The living standards squeeze tightens as minimum cost of living soars by 25% since downturn
The minimum cost of living has soared by a quarter since the start of the economic downturn, according to a report for the Joseph Rowntree Foundation by Loughborough University, which details the true inflationary pressures facing low income households.
The research finds families are facing an “unprecedented erosion of household living standards” thanks to rapid inflation and flat-lining wages.
The findings are part of JRF’s annual Minimum Income Standard (MIS), which is based on the goods and services members of the public think people need in order to have a minimum acceptable standard of living.
Since the research was first published in 2008, the cost of the MIS basket has increased by 25 per cent, compared with 17 per cent for the Consumer Prices Index (CPI), the standard measure of inflation. The inflationary pressures facing low income households are far greater than official measures suggest.
Rising costs have implications for the earnings people now need to get by. In 2008, a single person earning £13,000 would have reached the minimum. If their wage had risen in line with average wage increases, they would now earn £14,000 - well short of the £17,000 salary needed to cover higher living costs in 2013, according to today’s report.
In 2013, to reach an adequate standard of living:
- A single person needs to earn £16,850.
- A working couple with two children need to earn £19,400 each.
- A lone parent requires earnings of £25,600.
The cost of essentials has driven up the earnings required by families. Over the past five years:
- Childcare costs have risen over twice as fast as inflation at 37%;
- Rent in social housing has gone up by 26%;
- Food costs have increased by 24%;
- Energy costs are 39% more and;
- Public transport is up by 30%.
Cuts to benefits and tax credits have exacerbated the problem over the past 12 months. The Coalition’s flagship policy of raising the personal tax allowance to £9,440 in April has helped - but is cancelled out by the cuts and the rising cost of essentials.
The freeze in child benefit, the decision to uprate tax credits by just 1% and the increase in the cost of essentials faster than inflation mean that a working couple with two children will be £230 worse off a year; a working lone parent has £223 less disposable income and a single person is worse off by £49 per year.
Katie Schmuecker, Policy and Research Manager at JRF, said: “Our research shows that the spiralling cost of essentials is hurting low income families and damaging living standards. The public have told us their everyday costs have soared above wage levels, driving up the amount they need to make ends meet.
“Inflation has impacts for us all, but is most keenly felt by the poorest. Balancing weekly budgets has become an unenviable task for those who are worse off. Help for families in paying for essentials at more affordable prices can be just as important as improving household income - a precarious combination of rising costs and falling incomes leaves families in a risky position.
“Cuts to benefits and tax credits – especially cuts to support for childcare – combined with stagnant wages and the rising cost of essentials is resulting in an unprecedented erosion of living standards. The government has introduced measures like raising the personal tax allowance to try and help, but any positive effect is more than cancelled out. If the government wants to help these struggling families, they have to make sure that different policies join up rather than contradict each other.”
Author of the report, Donald Hirsch, Director for Research in Social Policy at Loughborough University, said: “From this April, for the first time since the 1930s, benefits are being cut in real terms by not being linked to inflation. This combined with falling real wages means that the next election is likely to be the first since 1931 when living standards are lower than at the last one.
“This year’s MIS tells us working parents with children need to earn £19,400 each at a time when wages are flat. There is a growing gulf between public expectations of the living standard everyone should be able to afford and their ability to earn enough to achieve it. About a quarter of households in the UK fall short of the income required to reach an adequate standard of living - for them a 25% increase in costs intensifies the everyday struggle to make ends meet.
“This year’s report demonstrates how the price of a basket of goods needed for an acceptable living standard has risen far faster than average inflation. This has combined with low pay increases to create a widening gap between income and needs.”