Tag Archives: Income

“Dip in Living Standards” for Out-of-Work Families

The Joseph Rowntree Foundation (JRF), an anti-poverty campaign group, has warned that families who are out of work are facing a significant drop in their standards of living. This is a result of cuts to the benefits these families receive, leaving them without the income needed to achieve an acceptable standard of living.

Couples who are out of work and have children are currently facing “a decade of sharply declining living standards,” the JRF has warned. By 2020, the organisation predicts, a couple who are looking for work and have two children will fall short of the level of income they would need for an acceptable standard of living by £221 every week.

Pensioners will fare rather better, and will have the amount of money they need for acceptable living standards, albeit narrowly. Retirees will exceed this threshold by £15 a week. All of these calculations are made using the JRF’s own estimates of what will be an acceptable level of income by 2020.

Following on from Chancellor George Osborne’s July budget, which announced a number of key changes, many groups are set to become better off by 2020 than they are now. Pensioners, those in work who do not have children, and families where both parents are working full-time are among those who are likely to find themselves in a stronger financial position in five years. However, families with more than two children and single parents will either see their standards of living hold steady or decline, the JRF’s research suggests.

Two of the key measures at play – both announced in the July Budget – are the introduction of a National Living Wage, and significant cuts to certain benefits such as tax credits. The former will create a noticeably and fairly sudden increase in wages for families in lower income brackets, but the latter will offset some of these benefits in many cases and could lead many people to become worse off. Shortly after the Budget , the Institute for Fiscal Studies (IFS) predicted that the changes it contained would lead 13 million families in the UK to be left out of pocket, each losing an average of £260 per year.

According to JRF chief executive Julia Unwin, “the wage rise comes hand in hand with changes to in and out of work benefits. Families will only be able to make ends meet if they have two parents in full-time work, but those who are able to find extra work will face a difficult juggling act as they try and make longer hours fit around family life.”

Rising Inflation – Flat Wages

Its no surprise now that wages are in general terms flat, with very few among us seeing the small annual pay rise that was common pre-recession.  Even more sadly, apart from those with pay frozen, there are those with wage cuts and redundancies… let alone the queues at the job centre.  Add to the mix that inflation is increasing at an alarming rate (that 2pint milk now costs 50% more than it did 10 years ago), its evident that the gap between spending and income is widening.

In the fourth quarter of 2012, the Office For National Statistics (ONS) found that real income per head had fallen by £13 to £3,767. Meanwhile, expenditure per head has increased by £4. As a result, household saving had fallen as household must now spend more.

While demand hasn’t really increased and people have been careful with what they have recently, with incomes rising more slowly than inflation, its having a catalytic effect and many ordinary people are now being forced to borrow money in order to get by.  When in need of instant cash borrowing, payday loan providers are who many people are turning to, usually if they don’t have very good credit and can’t access loans in the form of bank loans or credit cards.

There are two effects of the increased borrowing and the widening gap between real income and rate of inflation. Firstly spending will be low, this will counteract all off the government’s attempts to increase spending as a means to stimulate economic growth.  As a result to the fall in spending, firms will see fewer profits, leading to more people becoming unemployed. Homelessness charity Shelter has stated that 8 million people are on the verge of losing their jobs. With no way of being able to save, this is a very worrying situation; being dubbed as ‘the British saving crisis’.

The government need to act and are likely to do so in another attempt to increase spending. Ironically, a likely policy to increase spending could be to encourage borrowing, further widening the gap between income and spending. More borrowing would mean more spending, as people have more access to money, however incomes will not be changing.

To increase economic growth, the most effective method would be to increase spending, but when we take into account that the bad financial standing Britain is as right now was caused by unsustainable borrowing, it wouldn’t make sense to encourage such a thing. In the short run, while borrowing might increase economic growth, in the long run it will come back and burden Britain once more.

A more concrete solution must be thought of as opposed to borrowing, inflation needs to be slowed down and real wages need to catch up fast.