WIREDGOV

A return to inflation combined with a freeze in working benefits has caused the shortfall to increase for all low-income families with children over the past year. Single breadwinner and lone parent families are feeling the pinch the most.

The Minimum Income Standard (MIS) update, carried out by the Centre for Research in Social Policy at Loughborough University, acts as a barometer of living standards for households on low incomes. It is based on what members of the public think people need to achieve a decent living standard; it is updated according to economic and policy changes.

A single person now needs to earn £17,900 a year to reach MIS; a dual-earner couple with two children need to earn £20,400 each; and a lone parent with a pre-school child must earn £25,900.

Rebecca Bromley, a working mum with a nine-year-old son from Leeds, said:

“It’s very difficult. Day-to-day expenses are just about manageable but when other things pop up - like school trips or when they need new uniform - it’s always ‘where am I going to get this money from?’ I can’t remember the last time I treated myself to anything, new shoes, new clothes, I just don’t get them. When Birthdays and Christmases come up, something which should be enjoyable is stressful because of the worry about finding the money. My wage only just about covers all my bills. By the end of the month, I’m lucky if I even have £50 left over.”

The research reveals that despite the NLW rising from £7.20 to £7.50 and tax cuts, the gains are offset by rising living costs, the freeze on tax credits and benefits, and wage increases being clawed back through reduced in-work benefits.

For example, for families with two children (aged 3 and 7) working full-time on the National Living Wage and using childcare:

• A single breadwinner family (one full-time worker, the other not working) are £870 a year further away from a decent living standard. They have £120 a week too little reach to MIS in 2017, up from £103 a week in 2016. This means an additional shortfall of £17 a week, or £870 a year. This is because an £11.24 pay rise from the National Living wage is offset by a £9.03 reduction in tax credits and Housing Benefit, and a £1.25 increase in tax and National Insurance payments. This leaves just 96p more net pay, but living costs have risen by £17.75 a week, leaving a £16.79 larger weekly gap between income and outgoings, compared to the same gap in 2016.
• A lone parent is £640 short of a decent living standard. They fall £67 a week below MIS, compared to £55 in 2016. This means an additional shortfall of £12 a week, or £640 a year. This is because an £11.24 pay rise from the National Living Wage is offset by a £3.51 reduction in tax credits and Housing Benefit and a £1.44 increase in tax and National Insurance payments. This leaves a £6.29 increase in net pay, but living costs have risen by £18.55, leaving a £12.26 larger weekly gap between income and outgoings, compared to the same gap in 2016.
• A working couple are £480 short of a decent standard of living. They have £59 a week too little to reach MIS, compared to £50 in 2016. This is because a £22.50 a week pay rise from the National Living Wage is offset by a £9.22 reduction in tax credits and £2.88 increase in tax and National Insurance payments. This leaves £10.40 additional net pay, but living costs have risen by £19.60 a week, leaving a £9.20 larger weekly gap between income and outgoings, compared to the same gap in 2016. 

Whilst these families will be better off under Universal Credit, the vast majority of people will still have substantial shortfalls. The vast majority of people on low incomes remain on tax credits. Fuller details with a range of examples are given in the Notes to Editors.

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

“Working families are facing bigger holes in their budgets worth hundreds of pounds, despite a higher National Living Wage and tax cuts. It means millions of families are facing a struggle to make ends meet as the cost of getting by in modern Britain rises ever higher. Struggling families tell us as well as juggling the bills, it’s things like after school clubs and swimming lessons that must be sacrificed to cover the essentials.

“With the Bank of England forecasting inflation will increase even higher this year, families are facing no respite. We need the Government to take action and ensure living standards do not fall backwards. Lifting the freeze on working-age benefits and tax credits must be the start along with allowing people to keep more of their earnings.”

Donald Hirsch, author of the report, said:

“This year we have seen a return to inflation for the first time since the freeze in benefits and tax credits was introduced. It is clear from these results that this freeze is preventing better minimum wages from feeding through to improved family living standards. A particularly important feature of this is that for every extra pound earned, about 75p is typically lost by low earning families in additional tax and reduced tax credits or Universal Credit.  Unless the amount that you can earn before these credits are withdrawn rises along with prices and earnings, it will be very difficult to deliver the improved living standards for struggling families that have been promised.”