FEELING
THE PINCH
January 2017
www.endchildpoverty.org.uk/feelingthepinch #feelingthepinch
Introduction
TheEndChildPovertyCoalitionisacoalitionofnearly100organisationsfromallsectionsofcivic
society,includingchildren’scharities,childwelfareorganisations,socialjusticegroups,faith
groups,tradeunionsandothers,unitedinourvisionofaUKfreefromchildpoverty.
Low-incomefamiliesacrosstheUKareincreasinglyfeelingthepinchbecauseofthedualimpactof
stagnatingfamilyincomesandrisingprices,compoundedbythe‘povertypremium’,wherebythose
withalowincomepaymoreforessentialgoodsandservices.
IntheUK,thereare3.9millionchildrenlivinginpoverty,1andtwo-thirdsofthesechildrenareina
householdwithatleastoneparentinwork.2Thismeansthereare2.3millionchildrenlivingin
poverty,despitehavingaparentinwork.Itisclearthatworkalonedoesnotliftthesefamiliesoutof
poverty.
ChildpovertyexiststhroughouttheUK.WhileitishighestinLondonandothermajorcities,suchas
ManchesterandBirmingham,onlyonelocalauthority(Wokingham)haschildpovertyaslowas10
percent–theratesuggestedbythe(nowlargelydefunct)ChildPovertyActasthetargetforthe
proportionofchildreninrelativepoverty.Childreninlargefamiliesareatfargreaterriskoflivingin
poverty–36percentofchildreninfamilieswiththreeormorechildrenliveinpoverty,compared
with26percentofchildreninsmallerfamilies.Thisisexpectedtogetworsewiththeintroductionof
thetwo-childlimitfortaxcreditsfromApril2017.
Furthermore,weknowthatchildpovertyisnotgoingtogoaway.Childpovertyisrising–200,000
morechildrenlivedinpovertyin2015comparedtothepreviousyear,3andthebestprojections
suggestthatthenumberofchildreninabsoluteandrelativepovertyissettorisesharplyoverthe
nextfiveyears.4
Povertyisnotjustanissueaffectingout-of-workfamilies,andsoin-worksupportthroughthesocial
securitysystem(forexample,viaChildBenefit,taxcreditsandHousingBenefit)isessential.
Increasedwages(forexample,throughthenational‘livingwage’)arewelcome,butthenumberof
peopleinlow-incomehouseholdswhoarelikelytobenefitfromahigherminimumwageisrelatively
small.Inaddition,becauseoftheinteractionbetweenpayandbenefits,familieswithchildrenwho
receivethelivingwagearelikelytobenefittheleastfromthis(asaresultofconsequentreductions
intheirbenefits).
Thisreportoutlines,inSectionOne,howfamiliesarelosingincomeasaresultofthecurrentbenefit
freeze–andlosingevenmore,nowthatpricesareexpectedtorisemoresharply.Thisisfurther
compoundedbytheeffectofthepovertypremiumonlow-incomefamilies,asexplainedinSection
Two.Despitebeingabletoaffordtheleast,low-incomefamilieshavenooptionbuttopaythemost
forbasicessentials,likeheatingtheirhomeswithexpensivepre-paymentmetersorbuyingacooker
orwashingmachinethroughahighcost,rent-to-owncompany.Familiesmightalsoendupspending
moreonfoodbecausetheycannotaccessbigsupermarkets,whichareoftencheaper,andbecause
theydonothavethestoragespace,ormoney,tobuyinbulk.
Thesefamiliesarereallyfeelingthepinch.Stretchedincomesmeantheyareforcedtomake
impossiblechoicesfortheirchildren–betweenhealthymeals,warmclothesandheatingthehome.
1
EndChildPovertycallsonthegovernmenttorecognisethatfamiliesarefeelingthepinchandto:
• EndthefreezeonChildBenefitandChildTaxCredit,andreinstatethelinkbetweenannual
increasesinlevelsandinflation.
