Parents on minimum wage cannot meet basic family costs

September 22, 2016

Parents working on the ‘national living wage’ still can’t earn enough to provide an acceptable minimum living standard for their children despite flat (and now falling) inflation and a drop in core household costs like food and energy – even if they both work full-time, warns a new report.

And lone parents’ living standards have deteriorated faster compared to couple-families, with the gap likely to widen, according to the report from Loughborough University’s Donald Hirsch for Child Poverty Action Group.

Pressure on family budgets looks set to intensify for low-income families, with childcare and housing costs increasingly the deciding factor in whether parents can achieve what the public regards as a minimum standard of living, the report concludes.

Families with two parents working full time on the ‘national living wage’ are 12% short of the basic amount needed for a minimum standard of living - as defined by the public - the report shows. That’s a gap of £50 per week (but a fall on 2014-15 from 16%). For these families, disposable income as a percentage of minimum family costs has grown by 4% since 2012.

For lone parents working full time on the national living wage the shortfall is worse. They are 16% short of what is needed for a minimum living standard (up from 13% in 2014- 15) - a gap of £55 per week. For these families disposable income as a percentage of minimum family costs has fallen by 6% since 2012.

The Cost of a Child in 2016 finds the minimum cost of a child from birth to 18 is now £151,600 for a couple - a slight increase (1.2%) on 2014-15. For lone parents the cost is £182,589 – a 9% jump on the previous year.

For out-of- work families with two children the gap between their income and the amount needed for a minimum living standard is stark: couples families are 39% short, lone parent families 37%.

Child benefit plus maximum child tax credit together cover only 72% of the costs of a child for lone parents. The percentage for couple families is 98%.

The Cost of a Child in 2016 is the fifth report in an annual series. It draws on what the public says every family requires to meet its basic needs and participate in society and is based on a series of calculations supported by Child Poverty Action Group and the Joseph Rowntree Foundation systematically monitoring the cost of a child.

Lone parents

The gap between the living standards of couple and lone parent families is growing, driven by increased childcare costs, and will grow further under universal credit (cuts to which will hit lone parents harder). With only one wage coming in to the lone parent family the offsetting effect of the national living wage is not sufficient to counter this trend.

Median incomes:

Even on a median income, lone parents still fall over 10% short of an adequate income even with a reasonably paid job, burdened particularly by the high cost of childcare. For a couple with two young children on the other hand, median wages are enough to get 10% above a minimum living standard (which includes basics such as food, clothing and heating as well as the ability to participate in society, for example being able to go on a school trip or have at least a week’s simple holiday in the UK each year with your family).

Attitudes post-austerity:

Underlying the report’s findings there is evidence of a ‘re-basing’ by the public of what is regarded as essential for families to meet their basic needs and participate in society: post- austerity, the public in some respects specifies more economical ways of reaching a no-frills living standard. This year, compared to four years ago, when the public was last asked to specify the components of a basic living standard for The Cost of a Child project, more emphasis is placed on shopping around for deals, parents are expected to travel further for work, have family meals out less often and children in larger families are more often expected to share a bedroom.

The ‘re-basing’ also results in higher expectations of the quality of childcare a family should have access to at a minimum living standard, with parents putting more emphasis on access to good - and more expensive - nursery care and after-school activities. Overall, the re-basing has resulted in lower specified costs, excluding rent and childcare, for couples, stable costs, excluding rent and childcare, for lone parents and rising childcare costs for both.

Costs excluding childcare and housing:

The basic cost of a child up to age 18, that is, excluding childcare, council tax and housing - was £72, 596 in 2015 - 2016 for a couple (a 13.8% drop on the previous year). For lone parents the 2015-16 basic cost was £99,035 - up 1.5 % on the previous year.

Pressures ahead:

The Cost of a Child in 2016 finds cost pressures are likely to intensify for low-income families. Key reasons for this are:

• Families so far spared a deterioration of living standards following the freezing of benefit rates from last year, will take a hit if, as projected, inflation rises.

• A tightening housing market has forced many families into the expensive private sector – which in turn can lead to higher travel -to- work costs since finding a job may mean travelling further afield.

• Parents are increasingly aware of the importance of early years’ education, and attach growing importance to having good childcare choices. This means using the statutory free entitlement but, since more hours are frequently needed for work, this can potentially increase family costs. From late 2017, the number of free hours are in theory increasing but doubts have been raised about whether the fee level being offered to providers will be sufficient for them to make places available.

