Working families need adequate incomes if the recovery is to make work pay

With a growing number of working households struggling to make ends meet, Julia Unwin looks at the limitations of the idea that ‘work pays’.

The surest route to economic security is work. This has been a guiding principle for the Government, and it has a good story to tell, with record rates of employment, some pick-up in growth and average wages, and a National Living Wage on the way. Yet there remains a significant gap in the Government’s economic record to be addressed. Though there are more people in work, and more people working more hours, many still lack the income to make ends meet in modern Britain.

New analysis for JRF by Loughborough University looks at the adequacy of living standards in the six years after the economic downturn. It finds that six in ten households with inadequate living standards have someone in work – that’s 2.6 million households, an increase of half a million from the start of the recession.

The benchmark for adequacy is based on what the public thinks is needed for a minimum acceptable standard of living (the minimum income standard or MIS). This includes activities like swimming lessons and buying a child a modest birthday gift, as well as having enough for food shopping and utility bills.

What is alarming is the growing number of households falling short even when all the adults are in full-time work: of the 2.6 million working households that are below MIS, 600,000 have all adults working full-time. This undermines the Government’s claim that work pays – after all, it is hard to argue that they could be doing more to provide for themselves.

Achieving economic security through work is particularly tough for low-earning families with only one full-time worker, as our analysis found. Half the households that choose a single-breadwinner family model, with one full-time worker and one full-time carer, find themselves falling short of an acceptable living standard. So too do 40 per cent of full-time working lone parents. This has significant implications for family life in modern Britain.

More trouble lies ahead. While George Osborne reversed tax credit cuts for low-income workers last autumn, he went ahead with cuts to Universal Credit, which is replacing tax credits. And while the new National Living Wage, increases to the personal tax allowance and more support with childcare will help some people, JRF analysis shows that single-breadwinner and full-time working lone parent families are likely to continue to struggle.

With so many working families struggling, the Conservatives’ claims to be the new ‘Workers’ Party’ could be under serious threat.

Delivering economic security through pay, childcare and tax allowances should be complemented by withdrawing Universal Credit more slowly as earnings rise, helping businesses address skills shortages and improving productivity problems in low-paying sectors.

These should be priorities in next month’s Budget. Britain has the potential to be a prosperous nation with economic security based on better pay and on a reduced need for welfare. But that vision may falter with so many workers struggling to make ends meet.

This blog was first posted by The Times Red Box.