• Ensurethatsupportwithhousingcostsforfamiliesrentingprivatelyrisesinlinewith
increasesinlocalrents.
• Establishacommissiontoconsiderhowbusinessescanensurethattheircustomersona
lowincomedonothavetopaythehighestpricesforgoodsandservices.
Notes
1
DepartmentforWorkandPensions,HouseholdsBelowAverageIncome2014/15,2016,
https://www.gov.uk/government/collections/households-below-average-income-hbai--2
2
DepartmentforWorkandPensions,HouseholdsBelowAverageIncome2014/15,2016,
https://www.gov.uk/government/collections/households-below-average-income-hbai--2
3
EndChildPoverty,basedonanalysisofHBAIfigures,June2016,http://www.endchildpoverty.org.uk/hbai-analysis/
4
InstituteforFiscalStudies,LivingStandards,PovertyandInequalityintheUK:2015-16to2020-21,2016;JosephRowntree
Foundation,UKPoverty:causes,costsandsolutions,2016
2
One
Thefreezeinchildren’sbenefits
Oneofthemostsignificanthiddencutstosupportforchildrenthroughthebenefitssysteminrecent
yearshasbeentherepeatedreductionsinsupportrelativetotherisingcostsofliving,eitherthrough
below-inflationaryincreases(suchasathree-year1percentcaponincreasesinbenefitratesfrom
April2013),orthroughcashfreezes–mostrecentlywiththedecisiontofreezebenefitsandtax
creditsforfouryearsfromApril2016.Thispolicychangehasbrokenthehistoriclinkwithprices,
wherebymostbenefitlevelswereupratedannuallybyatleasttherateofinflationsincetheearly
1970s.1
Suchcutstosupportcanbehidden,becausetheydonotresultinareductionintheamountofcash
familieshaveintheirpockets.Ratherthanasuddendropinincome,reductionsinsupportarefeltas
pricesrise–anextrafewpenceonaloafofbreadorapintofmilk,anincreaseinthepriceofa
warmwintercoat,orhavingtoputanextra£1onthemeterinordertogetthesameamountof
electricity.
‘Itseemslikeeverythingismoreexpensiveandhasbecomeharderto
managefromweektoweek.’-parent
Risingprices2010to2020
TheRetailPricesIndex(RPI),whichmeasuresthechangeinpricesofarepresentativesetofretail
goodsandservices,isoneoftheprincipalmeasuresofinflationfromtheOfficeforNational
Statistics.BasedoninflationmeasuredbytheRPI,andasshownbelow,pricesareexpectedtorise
byathirdoverthecourseofthe2010s.
Figure1:
Compoundinflation,2010to2020
40%
35%
35%
30%
25%
20%
15%
10%
5%
0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source:basedonRPIforecastsfromtheOfficeforBudgetResponsibility,March2016Economicand
FiscalOutlook,2016,http://budgetresponsibility.org.uk/download/economic-and-fiscal-outlookcharts-and-tables-march-2016/
Forlow-incomehouseholds,theeffectiveinflationrateislikelytobesignificantlyhigherthanthis,
becausethepricesofgoodsandservicestheytypicallybuyhavebeenrisingbymorethanthe
3
average.TheInstituteforFiscalStudies,forexample,estimatesthatovertheperiod2008/09to
2013/14,theinflationrateforpoorerhouseholdswas,onaverage,1percentagepointhigherper
yearthanthatforhigh-incomehouseholds.2
‘WiththemoneyIreceiveeachmonth,it’sgettingmoreand
moreexpensivetobuyfoodandclothesintheshops.’-parent
Below-inflationarybenefituprating
Until2010,manybenefitswereupratedinlinewiththeRPI.However,asaresultofyearsofbelowinflationarybenefitupratingsince2010,followedbyafour-yearbenefitfreeze,manybenefitswill
haverisenmuchmoreslowlyoverthecourseofthedecade.
