Households living below a Minimum Income Standard: 2008–2022

Worryingly, we are yet to see the full impact of rapidly rising inflation and soaring energy costs on income adequacy, but it is clear that 2022–23 was a challenging year for a great number of households. In spite of government support in the face of these substantial increases in the cost of living – which were particularly high for both food and domestic energy – and despite a substantial nominal increase in wages, real pay decreased and median household incomes fell by 3% in real terms in 2022–23 (Brewer et al., 2023). These sustained challenges to living standards are likely to further increase the proportion of individuals living in households with incomes below and well below what is needed for a dignified standard of living over the coming years.

Households with children

As in all previous years covered by this analysis, children continue to be the group who are most likely to be living in a household with an inadequate income. There was a small increase in the proportion below the MIS level between 2020–21 and 2021–22 (see Figure 2). In 2021–22, 6.0 million children in the UK were living in a household whose income was below that needed for a dignified standard of living; this was an increase of around 220,000 since 2020–21 and of around 360,000 since 2019–20.

There was also an increase in the proportion of children in households below 75% of MIS in the latest year. This was likely due, at least in part, to government support for low-income households during the pandemic being withdrawn from October 2021, and support with the spiralling cost of living not yet being in place. This increase in children living in households below 75% of MIS in 2021–22 corroborates the reported increase in the proportion of children living in relative poverty (Department for Work and Pensions, 2023a; see also Figure A2 in Appendix 2). However, the Department for Work and Pensions (2023b) reports that there remain issues with the sample composition in 2021–22 and caution should therefore be taken in interpreting year-on-year changes.

The increase in the proportion of children below 75% of MIS in the latest year means that a quarter of children in the UK (25.8%) in 2021–22 were living in a household likely to be lacking the sorts of things identified as being central to a dignified living standard – so 3.7 million children are growing up without the sorts of things that many of us take for granted.

Working-age adults

The proportion of working-age adults below MIS did not change in the latest year, with 29.2% living below this level (see Figure 3). The proportion below 75% of MIS increased from 17.7% in 2020–21 to 18.9% in 2021–22. This means that in the latest year, 11.8 million working-age adults were in households below MIS, and of those, 7.6 million working-age adults had a substantial risk of lacking the goods and services the public consider necessary for a dignified standard of living.

Pensioners

Just as children have been the most likely to be living below MIS throughout this series of reports, pensioners have been the group least likely to be living below this level since 2008–09. While they remain the group with the lowest risk, in the latest year the proportion of pensioners lacking the income needed for a dignified standard of living increased to 20.5% (see Figure 4), the highest level since the series began. This means that 1 in 5 pensioners did not have the income needed to meet their material needs and participate in society. The proportion of pensioners below 75% of MIS also increased in 2021–22 to its highest level in the period covered by this analysis: in 2008–09, 5.7% of pensioners were below 75% of MIS, compared with 7.9% in 2021–22. In 2021–22, there were 2.4 million pensioners below MIS, with just over 900,000 of these having incomes below 75% of MIS. This is a substantial increase since 2008–09, when 1.5 million pensioners were below MIS and around 650,000 were below 75% of MIS.

The increase in the proportion of pensioners below MIS is likely to be a consequence of a combination of factors affecting incomes and minimum costs, but it is worth noting that the Department for Work and Pensions (2023b) has identified some issues with data regarding pensioner incomes in the 2020–21 Family Resources Survey. What is clear is that there has been a gradual decline in the adequacy of pensioner incomes since 2008–09, relative to MIS. The past decade has seen shifts in the social norms and expectations around retirement, with a minimum budget for pensioners more closely resembling a minimum budget for working-age adults than when the MIS research was first published in 2008 (Bradshaw et al., 2008; Davis et al., 2022; Padley and Stone, 2023).

This societal shift has resulted in a substantial increase in a minimum budget over time: adjusting for inflation, a minimum budget for couple pensioners (after housing costs) increased by 37.5% between 2008 and 2022, while for single pensioners it increased by 35.9% in the same period. The protections provided to pensioner incomes have resulted in the proportion of pensioners in relative poverty remaining well below levels seen at the turn of the century, but this has been increasing since 2012–13. These protections have also meant that pensioners are the least likely to be below MIS, but the below-inflation uprating of the State Pension in April 2022 – referenced to the Consumer Price Index (CPI) in the year to September 2021 – will have an impact on income adequacy and may well increase the proportion of pensioners lacking the income needed for a dignified standard of living in the coming years.

Figure 6 shows the same trend for children living in households with an income below 75% of MIS, the point at which the risk of being materially deprived increases substantially. The pattern is very similar to that for children in households below MIS, but the gap between children in different family types is even wider. In some years, the risk of children in lone-parent households being in a household below 75% of MIS is nearly three times the risk of those in couple-parent households. Overall, in 2021–22, 2.2 million children in couple-parent families and 1.6 million children in lone-parent families were living in a household with an income below 75% of MIS.

