Last week, the End Child Poverty coalition launched its new ‘Feeling the pinch’ report and campaign.
Our research reveals how low income families really are ‘feeling the pinch’ - trapped between support being eroded by the cost of living rising much faster than benefit rates, and facing some of the highest prices on basic essentials as a result of a ‘poverty premium’ on key goods and services.
Benefits are frozen, but prices are going up – leaving families worse off
Many benefits for children have hardly risen while prices have jumped in recent years. In April 2010, benefit income for a single parent with 2 children and no other income or savings (excluding housing costs) was around £198 per week. This would have to rise to around £267 per week by 2020, in order to keep up with rises in costs of living. But their actual income is expected to be around £214 per week by 2020. The real loss of £53 per week will leave this family worse off by nearly £2800 per year.
Furthermore, Local Housing Assistance (LHA) rates (which provide support with rental costs for families living in privately rented homes) no longer rise in line with local rental prices, and now bear little relationship to typical local rents. This is only set to get worse. If rents continue to rise at a similar rate to the last few years, by 2020, families in a typical 2-bedroom property could have a shortfall of around £155 per month.
Below inflationary increases in benefit rates will affect both low income working families, and those who are out of work – in so far as they are receiving one or more of the benefits affected.
The poverty premium adds to the financial pressure on families
The ‘poverty premium’ is the extra cost that people on lower incomes can pay for goods and services, compared with the cost paid by people on a higher income. When every penny counts, being charged more for the same goods and services can cause further consequences down the line.
In 2016, this poverty premium amounts to around £1700 per year.
Other everyday costs not included in this figure may also be subject to a premium, such as food costs (because of lack of access to a car or ability to buy in bulk); travel to work costs (often more affordable with a long-term season ticket for example); and access to pay-to-use cash machines, often in deprived areas.
Poverty leads to a poorer childhood and worse outcomes throughout life. Poverty also has a cost to society as a whole – estimated as £78 billion a year.
Freezing benefits may not reduce the amount of cash in people's pockets, but cash isn't what matters - what matters is what people can to afford to buy with it. Freezes in children’s benefits, combined with rising prices, and the additional burden of the poverty premium, means that incomes are stretched and families are forced to make impossible choices for their children - between healthy meals, warm clothes and heating the home.
ECP is deeply concerned about the impact of poverty on children in families who are feeling the pinch. We call on the government to:
- End the freeze on Child Benefit and Child Tax Credit and reinstate the link between annual increases in benefit levels and inflation.
- Ensure that support with housing costs for families renting privately rises in line with increases in local rents.
- Establish a commission to consider how businesses can ensure that their customers on a low income do not face paying the highest prices for goods and services.
Kate Goddard is Campaign Coordinator at End Child Poverty
For more detail on both the benefit freeze and poverty premium, please see our full report on our website and consider what you would do if you were feeling the pinch via our online game.