Table1showsthemaximumratesofdifferentbenefitsin2010andin2020–andcomparestheseto
theratesthatwouldhavebeenreachedhadtheybeenincreasedinlinewithRPI.
Table1:
Maximumratesofdifferentbenefitsandtaxcreditsin2010and2020,comparedtotheir
estimatedvalueshadtheyriseninlinewithRPI
ChildBenefit
(oldestchild)
ChildBenefit
(secondand
furtherchild)
2010
%increase2010
2020(projected) to2020
£20.30
£20.70
2%
£27.41
£13.40
£13.70
2%
£18.09
£65.45
£73.10
12%
£88.36
£65.45
£73.10
£88.36
ChildTaxCredit
(family
element)
£10.50
£0.00
12%
-100%(note:the
familyelementis
removedfornew
claimsfromApril
2017)
ChildTaxCredit
(perchild
element)
£44.10
£53.30
21%
£59.54
Workingtax
credit(fora
parentworking
30hours)
£88.20
£91.70
4%
£119.07
Jobseeker's
allowance
Employment
andsupport
allowance
4
2020(if
increasedwith
RPI)
£14.18
ChildBenefithasparticularlysufferedfrombelow-inflationaryuprating.Oncurrentpolicy,Child
Benefitwillhaverisenbyjust2percentoverthecourseofthedecade–lessthanone-sixteenthof
theincreasesinprices.
AlthoughthechildelementofChildTaxCredithasincreasedby21percent,thisisstillsignificantly
lessthantheincreaseinthecostofliving,measuredbytheRPI.Inaddition,thefamilyelementof
ChildTaxCreditwasscrappedaltogether–leavingtheoverallvalueofChildTaxCreditsignificantly
lowerthanitwasin2010.
Around7.5millionchildrenacrosstheUKarelivinginfamiliesthatarebeingaffectedbyafour-year
freezeinbenefitratesthatbeganin2016.Ofthese,around4.9millionliveinworkingfamilies.
InApril2010,benefitincomeforanout-of-worksingleparentwithtwochildren(excludinghousing
costs)wasaround£198perweek.Inordertokeepupwiththeriseinthecostoflivingby2020,this
wouldhavetoincreasetoaround£267perweek.Thefamily’sactual2020incomeisexpectedtobe
around£214perweek.Thereallossof£53perweekwillleavethisfamilyworseoffbynearly£2,800
ayear.
Below-inflationaryincreasesinbenefitratesalsoaffectlow-incomeworkingfamilies–insofaras
theyarereceivingoneormoreofthebenefitsaffected.
Theimpactofbelow-inflationaryincreasesinbenefitratesonfamilyspending
Theimpactofthecutsinsupportrelativetopricesisthatfamiliesmustcutbackonmanyofthe
essentialstheyusedtopurchase.
‘MostmonthsIhavetodecidewhatismoreimportant:
clothesformeormychild,orheating.’-parent
AnEndChildPovertypollofparentsin2015(seeFigure2below)foundthatoneinfivefamilies–the
equivalentofoneandahalfmillionacrosstheUK,withtwoandahalfmillionchildren–saidthat
theyhadcutbackonfood,andasimilarproportionhadcutbackonheatingtheirhomeasaresultof
benefitshavingbeenincreasedbelowinflation.3
Figure2
Manybenefitsandtaxcreditspaidtomanyfamilieswithchildren(suchaschildbenefit,tax
credits,andhousingbenefit)havebeenincreasedbelowtheincreasesseenincostsoflivingin
recentyears.Hasthiscausedyoutocutspendingonanyofthefollowingitems,ifany,foryour
family?
5
ComparingChildBenefittoincreasesinthestatepension
In2010,itwasdecidedto‘triplelock’thebasicstateretirementpension–meaningthatitwould
increaseinlinewithearnings,prices,orby2.5percent–whicheverwasthehighest.
Furthermore,whilein2015thenewConservativegovernmentcommittedtoafurtherfour-year
freezeonmostbenefitsandtaxcredits,itwasdecidedthatthestatepensionwouldcontinuetobe
‘triplelocked’uptotheendofthedecade.