The fall in risk in the penultimate year of the series – 2020–21 – for children in lone-parent families should be treated with caution due to data-quality issues associated with the 2020–21 Family Resources Survey. However, it does suggest that the £20 uplift to Universal Credit and Working Tax Credit may have had a temporary beneficial effect in preventing families from falling further below the MIS threshold.

Figures 7 and 8 focus on economic activity within households with children, looking at the relationship between parental employment and the risk of children being below MIS or below 75% of MIS. In 2021–22, children in households where no adults were in work remained extremely likely to be living in a household with an income below the socially acceptable minimum (87.8% were in this situation) (see Figure 7), and around two-thirds were living below 75% of MIS (65.8%) (see Figure 8). The risk was much lower for children in working households, but still, more than a third (34.6%) of children in working households were below MIS in 2021–22 (see Figure 7), and 1 in 5 (19.7%) were below 75% of MIS (see Figure 8). 

Importantly, this reinforces the argument against treating employment as a straightforward route out of inadequate living standards. Furthermore, in 2021–22, more than twice as many children below MIS were in working households than in workless households, at 4.3 million and 1.7 million, respectively.

Working-age adults

Figures 9 and 10 further emphasise the particularly challenging financial circumstances that households with dependent children experience, showing that working-age adults with dependent children are more likely to be in a household with an inadequate income than those without children. Reflecting the pattern in the general population (see Figure 1 in Chapter 2), the risk peaked in 2013–14, at which point 40.4% of working-age adults with children were below MIS, compared with 28.2% of those without children (see Figure 9).

Figures 11 and 12 focus on working-age adults without children, showing the risk of being in a household with an inadequate income by partnership status. Across the time series, the risk of being below MIS or below 75% of MIS was substantially higher for single adults than for working-age couples. Single adults without children also showed more variation over time in their risk of being below MIS. The slight fall in the risk of having inadequate income in 2019/20, for all groups but in particular for single working-age adults, reflects that MIS budgets remained relatively stable for this group between 2018 and 2020, but earnings were increasing. The National Living Wage went up by 9.5% during this period, from £7.50 an hour in 2017–18 to £8.21 an hour in 2019–20. 

The gains from this increase were particularly strong for working-age adults without children, who in many cases have a more straightforward relationship with the labour market than those with children, who need to juggle the demands of childcare alongside work. However, subsequent increases in the National Living Wage have failed to keep pace with rising costs and increases in MIS budgets, so these gains were temporary. 

Pensioners

Figure 13 compares the risk of being below MIS or below 75% of MIS for pensioners by partnership status. This demonstrates clearly that the changes in the risk of being below MIS for pensioners over the time series – either increasing or decreasing – were being driven primarily by those who were single. For couple pensioners, there has been little substantial change over time, although the uptick in the overall proportion of pensioners with inadequate incomes shown in Figure 4 in Chapter 2 can be observed regardless of partnership status. In 2021–22, 1.3 million single pensioners and 1.1 million couple pensioners were living in a household with insufficient income to reach a minimum socially acceptable standard of living.

Figure 14 looks more closely at single pensioners, this time breaking down the risk of being below MIS by sex. Single female pensioners were consistently more likely to be below MIS than single male pensioners, at 32.0% versus 26.5% in 2021–22. Looking at the absolute numbers below MIS, this difference was even more stark. Of the 1.3 million single pensioners living below MIS, 933,000 (72.1%) were women and 362,000 (27.9%) were men. While this in part reflects that women make up more than two-thirds (68.1%) of the single pensioner population overall, it remains the case that women are disproportionally represented among households below MIS in this subgroup of the population.

Age group

Figures 15 and 16 show the risk of being below MIS or below 75% of MIS for working-age adults, by age group. It is clear that young adults aged 16–24 years have a substantially higher risk of being in a household with an inadequate income than older adults. Between 2008–09 and 2017–18, the risk of being below MIS was higher for those aged 25–44 than for those aged 45–64. In 2021–22, there was little difference in the risk of inadequate income between those aged 25–44 and those aged 45–64. 

In the current system, young adults are disadvantaged in terms of both the cash value of benefits to which they are entitled and their minimum earnings. In 2021–22, the standard allowance (excluding the temporary uplift) for Universal Credit was around £60 a week for adults under the age of 25, compared with around £75 a week for those aged 25 and older. Similarly, while the National Living Wage was £8.91 an hour for those aged 23 and older, it was slightly lower for those aged 21–22 (£8.36), and substantially lower for those aged 18–20 (£6.56).

It is not surprising, therefore, that these young adults are struggling to bring in enough income to allow them to reach a socially acceptable standard of living. Moreover, although the standard rate of the National Living Wage is due to be extended down to those aged 21 and older in April 2024, rising to £11.44 an hour, the very youngest adults will not benefit from this, with the hourly minimum wage for those aged 18–20 remaining much lower, at £8.60.

