Parents struggling to meet no-frills family costs as crisis in family finances looms
Parents working on the minimum wage are on the brink of a new crisis in family finances that will leave many stranded when it comes to meeting no-frills family costs, warns a new report produced by Loughborough University’s Donald Hirsch for Child Poverty Action Group.
Families with both parents working full time at the national minimum wage are 16 per cent short of the basic amount needed to provide themselves a minimum standard of living according to the new report.
The Cost of a Child 2015 finds the minimum cost of a child from birth to age 18 remains high at £149,805 (a 1.6% increase on 2014 and a 5% increase since 2012).
The report concludes that the outlook appears to be for the high cost of a child to rise less steeply in future years but that state support in covering these costs to deteriorate sharply as a result of government policies, creating a net loss for most low income families.
Couple-families where each parent works full-time at the current minimum wage are 16% short of the basic amount needed to provide themselves with what the public regards as a minimum standard of living, the report finds. For a couple with two children, that’s a gap of £75.75 per week.
The report shows a wider gap for out-of-work couple families – at 43%. For lone parents, the shortfall is 13% for those in work– 39% for those not working.
In the year to 2015, the cost of a child increased to £84.188 over 18 years for a couple – or £149,805 if rent, council tax and childcare are included. For lone parent families – where only one adult can make offsetting savings from their own living expenses - the costs of a child are higher: £97,576 over 18 years or £167,339 including rent, childcare and council tax.
Now in its fourth year, The Cost of a Child 2015 draws on what the public says every family requires to meet its basic needs and participate in society. It examines the costs associated with raising children, and the extent to which parents struggle to meet them even when they work.
The report also finds:
The adequacy of children’s benefits in meeting basic needs has deteriorated significantly since 2012, particularly for lone parents. Child benefit and child tax credit provided a similar proportion of children’s costs in 2015 as in 2014 - improving slightly for lone parents and becoming slightly less generous for couples but the change follows significant deterioration since 2012. So, in 2012, for a lone parent on a low income, child tax credit plus child benefit fell 22% short of covering the minimum cost of a child, and now falls 27% short. Child benefit currently covers 19.2% of the cost of a child for couple-families and 16.5% for lone parent families. Child benefit and the maximum amount of child tax credit together cover 84.3% of the basic costs of a child for a couple family, 72.7% for a lone parent family
Out-of-work benefits fall far short of what is needed for a minimum living standard. Although their adequacy improved very slightly in 2015, out-of-work benefits are significantly lower in relation to the cost of a child than in 2012. A family on benefits is left well over a third short of being able to afford a minimum living standard.
The report lists several July 2015 Budget measures expected to make it very much harder to meet children’s basic needs:
1. A four-year freeze on working age benefits, including child benefit. This means that as children’s costs increase, help to cover them will not. The OBR forecast of a 7% cumulative inflation rate from 2015 – 2019 will potentially cause the basic cost of a first child to rise by approximately £6 to £8 a week, leaving low-income families both in and out of work that much behind in meeting this cost. From 2017, new claimants will have their tax credit or universal credit cut by a further £10.45 per week per family, with the loss of the family element of child tax credit.
2. Cuts in the amount parents can earn before tax credits or Universal Credit start to be withdrawn. For families on tax credits, this lower earnings level once combined with the new, higher rate at which credits are withdrawn as wages rise, means that top ups for the low paid will start being reduced earlier and also at a steeper rate, amounting to a major loss of £24 per week.
Combined with the freeze and the removal of the family element (see previous paragraph), this means a cut of nearly £50 a week in the level of support for a working family with two children, relative to the cost of those children, by 2019 for new claims.
For families claiming universal credit, the reduction in the amount they can earn before the credit starts to be withdrawn (at 65p from every extra pound), will mean a £12 weekly loss for lone parents and £5 for couples.
3. Lowering the benefit cap to £23,000 in London and £20,000 outside the capital will reduce the net income of families already hit by the cap by £58 per week in London and £115 outside it. For those affected, out-of-work benefits, which until recently covered about two-thirds of minimum needs, will typically be slashed to less than half the minimum needed.
4. Limiting tax credits to two children from 2017. For a couple with three children, the cut represents 16% of minimum family costs.
The report says the new, extra support for childcare is potentially good news. Extra provision and help with 85% of the costs for Universal Credit claimants from 2016 could bring down costs substantially for families using paid childcare. But, the report warns, the new financial support will not be available to families on tax credits and the delay in rolling out universal credit will put off any gains for families until 2016 at the earliest. And cash limits on support levels could leave many parents having to bear ongoing cost increases in childcare.
Child Poverty Action Group Chief Executive Alison Garnham said:
“Low inflation helped keep the cost of a child relatively flat last year but the barrage of cuts announced in the Budget will batter modest and low-income family budgets, making it very much harder to afford even bottom-line, basic children’s costs.
“Shockingly, even couple-parents - both working full time on the current minimum wage - are already well short of what they need for no-frills basics. One in four children lives in poverty in the UK and the oncoming social security cuts will push the number higher – at greater cost to the taxpayer. We should be backing parents’ efforts to build a future with prospects for their children, not consigning them to financial misery and narrow horizons. The Government should invest in a real living wage and give children’s benefits the ‘triple lock’ protection that pensions enjoy.”
Author of the report Donald Hirsch said:
"With low inflation, the cost of raising children has stopped growing, but many families still lack the incomes they need to afford even the basics. Over the next five years, some of the most vulnerable families will see support for meeting these costs reduce, sometimes leaving them with less than half of their family's minimum needs if they are not working. The hardest hit will be larger families - the punishment for falling on hard times if you have more than two children will be something close to destitution. However, even with two children, many families with anything more than a very modest rent will hit the new Benefit Cap levels, and have their benefits reduced to levels that make it ever tougher just to get by."
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 2015, 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) 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.
(4) 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.
(5) Donald Hirsch is Director of the Centre for Research in Social Policy.
(6) The Cost of a Child is based on data from the minimum income standard published annually by the Joseph Rowntree Foundation
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