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6 July 2010 | PR 10/104

Earning enough to get by is getting tougher – and the Budget could make it tougher still

It is getting harder for people on low incomes to meet a minimum standard of living, according to new research carried out by the Centre for Research in Social Policy at Loughborough University for the Joseph Rowntree Foundation (JRF).

Published today (6 July),  A Minimum Income Standard for the UK in 2010 shows that people on low incomes face a much higher inflation rate than shown in the official Consumer Prices Index, which the Budget announced as the future basis for uprating benefits. This means that in real terms, people out of work, relying on these benefits, could become worse off. For people in work, the gap between the minimum wage and the wages needed for a minimum household budget has widened.

The Minimum Income Standard shows how much various households need in 2010 to reach a minimum standard of living, according to members of the public. A single person now needs to earn at least £14,400 a year to reach this standard, and a couple with two children £29,200. These have increased from £13,400 and £26,900 in the past two years.

The research is based on what ordinary people think should go into a minimum budget. This includes things people need in order to participate in society, as well as physical essentials such as food and shelter.

In the past year, the annual earnings needed to keep up with the minimum income standard have risen by over £1,600 (or 6 per cent) for a couple with two children – much faster than wages. This is partly because personal tax allowances and the rules for getting tax credits have been frozen rather than increased for inflation.

The Budget’s announcement of a £1,000 hike in tax allowances from next year will help such a family by making them £320 a year better off, after inflation, if both partners are working. However, all of these gains could be lost by other Budget changes. Cuts in tax credits could cost them up to £300, and the freezing of child benefit about £50 in real terms. The family will also be hit by a rise in VAT, the cap on Housing Benefit if they have a high rent and the slower uprating of benefits generally. Although the freeze in council tax may help contain the rising cost of a family budget, the squeeze on public sector services - which are more used by people on lower incomes - could offset this.

The research also found:

Donald Hirsch, Head of Income Studies at the Centre for Research in Social Policy, Loughborough University, and one of the report’s authors, said: “This new research underlines how people living close to the minimum income standard can end up not having enough if economic trends start going against them. For example, a single person who a decade ago had just enough to get by, and whose income has risen in line with official inflation, cannot afford a minimum budget today. Big rises in the prices of things like food and council tax means that they are nearly £20 a week short of what they need, and must think of what essentials they will go without.

“On his first day in Downing Street, our new Prime Minister said that he wants to make sure his government looked after the worst off in this country. The raising of the amount people can earn before paying tax is one way of helping people on low earnings to reach the minimum income standard. However, this will not on its own ensure that more people have enough, if at the same time tax credits and benefits are cut and incomes do not keep up with the real price rises that people face. We must also remember that most people on benefits currently have far less income than they need for a minimum acceptable standard of living.”

Julia Unwin, Chief Executive of the Joseph Rowntree Foundation, said: “This research shows what ordinary members of the public think is needed, not just to survive, but to take part in society. It provides powerful evidence for the new government to use as they develop policies to deal with poverty. If they are serious about protecting people in poverty, then clear, in-depth assessments of the cutbacks and their impact will need to be set out, along with realistic long-term plans for meeting their goals.”

An online calculator is available for people to check whether their income meets the minimum standard for the United Kingdom at www.minimumincome.org.uk.

−ENDS−

For all media enquiries contact:

Liz Hirst
JRF Media Relations Officer
Joseph Rowntree Foundation
T :01904 615958 or M: 07929 363024
E: Liz.Hirst@jrf.org.uk 

Hannah Baldwin
Head of PR
Loughborough University
T :01509 222239
E: H.E.Baldwin@lboro.ac.uk 

Notes for editors:

  1. The full report and findings: A minimum income standard for the UK in 2010, by a team at the Centre for Research in Social Policy at Loughborough University, is available to download for free from www.jrf.org.uk
  1. Examples of what people need for a minimum income, and the effect of Budget announcements:
    • Couple, both working full time, two children aged 3 and 7:
      - Need: £403 a week to spend after paying for rent and childcare
      - Required earnings: £29,700 a year between the two of them*
      - Required wage if both work full time: £7.60 an hour – up 46p in the past year
      - Current National Minimum Wage: £5.80 – up 7p in the past year

    • Budget gain from raised tax allowance: £320 a year
      - Budget loss from announced tax credit changes: £170 a year
      - Probable loss from not uprating the amount you can earn before having tax credits reduced: £140 a year
      - Loss in spending power from not uprating Child Benefit: £50 a year
      - Net loss from the above: £40 a year

*This is slightly higher than the minimum annual earnings required for a couple with two children, cited above, which is based on a single earner without childcare, but this would require a much higher wage (£14.95 an hour).

    • Single person, working age, no children:
      - Need: £175.34 a week to spend after paying rent
      - Required earnings: £14,400 a year
      - Required wage if works full time: £7.38 an hour – up 29p in the past year
      - Current National Minimum Wage: £5.80 – up 7p in the past year
      - Budget gain from raised tax allowance: £160 a year
      - (No offsetting losses to personal income)

    • Lone parent, one child aged 1:
      - Need: £233.73 a week to spend after rent and childcare
      - Required earnings: £12,500 a year
      - Required wage if works full time: £6.37 an hour – down 42p in the past year
      - Current National Minimum Wage: £5.80 – up 7p in the past year
      - Budget gain from raised tax allowance: £160 a year
      - Budget gain from announced tax credit changes: £10 a year
      - Probable loss from not uprating the amount you can earn before having tax credits reduced: £140 a year
      - Loss in spending power from not uprating Child Benefit: £30 a year
      - Net gain from the above: £0 a year

    3. The Joseph Rowntree Foundation (JRF) is one of largest social policy research and development charities in the UK. Working with the Joseph Rowntree Housing Trust (JRHT) it aims to influence policy and practice by searching for evidence and demonstrating solutions to help overcome the causes of poverty, disadvantage and social evil. www.jrf.org.uk

    4. JRF is on Twitter. Keep up to date with news and comments at www.twitter.com/jrf_uk

    5. The Joseph Rowntree Foundation and the Joseph Rowntree Housing Trust are completely separate from the other two Trusts set up by Joseph Rowntree in 1904; the Joseph Rowntree Charitable Trust (JRCT) and the Joseph Rowntree Reform Trust Ltd (JRRT). Further information about each organisation can be found at www.josephrowntree.org

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