Housing tenure

In Figures 17 and 18, we examine the relationship between the risk of being in a household below MIS or below 75% of MIS and housing tenure. In the most recent year and across the time series, those living in social rented accommodation were the most likely to be below MIS, with nearly two-thirds (64.8%) lacking the income for a socially acceptable standard of living in 2021–22 (see Figure 17). The risk was also high for those in the private rented sector (46.7%), while those with either a mortgage or who owned their home outright, comparatively, had a lower risk, below 20%. The fact that the risk was slightly higher for those who owned their home outright than for those with a mortgage likely reflects that pensioners are over-represented in the former group; in the 2021–22 data, pensioners represented 48.5% of those who owned their home outright, but just 22.5% of the total population. 

Furthermore, more than three-quarters of pensioners (77.1%) owned their home outright, with very few renting. In the working-age population, tenure is much more varied, with private renting (21.6%) and owning with a mortgage (39.2%) the most common housing situations. The lower risk of being below MIS for those buying their home with a mortgage, therefore, likely reflects that this is comprised of a relatively affluent subgroup of the working-age population. 

The changing relationship between tenure and reaching pension age is further explored in Figure 19, which shows the proportion of adults below MIS for each housing tenure, for working-age adults and pensioners. While for working-age individuals, there was little change in the proportion below MIS in each housing tenure between 2008–09 and 2021–22, for pensioners there was a marked increase in the risk of being below MIS for those in rented accommodation. This is especially important given that, despite a continued high rate of owner-occupation among pensioners, the proportion of people between the age of 45 and State Pension age who are living in private rented accommodation is increasing. In 2008–09, 7.0% of households with a household reference person aged 55–64 were in private rented housing; by 2021–22, this had increased to 11.1% (Department for Levelling Up, Housing and Communities, 2022). For people aged 45–55, the increase was even more pronounced, rising from 11.0% to 16.5%. It is likely, therefore, that in the near future, private renting will become more common for those of retirement age, which may in turn contribute to an increased risk of being below MIS among pensioners.

UK country and region

Figure 20 shows how the risk of being in a household below MIS varies by country and region of the UK, and how this has changed over time. In 2009, London had the highest proportion of individuals living in a household below MIS (34.5%), but in 2020 the risk was highest in the West Midlands and the North East. Figure 21 shows that the pattern was similar for children. This reflects the latest statistics on child poverty, which show that the proportion of children in low-income families is rising in areas outside London, with a particularly rapid rise in the North East (Stone, 2023).

Employment

Due to data-quality issues, analysis of the relationship between employment status and the risk of being below MIS has been streamlined for this year’s update, as sample sizes were insufficient to look in detail at combined household economic activity status, or at changes in risk over time. Figure 22 therefore presents a summary of this relationship for the most recently available year of data.

Figure 22 shows that for all household types, being in a workless household is associated with a very high risk of being below MIS, ranging from 77.4% for single working-age adults, to 90.1% for lone-parent households. However, the extent to which work reduces this risk is not uniform. For single working-age adults, working part time reduces their risk of being below MIS by around a third, to 51.4%. However, for lone parents, working part time has less impact, with their risk of being below MIS only falling by around 20 percentage points to 71.1%. Full-time work reduces the risk for single working-age adults substantially, to just 10.0%, but for lone parents, more than a third (36.9%) remain in a household below MIS even if working full time.

For couples, having one partner in work halves their risk of being below MIS from 86.4% to 39.9%; with both adults in work, this falls to just 6.0%. However, for parents, the gains are again less substantial. If one parent in a couple is working, the proportion of households below MIS reduces by a third, from 86.3% to 57.0%. With both parents working, the proportion below MIS is relatively low, at 12.2%, but still double that observed in couples without children. 

These differences emphasise that the factors driving the risk of being in a household below MIS vary according to household composition, especially in relation to the presence of dependent children. Figure 22 shows that even partial employment can reduce the risk of being below MIS for all working-age households, but for parents, the increase in income from paid employment is likely to be offset by the costs of childcare. Moreover, in every family type, a proportion remain below MIS even if all adults in the household are working, and this is especially pronounced for lone parents, for whom work is clearly not a straightforward path to achieving a socially acceptable standard of living. 

Figure 23 captures the composition of working-age households against income adequacy over time (excluding households where all members are economically inactive). This compares fully employed households (where all adults are in work) with partially employed households (in which at least one adult is in work of any type) and households where no adults are in work. In 2008–09, 44.5% of households below MIS were those in which no adults were in employment, whereas 36.3% of households below MIS had all adults employed. In contrast, by 2021–22, the positions had reversed and the proportion of households below MIS with no adults in employment was 36.4%, but there was a marked increase in the proportion of households where all adults were employed, at 45.6%. Over the same time period, the proportion of households with some adults employed remained stable. Throughout this period, the majority of households below MIS had at least one household member in work, rising from 55.5% in 2008–09 to 63.6% in 2021–22. Clearly, income adequacy is an issue for working households, with households where no one works accounting for a smaller proportion of households below MIS over time. For context, the proportion of 16–64 year olds in employment increased between 2008–09 and 2021–22, from 71.4% in February–April 2009 to 75.6% in February–April 2022 (Office for National Statistics, 2023).