost productivity, particularly in low-paying sectors, and to increase the number of secure jobs that offer opportunities for career progression and flexible working. Employers too can play a part by paying the higher, voluntary Living Wage where they can afford to do so.