Wages not keeping up with minimum income standards

Rising costs of food, travel and childcare have pushed up the minimum level of income needed to achieve a “socially acceptable” standard of living, research suggests.

In recent years, households have been hit hard by high interest rates and inflation, which has caused bills to rise.

Despite a slowdown in inflation and a decline in interest rates, many households are still struggling financially, despite cuts in social security contributions and increases in the minimum wage.

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According to estimates by The Joseph Rowntree Foundation, a single person would need to earn £26,800 a year to reach the acceptable minimum income level in 2024, while a couple with two children would need £66,200 a year.

By contrast, someone working full-time and receiving the National Minimum Wage would earn just £22,369 a year.

The charity warns that while benefits for low-income families have risen by 6.7%, households are set to see increases in council tax, water and broadband bills.

“The current situation has great potential to improve,” the JRF report warns.

“This could be achieved through greater investment in public services, the provision of subsidised or universal services, increases in wages and benefits, greater availability of genuinely affordable housing, or a combination of these and other measures.”

What are minimum income standards?

The minimum income standard is an amount regularly calculated by the JRF that shows how much income is needed to “meet material needs such as food, clothing and shelter without effort.”

It is not only about being able to pay bills, but also about accessing services that support mental and physical health, as well as activities that allow you to break away from everyday life and go on a trip or vacation.

The charity uses public surveys and focus groups to establish a weekly budget required for typical household expenses such as food, clothing, childcare, bills, travel and rent. This is then divided between different types of household.

Food and travel are the biggest costs for all households. Childcare is also a big factor, with parents typically spending around £270 a week.

Parents with two preschool-age children and one primary school-age child saw the biggest increase in all costs, up 22% per year. A single parent in a similar situation saw their costs increase by 19%.

What is the minimum income standard?

The minimum income standard varies depending on age and household circumstances, but the JRF warns that state support and the minimum wage are not enough for low-income households, especially parents.

For example, it has been found that a single adult earning the National Minimum Wage has only £245 a week at their disposal, compared to the minimum income standard of £302. A part-time worker has only £164 at their disposal.

A couple without children who work full-time fares better. Research suggests they need a minimum income of £498 a week and are currently left with a disposable income of £598.

Even parents who work full-time are struggling. A single working parent with one pre-schooler and one primary school child needs £622 a week to cover basic costs, but only earns £436 based on typical earnings.

According to research, couples in a similar situation need £778 but receive just £651.

According to the JRF, a single retiree living alone would need to have an annual income of £17,200 to meet the minimum standard, while retired couples would need to earn £27,800.

The full state pension of £11,534 and the winter fuel allowance help pensioners reach 94 per cent of that. But that could now change as the winter fuel allowance is to be restricted to those claiming pension credit.

“These results are a stark reminder that households are teetering on the edge of their economies, and that for many their financial goals are simply survival, not growth,” said Gabriel McKeown, head of macroeconomics at Sad Rabbit Investments.

“While these numbers provide an important point of reference, for many this remains a distant goal rather than a current reality.

“The backdrop of economic uncertainty and a cost-of-living crisis has hit families like a financial tsunami, leaving many struggling to stay afloat in the face of rising expenses.”

It highlights that at the minimum income standard, the room for discretionary spending, let alone saving and investing, is minimal.

“The gig economy has become a bridge that has helped individuals overcome financial hardships and earn extra income,” he says.

“But ultimately, the minimum income standard is just a starting point in a race in which costs continually outstrip earnings, leaving many people struggling to keep up.”