Tackling poverty - an acceptable living standard
Like Acheson, the Family Budget Unit concludes that current rates of income support and net incomes from low pay are insufficient to prevent poverty. In his Preface, Professor John Veit-Wilson describes the report’s findings as a ‘foundation for a minimum income standard, both in ands out of work, against which the achievements of the New Labour Government can be measured’.

Low cost but acceptable
Variable costs plus budget standard costs
The findings
Policy implications

About one-quarter of British children live in families dependent on income support. Although most families can manage temporarily, long term reliance produces a cycle of poverty, debt and despair which aggravates the health and social problems New Labour is pledged to address. The increases in income support for children under 11, although welcome, are not sufficient to secure an acceptable living standard. Similarly, the introduction next October of working families tax credit (WFTC) may bring lone parent families in lower paid work to LCA level, but will be less effective for two parent families, because the tax credit formula takes no account of the living costs of the second parent.

Low cost but acceptable
The question addressed by the Family Budget Unit is a technical one: How much income do families with a boy aged 10 years and a girl aged 4 years need to reach an LCA living standard: in and out of paid work and assuming they rent local authority housing in York?

This is the first time budgets at LCA level have been calculated in the UK. They are necessary because the Family Budget Unit’s modest-but -adequate (MBA) standard is beyond the reach of lower paid families with children and those dependent on income support. Future FBU reports will estimate living costs at LCA level across the life cycle, from pregnancy to old age.

The LCA logo (figure 1) encapsulates the LCA concept. A definition of poverty is used which includes psychological and social as well as physical needs. The costs of education and health care are excluded, because they are freely available, but the costs of access to them - transport, school uniforms, sports gear - are included, as are food purchases, housing, fuel, clothing, personal care, household goods and services, leisure and other costs which together promote health, socially inclusive living in the UK at the turn of the millennium.

On the definition of ‘necessities’, the 18th century economist Adam Smith was far nearer the mark than recent UK governments. Social necessities, Smith argued, are as important as physical necessities. A necessity in one country, for instance children’s shoes, may be a luxury in another.

Social exclusion results where the majority have a much better life style than the minority. As a rule of thumb, the FBU includes goods in its MBA budgets if 50 per cent or more of UK households have them. For its LCA budgets, goods are included if 80 per cent or more of UK households have them. So the LCA budgets include videos, but not cars. On the advice of children’s charities, we also include a week’s self catering holiday in the UK, school outings, Christmas and birthday presents and occasional family outings. Because many low income families regard alcohol as important for socialising, budgets with and without it have been calculated (10 units for men, 14 for women). Tobacco is excluded for health reasons.

In deciding upon the goods and services for inclusion, the FBU was greatly assisted by discussion groups composed of low income parents. The groups provided information about the shopping patterns of families on low incomes; helped draw up a framework for the food menus and shopping lists; assisted in variation process; and informed the researchers about the realities of life on a low income.

Variable costs plus budget standard costs
The figure-work in the report refers to the UK in January 1998. The food budgets were prepared in the Department of Nutrition and Dietetics, King’s College London, and include menus approved by low income families. All the components of a typical family budget are listed and priced and a distinction drawn between budget standard costs (food, clothing, personal care, etc) which for families of the same composition tends to be similar, and variable costs (housing, fuel, transport, childcare, debt, etc) over which the families have less control.

Once calculated, the component budgets are added together to produce total spending; and for the wage-earning families the spending totals are grossed up for income tax and national insurance (NI) contributions (less any social security benefits to which there is entitlement). It is complicated and laborious work but has the unique advantage that items in the budget are relatively easy to change. This is particularly important for variable costs like housing, transport and childcare, and should make budget standards methodology more accessible to money advisers, credit controllers and courts of law.

The findings
Out of work families
The LCA budgets for out-of work families were summarised, on the optimistic assumption they do not smoke, have no seeking work costs, no fines and no maintenance orders to pay. Notwithstanding those exclusions, income support is well below LCA level for both family types (figure 2). Including alcohol, the shortfalls are £39 a week for the two parent family and £27 a week for the lone mother. Excluding alcohol, the shortfalls are £32 for the two parent family and £24 for the lone mother.

Lower paid families
For wage and salary earners the figures show the gross weekly earnings required to reach LCA level. At LCA level, income tax plus NI contribution and council tax constitute the biggest item of expenditure: a finding that should be of particular interest to government and Parliament.

Family credit has been the flagship of government policy for lower-paid families with children since its introduction in 1988, yet the two parent families in this study need earnings above family credit entitlement level to reach LCA level. This is because the amounts payable with family credit have never been formally checked against the amounts required. It is time they were.

Other findings include the minimal effects on family poverty of the £3.60 minimum wage. In January 1998, at average female manual earnings of £205 a week, both family types were below LCA level. At average manual earnings of £323 a week, they were not far above LCA level. For the two-parent families, as noted, family credit is phased out before their net incomes reach LCA level. Will WFTC do better?

Policy implications
If poverty and social exclusion are to be prevented, the New Deal must incorporate ‘budget standards’. Government should act swiftly to show what goods and services social security benefits will buy and the net incomes required by working families to reach an acceptable living standard. Living standards at the bottom of the income distribution should be outside party politics and all legislation impacting on families with children should be subject to rigorous investigation, in Whitehall and Westminster, using budget standards methodology.

From a policy angle, the FBU report is not telling readers anything new. If child poverty did not exist, CPAG would not exist. What is new - in the UK though not elsewhere - is the budget standards approach to the measurement of need. Henceforth it will be up to the Government to spell out the items families with young children need to avoid poverty - and put prices to them.

The case for a minimum income standard is overwhelming. It was recommended by Labour’s Commission for Social Justice ‘as a goal to aim for, a standard against which people’s earnings, pensions and other benefits can be judged’. It has also been advocated by the European Commission, which recommended all member governments set a minimum income standard "sufficient to cover essential needs with regard to respect for human dignity".

What is New Labour waiting for?

Poverty 103 Summer 1999