Figure2showstherelativeincreasesinthevalueofthestatepensionandChildBenefitbetween
2010and2016.Ascanbeseen,thebasicstatepensionhasincreasedbynearlyaquarteroverits
2010cashvalue.Italsoincreasedfasterthanthecostofliving,whichrosebyaround19percent
overthesameperiod.4
Figure3:
PercentageincreaseinthecashvalueofCategoryAstatepensionandChildBenefit,2010to2016
30%
25%
22.2%
20%
StatePension
15%
ChildBenefit
10%
5%
2.0%
0%
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
6
Ontheotherhand,aswecanseeinFigure3,ChildBenefithasrisenbyjust2percentinthelastsix
years,includingseveralyearsofbeingfrozenaltogether–risingatlessthanone-eleventhoftherate
bywhichthebasicstatepensionhasrisen.
HadChildBenefitincreasedatthesamerateasthestatepension,afamilywithtwochildrenwould
nowreceivearound£6.80perweekmorethantheycurrentlyreceive.
Thisgapwillcontinuetogrow,asaresultofthecontinuedapplicationofboththefreezeonChild
Benefitandthetriplelockonthebasicstatepension,totheendofthedecade.
Freezinghelpwithhousingcosts
TheexamplesabovedonotincludethechangestoHousingBenefitmadeinrecentyears:childrenin
low-incomefamilieshavealsobeenaffectedbybelow-inflationincreasesinsupportwithhousing
costs.
Untilrecently,thelocalhousingallowance,whichdeterminestheamountofHousingBenefitfor
peoplerentingintheprivaterentedsector,wasbasedonaveragerentsandwasincreasedinline
withrisesinlocalrentalprices.Thisensuredthataslocalrentsrose,peoplewerestillabletoafford
toliveandworkintheirowncommunities.
Thecoalitiongovernmentdecidedtoreducetherateofthemaximumlocalhousingallowancefrom
the50thpercentileoflocalrentstothe30thpercentile–meaningthatthemaximumrentwhichcan
becoveredbyHousingBenefitforthoserentingprivatelyhasbeensubstantiallyreduced.Crucially,
itwasalsodecidedtomakeanumberofchangestothewayinwhichlocalhousingallowancerates
riseovertimeasrentsgoup.
Afterayear’sfreezeinlocalhousingallowanceratesin2012,thegovernmentdecidedtoincrease
theminlinewiththeConsumerPriceIndex(CPI)measureofinflation,ratherthanwithlocalrents
from2013–asaresult,theyroseby2.2percentinthatyear.Itwasthendecided,inApril2014and
inApril2015torestrictlocalhousingallowanceincreasestonomorethan1percentforthesetwo
years(withexceptionsforthefastestrisingrentsthrougha‘targetedassistancefund’).
Asaresultofthis(andotherchanges),localhousingallowanceratesnowbearlittlerelationshipto
typicallocalrents.
‘Rentincreaseshaveaffectedfundstouseonfood,
clothesandheatingbills.’-parent
Whereprivatetenants’rentshaverisenbetween2010and2015inlinewithaveragerentalprice
inflation(atotalof11.7percentoverthefive-yearperiod),afamilyrentingatypicaltwo-bedroom
propertyin2015facedashortfallof£82permonthontheirHousingBenefitentitlement,compared
withtheiractualrent.5
ParticularlyconcerningiswhatmayhappentoHousingBenefitasrentscontinuetoriseinthe
secondhalfofthedecade.In2015,thenewgovernmentdecidedtofreezelocalhousingallowance
ratesforfouryears–from2016throughto2020.Ifactualrentsrisebyanother11.7percentduring
thesecondhalfofthedecade,familiesinatypicaltwo-bedroompropertycouldseetheshortfall
increaseby£72permonth–atotalshortfallofaround£154permonth.6
7
Somemoneywillbemadeavailabletosupportthoseareaswhererentalpricesrisethefastest,
throughcontinuationofthetargetedassistancefund.Theintentionistospend30percentofthe
savingsgeneratedfromfreezinglocalhousingallowancerates(comparedtothecostofincreasing
theminlinewithinflation).However,eveniftheincreaseintheaverageshortfallbetween2015and
2020wasreducedby30percentasaresult,thiswouldstillleaveatenantinatypicaltwo-bedroom
propertywithanexpectedshortfallof£133permonthby2020.Incontrast,in2010,HousingBenefit
wouldhavecoveredtheirfullrent.
