How is public policy affecting people s ability to make ends meet? Donald Hirsch Centre for Research in Social Policy November 2017
Introduction The Minimum Income Standard (MIS) represents what families need for an acceptable standard of living, according to members of the public. This analysis: compares the living standards of different household types to MIS in 2010 and 2022. breaks down the effect of different policies on household incomes in 2022.
Comparing living standards to the Minimum Income Standard Between 2010 and 2022, many family types are moving further away from a decent living standard, even though minimum wages are going up for people in work.
Shortfall in weekly income compared to the Minimum Income Standard in 2010 and 2022 (all in 2017 prices) Note on assumptions: all workers are earning the National Minimum Wage for over 25s; families all have a 7-year-old and a 4-year-old; families live in social housing and childless singles in low-cost private rented sector.
Policy changes are having a significant effect on living standards The following graphs show how policies to raise pay, lower taxes and reduce welfare affect working families in social housing, receiving Universal Credit and starting a family after April 2017. The graphs project the effect of past and current policies on net weekly household incomes by the end of this Parliament (2022). All figures are shown in 2017 prices.
We look at the combined effects of six policies + Raising Income Tax allowances faster than inflation, since 2010. - Abolishing the first-child premium in Universal Credit for children born after April 2017. + Raising the minimum wage for over-25s faster than average earnings, since 2010. + Positive impact on living standards Negative impact on living standards - - Reducing the Universal Credit Work Allowances in 2016, then freezing them (compared to increasing them with average earnings). + Reducing the Universal Credit taper from 65% to 63% in 2017. - Uprating most benefits more slowly than inflation, since 2010.
Policy effects in work Families with both parents working full-time earning the minimum wage have benefited more from better pay and lower tax than they have lost from benefit cuts Dual earning couple, both earning NLW, 2 children Effect on weekly disposable income + + + + + +
Policy effects in work but the overall gain is smaller for a couple where one parent works part-time and the other full-time Parents working full time + half time, both earning NLW, 2 children Effect on weekly disposable income + + + + + *NB tax allowance gain includes Married Tax Allowance, worth 1.85 a week to this family
Policy effects in work and there s an overall loss for single breadwinner couples, because of smaller tax and wage gains. Couple with one full-time worker on NLW, 2 children Effect on weekly disposable income + + + *NB tax allowance gain includes Married Tax Allowance, worth 1.85 a week to this family
Policy effects in work Lone parents working full-time are also losing out, because wage and tax gains are offset by a larger cut to the Work Allowance than for couples Lone parent working full time, NLW, 2 children Effect on weekly disposable income + + +
Policy effects in work and for a lone parent working part-time, the policy effects have been overwhelmingly negative. Lone parent working half time, NLW, 2 children Effect on weekly disposable income + +
Policy effects - work patterns matter For working families, things will have improved for those with two working parents, with at least one working full-time. Only one in three working families below a Minimum Income Standard is in this situation. In-work support is particularly important for families with part-time or irregular work, and for lone parents. Many of these families have caring responsibilities. The following two slides show the effect on out-of-work households.
Policy effects out of work Out-of-work individuals and families have seen only losses Out-of-work benefit losses - totals for different cases Weekly * Includes effect of cash-limiting support for private rents to 2020 ** Includes loss of first child premium UC
Policy effects out of work and some bigger cuts will add to the losses of some out-of-work families. Out-of-work benefit losses - totals for different cases Weekly * Two-child limit applied to UC entitlement if third child born after 2017
Conclusions Many low-income families are getting worse off relative to their minimum needs. The main exceptions are dual earner parents without high childcare costs and childless people who work full time. Present policies give selective help alongside continuing cuts. The less work there is in the family, the more the cuts hurt and the less the help offsets them. In 2022, out-of-work families will have to live on approximately half of what they need. Ending the freeze so benefits keep pace with prices and allowing families to keep more of what they earn would help people make ends meet.
View the extended version of this presentation also published: Households below a Minimum Income Standard 2008/09 to 2015/16 Report by: Matt Padley, Laura Valadez and Donald Hirsch. www.jrf.org.uk/blog/budget-must-improve-living-standards-struggling-families