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The Joseph Rowntree Foundation published its annual update of the cost of a minimum standard of living on 6 July

 

Based on what ordinary members of the public think we all need to get by in modern society, it showed that a single person needs to earn at least £14,400 a year before tax to reach this standard.  A couple with two children needs £29,200 and a single pensioner needs an income of £10,400.  The budgets include the cost of a nutritional diet, clothes, bills, household items - from a fridge to a cheese grater - and a minimal amount of social and cultural participation, like an occasional night out and a week’s self-catering holiday in the UK.



The budgets are essentially determined by a combination of price rises and what the public think are necessary items and activities - inflation caused a 3 to 4 per cent increase on last year’s budgets and a computer and home internet connection are now considered to be necessary for all non-pensioner households.  Over the last decade, the rising cost of food, public transport, Council Tax and other essentials means that the minimum budget costs 38 per cent more, compared with general inflation of 23 per cent over the same period.



To calculate the amount you need to earn to reach this standard, you need to take into account the workings of the tax and benefit system.  Changes made to – or rather the freezing of ¬– income tax and tax credit thresholds in the last Labour budget in March meant that wages would need to rise overall by six per cent to reach the standard.  This is quite a hefty jump when you take into account the stagnation of wages generally as well as pay freezes in the public sector. However, it wasn’t long until this was changed quite radically.



In June, George Osborne claimed to have delivered a “progressive budget” in which “people at the bottom of the income scale will pay proportionately less than the top”.   A key part of this commitment is the increase in the basic income tax threshold by £1,000.  For a couple who are both working full-time, this entails a welcome gain of £320 a year.  However, if that couple has young children, the freeze in Child Benefit means they will lose spending power to the tune of £50. 

 

Tax credit changes will result in a further £170 loss and there could be an additional loss of £140 due to the lack of uprating in the amount you can earn before having tax credits reduced.  Overall, this creates a net loss of £40 per year.  A lone parent with one child would be virtually no better or worse off on balance, gaining £160 a year from paying less income tax but £170 worse off because of a relative decline in benefits for her child.


There is plenty that can be done to make it easier for people and families to reach a decent standard of income.  There are still many households that are not claiming the benefits and tax credits they could get - in particular, people in low-paid jobs, who are eligible for Housing Benefit, Council Tax Benefit and Working Tax Credits.  Pensioners are also under-claiming by up to 40% - especially Pension Credit.  If pensioners did get all the benefits to which they are entitled, most would in fact reach the income standard.  



The other side of the coin is earnings from work.  At the moment, there is a problem with entrenched and extensive levels of low-paid, low-skilled, dead end jobs in the UK economy, trapping people in poverty.  The really big target should be to create better ladders out of these jobs and a revolution in our labour market.  This would be good for the country as well as the best solution to ingrained poverty and inequality.

Chris Goulden
Programme Manager
Joseph Rowntree Foundation


Written by Chris Goulden
Thursday, 08 July 2010 0:12

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