Basedonrentalpricerisesbetween2010and2020,forecastedshortfallsinHousingBenefit
comparedwithlocalrentsfortwo-andthree-bedroompropertiesareshowninFigure4below.
Figure4:
Estimatedmonthlyshortfallbetweenlocalhousingallowanceratesandlocalaveragerents
(including30%reductionasaresultofthetargetedassistancefund),2010to2020
£160.00
£140.00
£120.00
£100.00
£80.00
2bed
£60.00
3bed
£40.00
£20.00
£-
20102011201220132014201520162017201820192020
Thegovernment’sevaluationoflocalhousingallowancereformsfoundthat,facedwiththeprospect
oftenantsexperiencingthesekindofshortfalls,somelandlordswereattemptingtomoveawayfrom
rentingtoHousingBenefitclaimants.7Andconcernsabouttheincreasedriskofarrearshadledmany
landlordstotightentheirvettingproceduresforapplicants.
Mostworryingly,nearlyhalfoflandlordsrentingtopeopleaffectedbythelocalhousingallowance
saidtheyhadseenanincreaseinrentarrears,andoneinfivesaidtheyhadtakenactiontoevict,not
torenewortoendtenanciesspecificallybecausethetenantscouldnolongeraffordtheirrent
becauseofthereforms.
SomelandlordswouldratherleavehomesemptythanrenttopeopleonHousingBenefit.One
landlordinterviewedaspartofthegovernment’sevaluationsaid:
‘We’vemanagedtogetridofalotofthepeoplewhoareonDSS…8thetenantsdon’thaveajoband
thereforetheycan’tmeettheshortfall…theycan’tpayandeventuallyacourtproceedingtakesplace
togetridofthem,soI’dratherleavemypropertyemptythangiveittothesepeopleandthentryand
getthemout,it’sbadpractice.I’drathernotdothat,soIjustleaveitempty.’
Movinghomeisadifficultandcostlythingtodo–itmaynotonlymakeithardertofindorstayin
work,butitcanuprootchildrenandtheirfamiliesfromschoolsandlocalsupportnetworks,aswell
ascostingagreatdealinfeesandchargesassociatedwiththemoveitself.
Manypeopleaffectedbythesecutswilldowhatevertheycantostayputanddealwiththe
reductionintheirdisposableincomebycuttingspendingonotheressentials.Whilemuchofthe
8
rhetoricmaybearoundmovinghometoaplacewithinonesmeans,eventhegovernmentitself
appearstorecognisethatthisisnotanoptionformanyofthoseaffectedbycutslikethese.
Toconclude,governmentdecisionstofreezebenefitsmaynothavereducedtheamountofcashin
afamily’spocket,butithasreducedtheamounttheycanaffordaspricesrise.Thisissettohavea
biggerimpactasinflationrisesinthenextfewyears:ChildBenefitwillhaverisenbyjust2percent
between2010and2020,comparedwithpricerisesof35percent.
Changestothelocalhousingallowancehavealsobeensignificant,andHousingBenefitforthose
rentingprivatelyisnolongerlinkedtotypicallocalrents.Familiesinatypicaltwo-bedroom
propertycouldseetheirshortfallincreaseby£72permonthbytheendofthedecade–atotal
shortfallofaround£154permonth.
