Since the election, an important debate has opened up over how far state benefits should be underpinning family living standards. The government is clearly trying to reduce what it sees as unnecessary dependency, including for families in low-paid work. It has approached this from multiple angles. Significantly higher minimum wages and tax allowances will increase families’ post-tax earnings. Extra support for childcare will help bring costs down. On the more ‘punitive’ side, means-tested support, both in and work is being cut substantially for all families and drastically for larger families. To George Osborne, this feels like a winning combination: cover family costs by helping them to help themselves.
Unfortunately to many families, it will not seem like that. For most, the losses in support will outstrip gains from higher wages. Extra help with childcare will be welcome, but for too many families with young children, the lack of affordable and accessible provision will continue to be an obstacle to working those extra hours that might otherwise make work pay. Most importantly, the basic cost of raising a child has risen far faster than incomes in recent years, meaning that even without additional costs such as childcare, state help has become crucial to maintaining a reasonable living standard for those on below-average earnings.
The scale of this problem is shown today by the latest of our reports on the cost of a child. It now costs a minimum of at least £150,000 over 18 years to bring up a child, and the proportion of this contributed by the state has been falling year on year. The cuts announced in the July Budget will cause most low income working families to lose at least £1000 a year, with much greater losses to come for some families. Five years ago, the tax credits system came close to ensuring that a family could reach a minimum acceptable income if parents worked full time. Today, those on low wages typically fall 15 per cent short of that minimum, and the gap is ever widening. For out-of-work families it’s much worse: in 2010 they fell about a third short of the minimum; the way things are going, they’ll soon have only half what they need.
It is worth bearing in mind that all European countries give subsidies to help cover the cost of children, including to working families. This acknowledges that the market will never fully cover these costs, and that even in countries where services are heavily subsidised, income transfers play their part. It is great that minimum wages are rising so family pay can play a bigger part in the package of support for children. But we are kidding ourselves if we think that serious reductions in already-inadequate family benefits will result in anything other than additional family hardship.