Many families now need to earn over 20 per cent more than they did last year to achieve a minimum acceptable standard of living, according to research by the Joseph Rowntree Foundation published today.
Earnings needed to cover basic living costs have risen more for families with children than for other groups such as single people, says the research. A couple with two children now need to earn at least £18,400 each if both work full time.
A minimum income standard for the UK in 2011
shows how much various households need to reach a minimum standard of living, using measures determined by members of the public. It shows that, while living costs have risen by about 5 per cent, families with children need to earn a lot more than that to meet the minimum income standard.
Families requiring childcare would typically have to earn at least 20 per cent more this year than in 2010 (before tax and benefits) to meet the minimum income standard, say the researchers. This is because Child Benefit has been frozen and tax credits have been reduced for many families. Most significantly, tax credits helping low-income families meet childcare costs have been cut.
To meet the minimum income standard, the research says:
- Families with a single earner need gross earnings of £31,600.
- If both parents work, they need to earn £18,400 each – a total of £36,800.
- A lone parent would have to earn £18,200.
This makes it harder for low-paid women to earn enough even to cover the cost of childcare.
Income requirements for other groups have not risen so fast, the researchers add. A single person with no dependants now needs £15,000 a year to meet the minimum income standard. The increase in the personal tax allowance in April 2011 means that the wages required by a single person to afford the minimum have risen by less than inflation. Pensioners who claim the benefits they are entitled to should have an income close to their minimum requirement. A pensioner couple now needs to spend £233 a week on essentials, net of rent or a mortgage.
Donald Hirsch from the Centre for Research in Social Policy at Loughborough University, author of the report, said: "This report shows that the squeeze in living standards caused by the combination of rising prices and stagnant incomes is hitting people on low incomes hard. This is partly because the prices of certain essentials like food have risen, but also because of policy decisions that have reduced what families have to live on. In particular, the reduction in support for childcare has made many low-earning families worse off. In the process, for families who need to use childcare, it has substantially reduced the incentive to work on relatively low pay."
Researchers found that, over the past decade, the cost of a "minimum" basket of goods and services has risen by 43 per cent, compared to a 27 per cent increase in the Consumer Price Index (CPI). These differences matter greatly because many people on low incomes rely on benefits and tax credits which are now uprated by the CPI.
Donald Hirsch added: "In future years, much will depend on the relative price of certain basics. While the price of food continues to rise, in the past year it has done so at the same rate as the overall CPI. However, in the future, if rising world demand continues to push up commodity prices, minimum costs could again rise faster than the official inflation rate in the United Kingdom."