‘Iamalwayshavingtosacrificemore,formyself,tomakesurethat
mychildhasmore–ie,hotmeals,toys,clothesetc…
Tomakesurehecangetthebestatalltimes.’-parent
Notes
1
HouseofCommons,HistoricalRatesofSocialSecurityBenefits(SN/SG6762),2016
2
InstituteforFiscalStudies,TheSqueezeonIncomes,2014(chapter6intheGreenBudget),andTheSpendingPatternsand
InflationExperienceofLow-incomeHouseholdsOverthePastDecade,2011
3
SRoyston,ShortChanged:thetruecostofcutstochildren’sbenefits,EndChildPoverty,2015
4
MeasuredbytheRetailPricesIndex
Theaveragelocalhousingallowancerate(acrossallEnglishbroadrentalmarketareas)foratwo-bedroompropertyfell
from£550to£532between2010and2015.Hadtheaveragerateriseninlinewithaveragerentalpricerises,itwouldhave
increasedto£614overthesameperiod–whichwouldcreateashortfallof£82.
6
Thelocalhousingallowanceratestaysfrozenat£532,whiletheaveragerentincreasesby£72to£686–creatinga
forecastshortfallof£154permonth.
7
DepartmentforWorkandPensions,MonitoringtheImpactofRecentMeasuresAffectingHousingBenefitandLocal
HousingAllowancesinthePrivateRentedSector:theresponseoflandlords,2014
5
8
DespitetheDepartmentforSocialSecuritynothavingexistedforsometime,‘DSS’isstillveryoftenusedtoreferto
peoplereceivinghousingbenefit.
9
Two
Thepovertypremium
Despitebenefitrateshavingbeenfrozen,pricescontinuetoriseandthelowestincomefamilies
oftenpaythemostforessentialgoodsandservices.
The‘povertypremium’istheextracostpeopleonlowerincomestypicallypayforgoodsand
services,comparedwithwhatispaidforthesamegoodsandservicesbypeopleonahigherincome.
Thebestbankaccounts,borrowingratesandenergytariffsareonlyavailableforpeoplewhohavea
goodlevelofincome,creditratingand/oremploymentrecordandwhoarethereforeinapositionto
shoparound.
Thispovertypremiumishugelysignificantforfamiliesonalowincome:wheneverypennycounts,
beingchargedmoreforthesamegoodsandservicescancausefurtherconsequencesdowntheline.
AliteraturereviewcarriedoutbyHartfreeandothersfoundthat,fromtheperspectiveoflowincomehouseholds,apovertypremiumcanarisefromaneedfortightbudgetingcontrolovertheir
finances(forexample,preferringtomakesmall,frequentpayments)andavoidingbehavioursthat
couldupsetthis.1Fromtheperspectiveofproviders,thepovertypremiumcanariseasaresultof:
pricingstructuresthatpenaliselowusage;afocusononlineservicedelivery;priceoffersthattarget
newcustomers;andafailuretosupplyproductsorservicesthatmatchtheneedsoflow-income
households.Providersalsochargepremiumstoreflecthighercosts–forexample,wheninsuring
peoplewholiveinhigherriskareas,issuingpaperbills,orreceivingpaymentsbycheque.2
ThissectionupdatesthepovertypremiumillustrationspreviouslypublishedbySavetheChildrenon
anumberofoccasions(mostrecentlyin2014).Itfindsthatatypicallow-incomefamilycouldfacean
annualpovertypremiumofaround£1,700foreverydaygoodsandservices.Thiscouldrepresenta
largeproportionofafamily’soverallincome.
Theremayalsobeotherareasofspendingthataresubjecttoapremium,suchasfoodcosts,
transportcostsandcashwithdrawals.3Thesearenotincludedinthepovertypremiumcalculation,
butareexploredbrieflybelow.
