23/02/2016 05:55 GMT | Updated 22/02/2017 05:12 GMT

The Future of Family Incomes

A lot has been said over the last year about what's going to happen to family incomes. But surprisingly little has actually addressed what individual family incomes will look like in the future.

The problem is that most reports have focussed on individual changes, rather than looking at how a set of different changes together affect family incomes. The different changes can't just be added up though, since they all have an impact on each other. It's a bit like changing the size of a cog in a clock - it doesn't just affect the cog, it affects the whole mechanism.

The Future of Family Incomes is a little bit different. Our briefing uses some example family types to consider how changes coming in across the next few years affect family incomes for some different household types.

The report compares the incomes of families making a new claim for benefit in 2020, compared to how much their comparative income would be today. It has some notable findings.

Firstly, large families will be particularly affected by a number of the measures. The planned "two child limit" on the child element of Child Tax Credit means that families with three children will lose £2,780 from their maximum entitlement.

Secondly, for many families the introduction of the National Living Wage will not provide sufficient protection from cuts in support through the benefits system, particularly since, for families in receipt of Universal Credit, up to 65% of any gain from higher wages will be lost through reductions in Universal Credit entitlement.

Thirdly, families in receipt of benefits or tax credits are likely to be significantly affected by the overall benefit freeze. The extent to which this is the case depends on the size of their benefit receipt as a proportion of their overall household income and the rate at which prices increase in coming years.

Based on the most recent data on Tax Credit claimants, we estimate that around four million families, with 7.5million children, will be affected by the four year benefit freeze (excluding those affected by a freeze on Child Benefit entitlement only). Nearly two thirds of these families - 2.6million families with 4.9million children - will be in work. Those affected would be expected lose up to around 12% of the value of their current means tested benefit receipt.

Finally, families affected by a combination of a number of different circumstances can see exceptionally large overall impacts - as shown in our final case in which overall 2020 income for a new Universal Credit claimant is down nearly £9,000 per year compared to 2015.

The Government needs to look again at how policy changes introduced over the course of the coming few years are going to affect families getting by on low to middle incomes. In particular:

  • The Government should review the benefit freeze each year to ensure that family incomes are not falling behind costs of living.
  • The Government should introduce further exemptions to the two child limit for the child element of child tax credit - including exemptions for disabled children, widowed parents and families fleeing domestic violence.
  • The Government should review the cut made to the disability addition for children under Universal Credit.

These measures would help to ensure that family incomes in 2020 are not undermined by major cuts to support. In addition, the Government must keep measuring the number of children living in poverty in order to properly understand the impact of the reforms being introduced over the next few years. Changes to the Child Poverty Act which mean that the Government will no longer measure the number of children living in families on low incomes risk hiding the impact of these changes from view.

It is bizarre to think that children's chance in life can be fully understood without any reference to low income. Official statistics show that 1.7million children live in families that can't afford to heat their home and 300,000 live in families that can't afford to buy them a warm winter coat.

The House of Lords has told the Government that money matters to children's lives. The Government must listen and think again about its plans to remove the commitment to measure and report on the number of children living in poverty.

Sam Royston is Policy Director for The Children's Society. Read The Children's Society report in full here