Low-income parents will both have to work full time

Families with two parents in full-time work, workers without children and pensioners will typically become better off over the next five years due to changes to pay and benefits announced in the Summer Budget, according to new research published today by the Joseph Rowntree Foundation (JRF). The in-depth, independent analysis is the first to take a detailed look at how the measures announced in the Budget will affect people’s ability to afford a decent standard of living.

However, lone parents and families with more than two children are likely to see their living standards stagnate or fall even if they work full-time, as are low-income families with one main breadwinner. Those who are out of work face a sharply growing gap between their income and the amount they need for a basic living standard. 

Will the 2015 Summer Budget improve living standards in 2020?, written by Donald Hirsch from Loughborough University, uses JRF’s Minimum Income Standard (MIS) to track how the living standards of low-income households will change by 2020. The report is based on what the public say is necessary for a minimum socially acceptable standard of living. 

The introduction of the National Living Wage (NLW), which will raise the minimum wage to £9 per hour for workers aged over 25 by 2020, will drive an increase in living standards for low-paid workers without children, who by 2020 will typically have incomes close to or above what they need. Some of those who currently qualify only for small levels of support will be lifted out of the benefits system entirely by a combination of higher wages and reduced entitlements. But most low-income families with children will see their living standards continue to stagnate or decline as reductions to in-work benefits, also announced in the Summer Budget, outstrip wage rises.

While most households with two parents working full time on the NLW will be better off than they are on the National Minimum Wage (NMW) now, only 6% of low income families with children have this working pattern.

Families with one full-time and one part-time earner – a more common model of family life – will fall as far short of MIS in 2020 as they do now. 

The report identifies the following winners and losers (in the case of working households, based on comparing those on NMW in 2015 and NLW in 2020; all figures are adjusted for inflation and expressed in 2015 prices):

Winners

  • A single person aged over 25 who works full time will have 97 per cent of what they need in 2020, leaving them just £6 short of what they need every week, compared to £39 (79% of MIS) in 2010 and £54 (70% of MIS) today.
  • Double-earner families who both work full time and have two children will have 93 per cent of what they need in 2020, leaving them £34 short of what they need, compared to £45 (89%) in 2010 and £75 (84%) today. 
  • Pensioners will have 106 per cent of what they need in 2020, leaving them with £15 more than they need every week, compared to £4 more (102%) in 2010 and £9 less (96%) today.

Losers

  • A lone parent with one child who works full time on NLW will have 71 per cent of what they need in 2020. This will mean they are £80 short of what they need every week, compared to £7 short (97%) in 2010 and £39 short (86%) today.
  • Dual-earner families with one parent who works full-time and one part-time will have 82 per cent of what they need in 2020. This will mean they are £82 short of what they need every week, compared to £57 short (87%) in 2010 and £90 short (81%) today.
  • A single person who claims out-of work benefits will get 35 per cent of what they need in 2020. This will mean they are £118 short per week, compared to £107 short in 2010 (41%) and £110 short (40%) today.
  • An out of work couple with two children will have 52 per cent of what they need in 2020. This will mean they are £221 short of what they need, compared to £163 short (62%) in 2010 and £197 short (57 per cent today.).

Julia Unwin, Chief Executive of the Joseph Rowntree Foundation, said:

“The Summer Budget has transformed the relationship between pay, benefits and work incentives. The National Living Wage is a game-changer for some on low incomes as the new, higher rate will make work pay for more people. 

“But the wage rise comes hand-in-hand with changes to in- and out-of-work benefits. Families will only be able to make ends meet if they have two parents in full-time work, but those who are able to find extra work will face a difficult juggling act as they try and make longer hours fit around family life. Lone parents, even those working full time, and people who are searching for work face a decade of sharply declining living standards.”

Donald Hirsch, Director of the Centre for Research in Social Policy, Loughborough University, and author of the report, said: 

“When you step back and look at the overall impact of benefit changes in the present decade, it becomes clear that the social safety net is changing profoundly. For example, in 2010, families with small children were helped to get almost to the Minimum Income Standard if they worked, but fell a third short if they did not. By 2020, some working families, including many lone parents and families with three or more children, will be around a third short of the standard even if they work full-time on the National Living Wage. That is, they will be as badly off in work in 2020 as they were out of work in 2010 – while those not working in 2020 will become even worse off, falling around 50 per cent short of what they need.” 

For couples the work incentive is clear: in order to move out of poverty and have a better standard of living, parents on low incomes will both have to work full time.  In order to support parents to do this, JRF calls for: 

  • more high quality, flexible, affordable childcare 
  • action to boost productivity, creating better paid, secure and flexible jobs which offer good career progression for people on low incomes
  • employers to pay the higher, voluntary Living Wage where affordable
  • a greater supply of genuinely affordable homes.