LONDON — New research shows that millions more people in Britain are struggling to make ends meet since the financial crisis and predicts that the situation could drastically worsen over the next few years as inflation spikes.
- 30% of the population, 19 million people, are now below the "minimum income standard" [MIS].
- The number below MIS has risen by 4 million since 2008/9, or a 5 percentage point rise;
- 11 million people have incomes below 75% of MIS and are at high risk of poverty;
- 8 million people are just about managing to get by.
MIS is an income benchmark calculated by the Centre for Research in Social Policy (CRSP) at Loughborough University. It is based on extensive surveys of people in the UK, asking them what they believe is a reasonable income.
MIS in 2016 for a single person of working age was £286.53 per week before bills, equivalent to £14,899 a year. For couples, it was £353.21 a week, or £18,366 a year. For a couple with two children, it was £776.28 a week, or £40,366 a year.
These are relatively modest budgets. The Institute for Fiscal Studies (IFS) found last year that the average income for a childless couple in the UK was £581 in 2014-15, or £30,212. That is over £10,000 more than they need under the MIS system.
The fact that so many people in the UK fall short of this relatively low threshold is alarming.
It also comes at a time when the UK is experiencing record low unemployment levels. New data released on Wednesday shows that Britain's unemployment level remains at 4.8%, a 10-year low. Just 1.6 million people are officially unemployed.
Families with children have the highest risk of incomes that fall short of the standard, according to the report. More than half of families with children and just one parent in work are below the MIS — 56%.
The Joseph Rowntree Foundation, a social policy and development charity, says the rising risk of poverty is due to sluggish income growth rather than any increase in unemployment.
The charity says: "The price of a minimum "basket of goods" has risen 27-30% since 2008, and average earnings by only half that amount."
Britain's employment market has seen the rise of the so-called "gig economy" since the 2008 financial crisis, with more and more people doing low-paid, self-employed jobs such as driving Ubers or delivering food for Deliveroo. Trade union TUC estimated this week that the irregular hours and lower earnings of these types of workers means the government is missing out on £4 billion of tax revenue a year. This means these workers are missing out on pay too.
The Trussel Trust, a charity runs the UK's only national network of food banks, said last April that food bank usage was at a record high of 1.1 million. Almost half a million emergency food supplies were given to children.
The Rowntree Foundation's report is supported by Office for National Statistics data, which last year found that 33% of people were in poverty at least once between 2010-13 compared to an EU average of 25%.
However, the UK has a "persistent poverty" rate — those in poverty for at least 2 out of the last 3 years — of 6.5%, one of the lowest in the EU. This suggests that millions are stuck precariously on the breadline.
The Joseph Rowntree Foundation warns that this trend is only set to get worse, with rising inflation and slow wage growth meaning more families will have to make their money stretch further and further.
Matt Padley, Research Fellow at Loughborough University's Centre for Research in Social Policy, and one of the report's authors, says in a release: "Our report has shown a steady growth in the numbers of people with too little income.
"Unfortunately the conditions to the end of the decade still look unfavourable for these groups. With forecasts of rising inflation, slowing wage growth combined with cuts to tax credits, the outlook is set to be highly challenging for families whose low incomes mean they are, at best, only just managing to make ends meet."
Inflation hit 1.8% in January, figures out this week show, and the Bank of England expects price inflation to breach its 2% target, peaking at 2.8% in the first half of 2018. The rapid price rises are driven by the fall in the pound since last year's Brexit referendum, which makes it more expensive to import everything from food and clothing to petrol and parts.
Theresa May has made so-called "JAMs" — people and families who are "just about managing" — a key priority of her government, getting the Chancellor to freeze fuel duty for a seventh year and doubling the tax-free childcare allowance in last year's Autumn Statement.
However, Campbell Rob, the chief executive of the Joseph Rowntree, says more needs to be done. He says in Wednesday's statement: "Government focus on people on modest incomes is welcome, but it cannot be at the expense of those at the poorest end of the income scale: it must remember just about managing today can become poverty tomorrow.
"This could be a very difficult time for just managing families as rising inflation begins to bite into finely-balanced budgets. The high cost of living has already helped push four million more people below an adequate income, and if the cost of essentials such as food, energy and housing rise further, we need to take action to ease the strain.
"The Government can help in next month's Budget by allowing families to keep more of their earnings and ensuring benefits and tax credits keep up with the rising cost of living."
Here is a table from the Joseph Rowntree Foundation showing how MIS levels have changed since 2008/9: