Dramatic increases in prices over the last year present a sustained challenge to household incomes. These strains influence what people are able to do, shaping decisions about which areas of spending to prioritise, limiting choices, and ultimately affecting the extent to which people feel included in society. There continues to be a big gap between what people have and what they need for a decent standard of living. Millions of people in the UK risk falling well short of a minimum living standard. Costs continue to rise and our social security system fails to provide adequate, appropriate support. Support through the means-tested cost of living payments is welcome but does not go far enough. We urgently need a social security system that is fit for today and provides hope for tomorrow.
Key points and recommendations
- MIS continues to provide a unique and distinctive way through which to observe and track the impact of social, economic, political and cultural change on our shared vision for higher living standards, so we can all live with dignity in the UK.
- In 2023, we have updated MIS budgets based predominantly on price changes, as captured through the Consumer Prices Index (CPI). In updating budgets this year, we have also made use of the latest data on private rents and have recalculated domestic fuel costs rather than using CPI to uprate these categories.
- A single person needs to earn £29,500 a year to reach a minimum acceptable standard of living in 2023. A couple with two children need to earn £50,000 between them.
- The increase in what is needed to reach MIS over the past year has been driven by the rapidly rising cost of many goods and services. Increases in the cost of domestic fuel and food have had a notable impact.
- April 2023 saw an inflation-based increase in benefits of 10.1%, but this follows a year in which safety-net benefits saw their greatest fall in value since annual uprating began in 1972.
- The cost of living support payments, intended to help those households most likely to be impacted by rising costs, are welcome. But these payments do not begin to solve more deep-rooted problems with our social security system. Even with the cost of living support payments, a couple with two children, on out of work benefits, only have half of what they need for a minimum standard of living.
- Working households can get closer to reaching MIS, but the cost of living support does little to address challenges posed by high inflation. A couple with two children, where one parent is working full-time on the National Living Wage, and the other is not working, reach 74% of MIS without the cost of living support payments. The same family only reach 77% of MIS with the payments.
Authors: Matt Padley and Juliet Stone, Centre for Research in Social Policy
JRF Insight Manager: Adél Schofield
For references, please see the main report
Since 2008, the Minimum Income Standard (MIS) has shown what households need to spend to reach an acceptable standard of living, based on detailed deliberations by groups of members of the public. In 2023, against the backdrop of rapid increases in the cost of living, we have updated these household budgets based on price changes as captured through CPI. In 2024, all household types will be rebased: we will start from scratch with groups of members of the public, to produce detailed descriptions of the goods and services that the public agree are needed to live with dignity in the UK today. This will ensure MIS fully captures and reflects the shared vison of minimum living standards at this time of significant uncertainty and flux.
How adequate are people’s incomes on out-of-work benefits and the National Living Wage?
The report looks at how the adequacy of disposable income (income after paying taxes, housing and any childcare costs) varies across different household types. It highlights the continued – and growing – inadequacy of out-of-work benefits, as well as incomes for working households failing to meet MIS.
For those households in work, there have been gains through a 9.7% increase in the National Living Wage (NLW) in April 2023 from £9.50 to £10.42. Although this increase is above CPI inflation (8.7% in April 2023), it does not make up the gap between NLW and inflation resulting from a well below inflation increase in 2022. Critically, it also doesn’t cover the increase in the cost of a minimum budget in the past year.
In April 2023, benefits were uprated by the relevant inflation rate of 10.1%, following a ten-year period in which the uprating of safety-net benefits had predominantly been below inflation, meaning these had lost their value relative to increases in the cost of living. Although safety-net benefits have therefore seen a significant cash increase in 2023, as with the NLW, this is smaller than the increase in MIS budgets. Consequently, the adequacy of incomes on out-of-work benefits and the NLW relative to what is needed for a minimum has fallen.
The more comprehensive financial support provided to households during 2022-23 has ended, replaced by a cost-of-living payment totalling £900 in 2023-24 for low-income households in receipt of means-tested benefits. There is additional support for pensioner households and households in receipt of disability benefits.
Including this cost-of-living support, Figure 1 shows that a couple with two children on out-of-work benefits are falling short with benefits covering just half of what is needed. Even where both parents are working full time, their combined income still falls short of what they need to reach MIS. Single working-age adults without children who are receiving the cost-of-living support have just 30% of what they need on out-of-work benefits. This substantially increases to 73% of MIS when in full-time work on the NLW. Lone parents have incomes around half of MIS (52%) if out of work, and 79% if working full time on the NLW. Despite the cash increases in benefits and the NLW, and additional support being provided by the Government, many households are left with a substantial gap between what they have – their disposable income – and what they need as described and detailed through MIS.
Note: Includes cost-of-living support payments. Without these, figures are reduced from: 50% to 48% (neither working); 77% to 74% (one working full time); 88% to 86% (one working full time, one part time); and 95% to 92% (both working full time).
A prolonged period of falling living standards
Since the publication of the first report in 2008, MIS has provided an annually updated benchmark, rooted in what the public believes constitutes a minimum standard of living in contemporary UK. In the years since this report was released, much has changed. UK society has been shaped by a shifting political and policy context, by an emphasis on restricting and limiting support, and with work often presented as the only way to ensure rising living standards. A prolonged period of welfare ‘austerity’ has challenged living standards. In combination with Brexit and its fallout, alongside rapidly rising prices, many in our society are left unable to afford what the public consider to be essential. Inflation is starting to fall, but prices are still rising fast. There has been little wage growth, in real-terms, since MIS was first published. Looking across a wide range of different indicators, we are clearly facing a sustained and prolonged period of declining living standards. Things that have been taken for granted as core elements of living with dignity in the UK are no longer a given for many people.
We need a social security system fit for purpose
In the face of such protracted challenges, it is absolutely crucial that we re-build a social security system underpinned by a shared, long-term vision of a society in which everyone can live in dignity. A society in which parents don’t have to worry about whether or not they can send their children to school in the appropriate uniform; where pensioners don’t have to cut back on meals so that their pension will last the week; where people out of work are adequately supported to meet their essential needs. We need a social security system that does not depend on the existence of foodbanks and charities to catch people who have fallen though the growing holes in the safety net.
Government must take action
Current cost-of-living support for the most vulnerable households is welcome, but it is a short-term response to a problem that needs long-term thinking. We need bolder ambition, and to find ways to collectively create a society in which fewer and fewer people fall below the Minimum Income Standard. Until we do this, many people will continue to exist on incomes that do not meet their minimum needs. Dealing with this is critical to the nation’s economy and health, as well as people’s dignity.
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