A Minimum Income Standard for the UK in 2010 shows that people on low incomes face a much higher inflation rate than shown in the official Consumer Prices Index, which the Budget announced as the future basis for uprating benefits. This means that in real terms, people out of work, relying on these benefits, could become worse off. For people in work, the gap between the minimum wage and the wages needed for a minimum household budget has widened.
The Minimum Income Standard shows how much various households need in 2010 to reach a minimum standard of living, according to members of the public. A single person now needs to earn at least £14,400 a year to reach this standard, and a couple with two children £29,200. These have increased from £13,400 and £26,900 in the past two years.
The research, carried out for the JRF by the Centre for Research in Social Policy at Loughborough University, is based on what ordinary people think should go into a minimum budget. This includes things people need in order to participate in society, as well as physical essentials such as food and shelter.
In the past year, the annual earnings needed to keep up with the minimum income standard have risen by over £1,600 (or 6%) for a couple with two children - much faster than wages. This is partly because personal tax allowances and the rules for getting tax credits have been frozen rather than increased for inflation.
The Budget's announcement of a £1,000 hike in tax allowances from next year will help such a family by making them £320 a year better off, after inflation, if both partners are working. However, all of these gains could be lost by other Budget changes. Cuts in tax credits could cost them up to £300, and the freezing of child benefit about £50 in real terms. The family will also be hit by a rise in VAT, the cap on Housing Benefit if they have a high rent and the slower uprating of benefits generally. Although the freeze in council tax may help contain the rising cost of a family budget, the squeeze on public sector services - which are more used by people on lower incomes - could offset this.
Donald Hirsch, head of income studies at the Centre for Research in Social Policy, Loughborough University, and one of the report's authors, said: "This new research underlines how people living close to the minimum income standard can end up not having enough if economic trends start going against them. For example, a single person who a decade ago had just enough to get by, and whose income has risen in line with official inflation, cannot afford a minimum budget today. Big rises in the prices of things like food and council tax means that they are nearly £20 a week short of what they need, and must think of what essentials they will go without."
