Families hit by crippling cost of living need a third more income to make ends meet

Our latest research reveals how low-income families need a third more disposable income than a decade ago to make ends meet and are facing bigger barriers to meet rising costs - despite tightening their belts and shopping around online for better deals and tariffs.

The rising cost of transport, childcare and energy have restricted and restrained people who are struggling to get by, according to a decade of authoritative living standards research for the independent Joseph Rowntree Foundation (JRF).

The Minimum Income Standard (MIS), carried out by the Centre for Research in Social Policy at Loughborough University, acts as a barometer of living standards in the UK. It is based on what members of the public think we all need to achieve a decent minimum living standard, regularly updated as society and the economy changes.

A calculator allows the public to see the earnings different households need to reach MIS, according to members of the public. A single person needs to earn £18,400 a year to reach MIS; each parent in a working couple with two children needs to earn £20,000. A lone parent with a pre-school child must earn £28,450.

Since 2008, the cost of a minimum ‘basket’ of goods and services has risen by 35% for a single working-age adult without children, by 30% for a couple with two children and by 50% for a pensioner couple, compared to a 25% increase in the Consumer Prices Index (CPI). The types of goods and services required for a minimum living standard have remained broadly the same, but the cost and how people buy them has changed:

  • The cost of getting around. Public transport has become much more expensive and bus services have been cut. As a consequence, transport costs take up nearly a fifth of minimum household budgets. Bus travel is 65% more expensive in 2018 than in 2008. Members of the public say you need to be prepared to travel further to work and to make more use of taxis when public transport is not an option. For a single person, the minimum transport budget has risen from £17 to £37 a week.
  • The weekly food shop. On average the cost of food rose by just over a quarter between 2008 and 2018, but a minimum food budget for a single person rose from £29 to £44 a week, a rise of just over 50%.
  • Energy bills are over 40% higher than a decade ago, putting pressure on household budgets, despite the internet making it easier to shop around for better tariffs and more energy-efficient lighting making rises less steep for some households.
  • Childcare costs have risen sharply. The average price of a full-time nursery place for a two-year-old is now £229 a week, having risen by well over 50% since 2008. The government’s emphasis on early years development is reflected in parents saying, unlike in 2008, that families should have the choice of nursery care for their pre-school children, rather than only being able to afford a childminder.
  • Technology is increasingly important as part of day-to-day life. People are spending less today on technology and are more connected than they were ten years ago. Broadband, a basic laptop and smartphone cost £8 a week today for a single working-age person, compared to £9.50 for a landline telephone and a pay-as-you-go mobile in 2008, despite inflation of 25%. Technology is also reducing minimum costs by enabling people to shop online and make price comparisons.

Working parents with children on low wages are further away from MIS, despite a 41% increase in the National Minimum Wage (which is now higher for over 25s and known as the National Living Wage since 2016) and tax cuts. This is because tax credits to top up low wages have been pared back:

  • In 2008, a lone parent working full-time on the minimum wage, helped by tax credits, had annual disposable income just £520 a year (3.5%) short of MIS. But today they are £3,640 a year short (20%).
  • A couple with two children is about £2,600 a year (11%) short of MIS if both parents work full-time on the minimum wage.
  • A single breadwinner family - one full-time worker, the other not working – are £6,240 (27%) short.

JRF is calling on the Government to allow families to keep more of their earnings by increasing the Work Allowance under Universal Credit. This would help three million working families on low incomes reach a decent standard of living.

Campbell Robb, chief executive of the independent Joseph Rowntree Foundation, said:

“These figures show just how precarious life can be for low income households. People who live below the minimum standard say that they shop around to get the best deals and juggle to pay the bills, but the soaring cost of transport, energy and childcare means millions of families are still locked in a daily struggle to make ends meet.

“Some working parents are actually further away from reaching a decent living standard because tax credits to top up low wages have been falling at a time when families need them most. The Government must put things right by allowing families to keep more of their earnings. This would ease the constraints the crippling cost of living places on their ability to build a better life and ensure everyone can reach a decent standard of living.”

Abigail Davis, research fellow at the Centre for Research in Social Policy and the lead researcher on the Minimum Income Standard project, said:

“Our research has shown that people have a consistent idea of what you need as a minimum in the UK in the 21st century. Today, just as before the economic downturn, people think it is important to have enough to be able to eat healthily, to pay for some after school activities for your children, and to get away once a year for a low-cost UK holiday. But members of the public taking part in our research also describe how life is changing, for example the way that technology has become more affordable and is a more significant part of people’s everyday life.”

Professor Donald Hirsch, Director of the Centre for Research and Social Policy, said:

“The past decade has been particularly difficult for families on low incomes as costs have risen faster than the Consumer Prices Index, while the support they get from the state to help cover these costs has risen more slowly than CPI. For example, a couple with two children needs to spend 30% more to reach a minimum living standard than in 2008, faster than the 25% rise in CPI, and faster still than the 19% increase in tax credits for such a family, and 19% increase in average hourly pay. Unless the freeze on tax credits is lifted, this squeeze is likely to continue.”