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Households below a Minimum Income Standard: 2008/09–2014/15

For the first time, this report makes estimates of the risk of living in a household with an income below MIS for the entire population. It also uses the proportion living below 75% of MIS as an indicator of poverty, based on the observation that a household at this level is around four times as likely to experience deprivation as a household with an income at or above MIS level. A third indicator set out here gives an indication of the overall ‘depth’ of low income. This shows how many people live below MIS in combination with the average percentage that they fall below it, to create an indicator expressing the overall amount that the population falls short of meeting minimum standards.

The report’s main finding is that some improvement in economic indicators, including increases in employment rates, real wages and real incomes in the later part of the period under review, did not feed through to a general reduction in the incidence and depth of low income, using these indicators. An increase in numbers below MIS by about a fifth contrasts with a modest fall in the incidence of relative income poverty. While the median income benchmark fell in real terms over much of this period, creating a lower ‘poverty line’, the actual minimum cost of living as measured by MIS rose substantially faster than CPI – largely because commodities that are important in a minimum basket, such as food and domestic fuel, rose in price relatively quickly.

Among groups who have fared the worst in this period, children living in lone parent families stand out as having a particularly high risk of low income, a risk that has increased substantially and continued to rise. By 2014/15, only one in four children with a lone parent had a household income sufficient to reach a
minimum acceptable standard of living as defined by the public, while nearly half had incomes below 75% of this level, with the accompanying high risk of deprivation.

Pensioners, who have generally fared well in recent years, saw some increase in their risk of low income in this period – particularly single pensioners. This has, in part, been due to increases in the cost of basics such as food and domestic fuel, but also because of some additional spending requirements such as on technological items needed for social participation. Singles have been hit more than couples, because these increases have tended to come for items for which there are economies of scale.

The risk of low income is higher, and has risen faster, for people renting their homes than for those with mortgages. It is also higher for households headed by younger adults, although it has increased somewhat faster for those aged 35 to 64 (many of whom are parents) than for those aged 16 to 34. The risk of living below MIS is greatest in London, but it has increased relatively less there than in three other regions – the North East, the West Midlands and Northern Ireland – where the risk is now almost as great as in London.

In the period after the financial crash, reduced employment contributed to a growing risk of low income for households with working-age adults. Following the recovery of employment rates, over the period as a whole, the effect of employment status (how many people are in full-time, part-time or no work) is
broadly neutral. The increased risk of being below MIS has been driven principally by the increased chance that someone within each of these employment categories has low income. Even those with fulltime jobs are facing higher rates of low income than previously.

For single people, better employment prospects have helped reduce the number below 75% of MIS to a similar level as in 2008/09, but the risk of not reaching MIS has reduced by less; by 2014/15, a single person working full time had a one-in-six chance of being below MIS. For families with children, who have not just had to contend with falling real wages, but also with reductions in tax credits, the outcomes are much worse: for example, the risk of not reaching MIS grew from 28% to 42% for a lone parent working full time between 2008/09 and 2014/15.

Overall, therefore, the substantial increase in the numbers below MIS since 2008 has been driven by the declining adequacy of wage and benefit levels relative to costs, more obviously than by changes in the number of people in work or in full-time employment. Wages, benefits and tax credits have not systematically kept up with general costs, as represented by CPI inflation. In addition, the minimum cost of living has gone up faster than CPI, largely because the cost of some basics like energy, food and rent have risen by more than average. Looking ahead, the projected return of food and energy inflation,
combined with planned cuts in benefits and tax credits, risk causing a continued increase in the number of people whose incomes fall below the minimum – especially among families with children, who rely heavily on state support even when working. The National Living Wage (NLW) could, on the other hand, help reduce low income among groups without children, who rely less on in-work support, and if general earnings increase, this will be good news for pensioners, too, who will gain from the linking of pensions to earnings growth.