Benefit reforms:

While some benefit reforms will ease family budgets– notably the extra help with childcare costs in universal credit (3) - others will tighten family budgets further. For example:

• Cuts in the universal credit work allowance (ie the earnings level at which universal credit starts to be withdrawn) will leave couples on UC up to £19.50 per month worse off. For single parents the loss is up to £46.15 per month.

• All families making new Child Tax Credit (CTC) claims will get £10.45 a week less with the abolition of the family element of CTC – a 7% reduction in the proportion of costs covered by benefits for the first two children of a couple.

• Child Tax Credit will no longer be paid for third and subsequent children born after 2017.

• The reduction of the benefit cap to £20,000 outside London and £23,000 in London will make life even tougher for large families and those with high housing costs who are out of work and already struggling with not much more than half of what the public deems necessary for them to have a minimum acceptable living standard.

• Some other families will have their benefits reduced because they are subject to the bedroom tax or because the only private accommodation they can find is at a rent above the level covered by housing benefit. Today, more families with children rent privately (1.6m) than from social landlords(1.3m) and an additional bedroom in the private sector costs nearly £20 a week in the East Midlands (a low- cost but not the lowest cost area) and £60 in Outer London, (high but not the highest cost area ) adding significantly to the cost of a child.

Child Poverty Action Group Chief Executive Alison Garnham said:

“With inflation low and key household costs falling, parents on the new, so-called, ‘national living wage’ might have expected some breathing space. But our research shows they can’t even cover the costs of basics for their kids. And much of that is down to soaring childcare costs and rents that are nigh-on unmanageable if you’re on a low wage.

“ The research for our Cost of a Child project draws on what members of the public think is required for a minimum budget - rather than for a life of ease. Our findings show that the new ‘national living wage’ is not enough to offset what has become a toxic mix of high housing and childcare costs combined with cuts to family support. It’s especially hard for lone parents, who have only one income, to get by, compared to couple-families. Our new prime minister wants the country to work for everyone. We will need re-investment in children’s benefits and in a real living wage and action to tackle high housing and childcare costs if it’s to work for ordinary families.”

Author of the report Donald Hirsch said:

“Our research shows that faced with a long period of hard times, parents are to some extent pruning what is considered an acceptable minimum living standard, for example accepting more constrained living space and only rare chances to eat out. Yet even with these economies, the number of families with less than this minimum continues to grow. This is partly because the parents we talk to agree with governments and social commentators that early childhood experiences are essential for life chances, and include items such as good quality childcare and after school activities in the ‘minimum’ budgets that they construct for families. These things have become more expensive in recent years, while wages have stagnated and benefits have fallen. If family living standards continue to be squeezed in this way, those on the lowest incomes will find it ever harder to give their children a good start to life.”

 

End

Notes to Editors:

(1) The report calculates the costs of a child based on the ‘minimum incomes standard ‘ (MIS) – the income that people need in order to reach a minimal socially acceptable standard of living in the UK. The MIS is calculated by specifying baskets of goods and services (ranging from food, clothing, heating bills, to modest items required for social participation such as buying birthday presents) required by different types of household in order to meet this need. The cost of an individual child is calculated as the difference that the presence of that child makes to the whole family’s budget.

(2) The Cost of a Child in 2016, available on request, was produced by CPAG as part of a programme of work on the cost of a child, also involving the Joseph Rowntree Foundation.

(3) Since April 2016, Universal Credit claimants can claim 85% of actual childcare costs up to £175 per week for one child and £300 for two or more children. But very few families so far are able to claim it as the roll out of UC is proving very slow and won’t be complete until 2022.

(4) CPAG is the leading charity campaigning for the abolition of child poverty in the UK and for a better deal for low-income families and children.

(5) CPAG is the host organisation for the Campaign to End Child Poverty coalition, which has members from across civil society including children’s charities, faith groups, unions and other civic sector organisation, united in their campaigning for public and political commitment to ensure the goal of ending child poverty by 2020 is met.

(6) Professor Donald Hirsch is Director of the Centre for Research in Social Policy, where he leads the Minimum Income Standard for the UK programme. He has written widely on poverty and related fields.

 

For further information please contact:

Jane Ahrends

CPAG Press and Campaigns Officer

Tel. 020 7812 5216 or 07816 909302

www.cpag.org.uk