Austerity: 'unprecedented erosion' in living standards

If you thought you were feeling the pinch, here’s probably why. Rising prices, stagnant wages and benefit cuts are creating an “unprecedented erosion” in living standards, especially for low and middle income families, according to new research from the Joseph Rowntree Foundation (JRF).
JRF’s Minimum Income Standard (MIS) finds that the cost of essential goods has gone up 25% since the start of the economic downturn in 2008, compared with the 17% increase recorded by the official Consumer Prices Index (CPI) measure of inflation. This suggests that official measures of living costs quite seriously underestimate the pressures facing low income households.
The following graph shows how the gap between MIS and CPI prices, which started widening at the tail end of the Labour government, has become a gulf under the coalition:
 
The two measures of inflation differ because they disagree about the importance of various necessities, so they give different ‘weightings’ to these items in their calculations. MIS believes that purchases like food, childcare and public transport should make up a larger part of our definition of cost of living – because these prices have risen at a faster rate than general inflation, the report suggests that the cost of living is rising faster than we think.
The unique aspect of this research is that it measures how far households are able to afford what they themselves define as a “socially acceptable minimum” standard of living, rather than one in which they merely survive.
JRF says it is not a fanciful wishlist, but a measure of ordinary needs, not wants; and necessities, not luxuries (tobacco, for example, is not included as a neccessity).

A minimum standard of living in Britain today includes, but is more than just, food, clothes and shelter. It is about having what you need in order to have the opportunities and choices necessary to participate in society.

The following table summarises the Minimum Income Standard for four household types, showing how much they need to earn to cover the costs of food, clothing, fuel, bills , childcare and other essentials:

 
What are the rising cost pressures facing families? Over the past five years, according to JRF:
• Childcare costs have risen over twice as fast as inflation at 37%.
• Rent in social housing has gone up by 26%.
• Food costs have increased by 24%.
• Energy costs are 39% more.
• Public transport is up by 30%.
Since 2009, wages have been rising more slowly than prices, and over the past 12 months, says JRF, incomes have been further eroded by cuts to benefits and tax credits. Ministers argue that the raising of the personal tax allowance for low income households will help: JRF says its effect is cancelled out by cuts and rising living costs (although free childcare for low income families from 2016 may ease the burden for some).
The net result is that it is increasingly difficult for low-to-middle income families to balance the weekly budget. There is now a widening gulf between public expectations of a minimum decent living standard and their ability to earn enough to meet it.
The report’s author Donald Hirsch, says the cumulative effect is historically significant:

From this April, for the first time since the 1930s, benefits are being cut in real terms by not being linked to inflation. This combined with falling real wages means that the next election is likely to be the first since 1931 when living standards are lower than at the last one.

JRF have also created an online calculator where users can answer questions about the type of household you live in. You can try it out at this link and find out what their research suggests you need to earn to secure a basic standard of living.