Wednesday, 11 July 2012

Minimum Income Standards: Reading the Rowntree Report

The Joseph Rowntree Foundation published yesterday its report on ‘A Minimum Income Standard for the UK in 2012.’   It seeks to find out what is the minimum level of income is required to sustain ‘socially acceptable’ standard of living. This is an interesting publication in many ways, not least because the data may form the basis for the ‘living wage’ policy, and our responses to upcoming consultations on poverty. So, this will be important reading for one of our policy officers. However, below are some observations that sprang out to someone less involved in the subject....

  1. The report takes the great Adam Smith’s understanding of social necessities!

Adam Smith spoke of a linen shirt, not “strictly speaking, a necessary of life” but in his times through the greater part of Europe, a creditable “day-labourer would be ashamed to appear in public without a linen shirt.” In the same way, custom had rendered leather shoes “a necessary of life in England.” In other words, social necessities are not only what nature, but what a society’s established rules of decency have “rendered necessary to the lowest rank of people”.   This is an excellent way to measure poverty.
The Rowntree Foundation looked to find out what these social necessities are. They formed 21 focus groups, in which members of the public discussed and decided what essential items individuals and households need in their budgets in order to obtain an acceptable standard of living in 2012. This work was then complemented by a nutritionist and a heating engineer.

  1. The financial crisis has not caused the British public to fundamentally rethink what households need to make ends meet, and to participate in society.

This report updates a similar report carried out by Joseph Rowntree foundation in late 2007, just at banks were experiencing runs, interest rates were being tightened, and the sub prime mortgage market was experiencing difficulties. Five years of financial turmoil later, the majority of goods and services in the basket of items considered essential are the same.  It would appear then that the living standard commonly held to be acceptable does not readily fall with a recession; rather it strays out of reach of more and more people as the country gets poorer. Currently, one in four are living below the minimum income standard.

  1. The budget for practical essentials has grown, as the budget for leisure has shrunk.

Households are finding that public transport cannot meet their needs, and so a car has become an essential for households with children. Times are hard, so this has been offset by a reduction in the leisure budget. Socially norms would, according to the report, now suggest eating out at fast food outlets rather than restaurants, buying cheaper presents for loved ones and giving less pocket money to small children. 

  1. Its costing more and more to have children....
The report draws particular attention to families with children. Those on small incomes had become dependent on government help, alongside their wages to help maintain their standard of living. This makes cuts in tax credits particularly problematic. By 2008, an increase in such support had made it possible for many families with children to reach a minimum standard with a similar level of wages to those without. Since that time, the lowest wage required for an acceptable living standard has risen faster for families with children than for other working households. This means that the cost of having children in terms of its effect on the risk of having to live below minimum standards. It makes it more likely that children will grow up in families where they or their parents will have to do without essentials.
5.       ... but the pensioner lifestyle is likely to be on the Minimum Income Standard.

Pensioners have seen their minimum income requirements and their minimum benefit entitlements rise at roughly the same rate. This has brought the minimum benefits to just over the minimum income standard. Pensioners and couples are the only
Gross earnings required to meet MIS, April 2012

working age
1-earner couple, 2 children, no childcare
2-earner couple, 2 children, with childcare
Lone parent, 1 child, with childcare
MIS (including rent, childcare* and Council Tax), weekly
Gross earnings required, weekly
Hourly wage rate
Amount above the NMW, hourly
Annual earnings required

Note: * Childcare, where specified.

MIS compared with out-of-work benefits and median income

Single, working age
Couple, pensioner,
Couple, 2 children
Lone parent, 1 child
MIS as a percentage of median income, after housing costs*
Benefit income as % of MIS

Note: * Adjusted for household composition (i.e. median income is shown as higher for larger households and lower for smaller ones, according to a formula that assumes greater needs for larger families).