Improving pay is only half of the cost of living story

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Do you feel better off? This is going to be the key question as the general election approaches in 2015.

The latest salvo in the battle about living standards came last night as the government published some analysis of take home pay between April 2012 and 2013. It finds the bottom 90% of workers saw the money in their pocket increase slightly ahead of inflation, thanks in part to the increase in the personal tax allowance. This is a good news story, but the problem is, it’s only part of the story.
As Paul Johnson from the IFS pointed out on Today this morning, the government’s analysis does not look at overall household income. This is important because a lot of families – especially those where people are working for low pay and those with children – receive in-work benefits to top-up their incomes. Many of these benefits have been cut, frozen or eroded in value in recent years.
The cost of essentials like food, energy and fuel has shot up much faster than the official rate of inflation used in the government’s analysis. This is according to the Centre for Research in Social Policy’s research into the Minimum Income Standard (MIS), which asks members of the public what people need for a minimum, but still socially acceptable, standard of living. Between April 2012 and 2013 the official rate of inflation increased 2.4%, but the cost of what the public considers to be a basket of essential items went up between 3% and 4%, depending on the make-up of the household.
New research published today by JRF looks at who lacks an adequate income to afford an acceptable standard of living. It also looks at trends in income adequacy between the start of the recession and the most recent data, which is for 2011/12. It paints a pretty grim picture. Looking across the households we have data for, the number falling short of an acceptable standard of living increased by a fifth – 900,000 more households without enough to afford the things the public thinks everyone needs.
Some groups fared worse than others during this period. Single people living alone have seen a sharp deterioration in their living standards, especially those aged under 35. This is a result of growing unemployment, declining benefit levels and more people living in private rented homes, where disposable income can be quickly eaten up by high rents. People with children have also seen a growing risk of living without an adequate income, as cuts in tax credits and benefit freezes have hit. Lone parents face a particularly high risk of not having an acceptable standard of living, with two thirds falling short.
Of course the government will argue that things have changed since 2012, and indeed they have. On the one hand we are seeing stronger signs of economic recovery and job growth. But on the other we also know that the cost of essential items continued to increase and there have been further cuts and freezes to in- and out-of-work benefits.
What this research shows us is who has suffered the most during the downturn. We need to hear from all the political parties how the living standards of those hardest hit in the downturn are going to be prioritised as the recovery takes hold.
With almost a million households falling below what they need, there is a long way to go: the government should not gain credit for a recovery if the number of households without an adequate income continues to rise.

Katie Schmuecker is Policy and Research Manager at the Joseph Rowntree Foundation.

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