Life can be expensive and always seems to be getting more expensive!
When we read about the official price inflation figures in the press, it’s sometimes difficult to tally these with our personal experience of rising prices for goods and services.
After years of rising price inflation and static wages, many families are facing cutbacks as they struggle to cope with what has become a crippling cost of living.
Some new research has shown that low-income families need a third more disposable income than they needed a decade ago, just to make ends meet.
At the same time, these low-income families face larger barriers to meet rising costs. This is despite a lot of belt tightening and shopping around to get better deals.
The numbers were crunched by the Joseph Rowntree Foundation and use a decade of authoritative living standards research to determine a Minimum Income Standard (MIS).
Carried out by the Centre for Research in Social Policy at Loughborough University, MIS acts as a barometer of living standards in the UK. It’s based on what the public believe we need to achieve a minimum living standard.
The MIS is regularly updated based on changes to society and the economy.
According to the data, a single person needs to earn £18,400 a year to reach MIS.
For a working couple with two children, each parents needs to earn £20,000 a year. And for a lone parent with a pre-school age child, an income of £28,450 a year is needed.
What’s particularly interesting from a financial planning perspective is how costs have risen during the past decade. The research shows that, since 2008, the cost of a minimum notional basket of goods and services has risen in price by 35% for a single, working-age adult without children.
For a couple with two children, this inflation basket was risen in cost by 30% in the the last decade, and it’s up by 50% for a pensioner couple.
During this same period of time, the official figures show us that price inflation, as measured by the Consumer Prices Index (CPI), has risen by 25%. It means that these different families have all experienced a higher cost of reaching a minimum living standard than the official figures suggest.
The study shows that the types of goods and services required for a minimum living standard have remained broadly the same, but the cost and how people buy them has changed.
One area of expenditure which has risen sharply in price during the last decade is public transport.
The study found that public transport costs have become much more expensive and, at the same time, the provision of bus services has been cut. As a result, transport costs now take up nearly a fifth of the total expenditure for low-income families.
Bus travel has risen in cost by 65% since 2008. For a single person, the minimum transport budget has risen from £17 to £37 a week during the past ten years.
The weekly food shop has also become more expensive, with the average cost of food rising by a quarter between 2008 and 2018. The minimum food budget for a single person however rose from £29 to £44 a week; this represents a 50% rise during the same period of time.
Rising energy bills have also hurt the bank balances of low income families, rising by more than 40% in a decade. This is despite it becoming easier to use price comparison websites to switch provider and potentially save some money.
Childcare costs have risen sharply during the past decade. According to the study, the average price for a full-time nursery place for a two year old is now £229 a week, up by more than 50% in ten years.
One area of spending which has come down in price since 2008 is on essential technology services. It cost £9.50 a week for broadband, a basic laptop and a smartphone, compared to £8 a week today.
Technology is also reducing minimum living costs by enabling people to shop online and make price comparisons.
In order to make it easier for families to keep more of their earnings, the Joseph Rowntree Foundation is calling on the government to increase the Work Allowance under Universal Credit. According to the organisation, doing this help three million low-income working families reach a decent standard of living.
Campbell Robb, chief executive of the independent Joseph Rowntree Foundation, said:
“These figures show just how precarious life can be for low income households. People who live below the minimum standard say that they shop around to get the best deals and juggle to pay the bills, but the soaring cost of transport, energy and childcare means millions of families are still locked in a daily struggle to make ends meet.
“Some working parents are actually further away from reaching a decent living standard because tax credits to top up low wages have been falling at a time when families need them most. The Government must put things right by allowing families to keep more of their earnings. This would ease the constraints the crippling cost of living places on their ability to build a better life and ensure everyone can reach a decent standard of living.”
Abigail Davis, research fellow at the Centre for Research in Social Policy and the lead researcher on the Minimum Income Standard project, said:
“Our research has shown that people have a consistent idea of what you need as a minimum in the UK in the 21st century. Today, just as before the economic downturn, people think it is important to have enough to be able to eat healthily, to pay for some after school activities for your children, and to get away once a year for a low-cost UK holiday. But members of the public taking part in our research also describe how life is changing, for example the way that technology has become more affordable and is a more significant part of people’s everyday life.”
Professor Donald Hirsch, Director of the Centre for Research and Social Policy, said:
“The past decade has been particularly difficult for families on low incomes as costs have risen faster than the Consumer Prices Index, while the support they get from the state to help cover these costs has risen more slowly than CPI. For example, a couple with two children needs to spend 30% more to reach a minimum living standard than in 2008, faster than the 25% rise in CPI, and faster still than the 19% increase in tax credits for such a family, and 19% increase in average hourly pay. Unless the freeze on tax credits is lifted, this squeeze is likely to continue.”