THE BLOG

Prices Outpace Pay: People Need to Earn More Just to Stand Still

28/06/2013 11:33 BST | Updated 28/08/2013 10:12 BST

Bob is a single man. In 2008 he earned £13,000, giving him enough disposable income to afford what the public thinks everyone needs in order to achieve a decent standard of living. If Bob's wage had risen in line with average wage increases over the last five years, he would earn £14,000 today. But unfortunately for Bob, to achieve that same standard of living that he experienced in 2008, he would need a salary of £17,000 today. This is largely the result of the soaring cost of living, particularly for those on low incomes.

Today JRF publishes the most recent edition of our Minimum Income Standard (MIS) research. This project asks the public what goods and services every household needs in order to have for a socially acceptable standard of living. As such it includes not only the things required to survive - like food and clothes- but also those needed to participate in society - like a modest budget for Christmas and school trips.

We have produced this research annually since 2008, enabling us to look at trends over the last five years. What we see is soaring cost of living for those on low and modest incomes. The cost of what the public think is needed for a decent standard of living has rocketed by 25% over the last five years - out stripping the official rate of inflation of 17% for the same period. This difference stems from the fact that the cost of rent, childcare, energy, food and public transport has risen particularly fast, and they make up a large proportion of the cost of a minimum acceptable standard of living.

This has a knock on effect for the amount of income households need just to maintain the same standard of living - as poor Bob discovered above.

But this isn't simply a story about the cost of essentials and stagnant wages. Public policy too has a part to play. This year's MIS research demonstrates the impact of the decision to uprate benefits and tax credits below the rate of inflation, the cuts to benefits and tax credits.

At this point, the government's response is usually to point to the raising of the income tax threshold, as a key policy helping to address the cost of living. This has undoubtedly eased the pressure for those households that have benefitted, but sadly any benefit that would be felt has been completely wiped out by rising costs and cuts to benefits and tax credits. So, for example, a working lone parent with one child who benefitted from the raised tax threshold is still has £233 less disposable income a year once the rising cost of essential and cuts to tax credits and benefits are factored in.

So what needs to happen to tackle this unprecedented erosion of living standards? It seems clear that we need to fight on more fronts than just the tax and benefit system. A broader strategy is required that looks at what is driving up the cost of essential like housing, childcare and energy, and how do we tackle the endemic problem of our low wage economy that leaves too many families able to make ends meet despite working. A new strategy is required - one that tackles causes as well as consequences.