Centre for Research in Social Policy

School of Social, Political and Geographical Sciences

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New ideas will be needed if the next PM is to help those facing the toughest summer

Later this month, we can expect our new Prime Minister to enter Downing Street with a promise to bring the country together and help those who are struggling. David Cameron made his entry speaking of fairness and his desire to ‘help the poorest’; Theresa May of helping the ‘just about managing’. The current frontrunner sees the need to balance his pledge for tax cuts for upper earners with a matching promise to raise the £8,600 National Insurance Contribution threshold, saying he is a One-Nation Conservative determined to improve public services and make improvements for those on lower incomes.

Yet for such noble sentiments to be translated into a genuine assault on poverty and disadvantage, the country needs a more focused plan for doing so. Tax or national insurance giveaways (such as raising the thresholds) give the same amount to every taxpayer, so cannot in themselves allocate enough to help many people out of poverty – especially when the poorest working households see larger cuts in their benefits, and families without work or already below tax thresholds gain nothing. Higher hourly pay for those on the lowest wages is welcome, but again is being undermined by widespread benefit cuts, and does not reach the many households for whom limited working hours, not low hourly pay, is the main cause of low earnings.

This year’s Minimum Income Standards report shows that overall, recent policies have helped some low earners, but held back many. If you are a single person working full time on the minimum wage, or a couple where both parents do so, the National Living Wage (NLW) has potentially helped you get closer to an acceptable living standard over the past four years (although you are still likely to fall short of the MIS level). But many overlapping groups have gone backwards: lone parents, for whom cuts in working benefits have hit hardest; families with high childcare costs, which become ever pricier, while the limit to what the state will contribute to help cover them remains frozen; single-earner couples, who do not have enough hours of wages at higher pay to compensate for tax credit cuts; and of course larger families hit by the two-child limit, whose disposable incomes typically now fall a third to a half short of what they need for a minimum acceptable standard of living.

All these families have been finding life ever tougher, regardless of whether they work. Rising costs are simply outstripping family income. A stark example as the summer holidays approach is the cost of enrolling your child in a holiday club. In 2009, this would have cost around £90 a week; this summer it will be about 50% more – an average of around £135, even though the disposable income of a typical two-earner family with children has typically gone up only by about a quarter if they benefit from the NLW, and by much less if they do not. Other costs like travel and going away on holiday have also been rising much faster than incomes, meaning that many think of the summer not as a time to get away and unwind, but rather as a time of extra financial stress.

Those politicians who seek to form the next government will therefore need a fresh approach to helping low income families if they really want to live up to their own ‘inclusive’ rhetoric. Most importantly, the existing policies of reducing tax burdens and improving pay for those on low incomes need to be accompanied by a revival of the direct help created in the tax credit system, which Universal Credit should be emulating but is struggling to do so. Restoring the link between prices and benefits when the freeze ends next year is universally agreed to be a good starting point. But while this will stop things systematically getting worse for all low income families, the rolling out of cuts such as the two-child limit and the ending of the £10 a week family element of the Child Tax Credit, as well as the loss of substantial premiums for disability under Universal Credit, will continue to hit the incomes of many. Only some serious uprating of entitlements, by more than inflation, would signal that a new government is committed to turning the tide.

 

 

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