Note:ThecalculationcopiesthemethodologyusedbySavetheChildrenonpreviousoccasions.4
Table2:
Povertypremiumin2016
Typical
cost
Costtolow-income
family*
Difference
Loanfor£500
£500
£944.84
£444.84
Basichouseholditem:cooker
£237.33
£780
£542.67
Costtocashthree£200cheques
£0
£49.50
£49.50
Annualelectricityandgasbillcombined
£1,249.55
£1,320.95
£71.40
Homecontentsinsurance
£45.87
£53.11
£7.24
Carinsurance
£470.04
£1,010.63
£540.59
Total
£2,502.79 £4,159.03
*Foradiscussionofthemethodologyusedintheseareas,seetheAppendix.
Source:AllfiguressourcedinOctober2016
10
£1,656.24
Areotherareassubjecttothepovertypremium?
InadditiontotheareasillustratedinTable2,anumberofothereverydaycostsmaybesubjecttoa
premium.Someofthesearediscussedbelow.Althoughnotrepresentingacomprehensiveoverview
ofeverythingthatmaybesubjecttothepovertypremium,theydoreflectasensethatitmaywell
reachintoanumberofareasofeverydayspending.
Foodcosts
Anumberofstudieshaveexploredspecificaspectsofthepremium,suchasthecostofshoppingat
retailoutletsforfoodandotherhouseholdproducts.5WhileresearchintheUKhasbeenlimitedin
thisarea,thosewithoutaccesstoacarmayfindithardertoshopatlargeout-of-town
supermarkets,whichcansometimesofferthecheapestpricesforeverydayfoodandother
householditems.Thosewithlimitedaccesstocashmayprefertobuyitemsinsmallerquantities
and,therefore,maybeunabletotakeadvantageofbuyingitemsinbulk,whichtendstoworkout
cheaperinthelongrun.
Traveltoworkcosts
Savingmoneybymakinglargerone-offpayments,asopposedtoaseriesofpaymentsovertime,can
applyacrossanumberoflivingcosts.Forexample,travellingtoworkcanbeextremelyexpensive
andthecostisregularlycitedbypeopleasabarriertowork.
Travelcostscanseriouslylimitaviableworksearchareabut,nevertheless,mostworkingpeopledo
havetotravelbeyondtheirownneighbourhoods.Iftravellingbytrain,tramorbus,peoplecanoften
takeadvantageofalong-termseasonticket,whichtendstoworkoutconsiderablycheaperthan
payingforaticketeverydayoreveryweek.Employeesinlow-paidworkarelesslikelytobeableto
makeupfrontpaymentsbecausetheydonothaveaccesstothecashrequiredtodoso,andfor
thoseinpart-timeorinsecureemployment,thereislittlepointinbuyingaseasonticket.
Cashmachines
ThereremainsasizeablenumberofdeprivedareasthatlackaccesstoATMsthatdonotchargefor
withdrawals(sometimesreferredtoas‘cashmachinedeserts’).Morethan300,000peoplelivingin
povertyacross269low-incomeareasareinareaswheretherearenofree-to-usecashmachines
withinaone-kilometreradius.Chargesstartfrom75pperwithdrawal,withtheaveragefeebeing
£1.70perwithdrawal.Forsomeoneonalowincomemakingregularcashwithdrawals,thefullcost
overthecourseofayearcouldbehigh.Forexample,someonewithdrawingcasheveryweekfroma
machinethatcharges£1.75perwithdrawalwillpay£91inwithdrawalcostsovera12-monthperiod.
Thereareanumberofareaswherelow-incomefamiliesmaypaymorethanothersforessential
goodsandservices.Someofthesehavebeenquantifiedviathepovertypremiumcalculation,
leadingtoapotentialpovertypremiumofaround£1,700peryear.Theremaybeadditionalareas
wherelow-incomefamiliesfacehighercosts,suchasfoodcosts,travel-to-workcostsandATM
usagefees.Thereneedstobebetterrecognitionofthefactthatlow-incomefamiliesarealso
consumersandasignificantpartofthemarket.Moreshouldbedonetoestablishhowtobetter
servethisgroupofconsumers.
Notes
1
Hartfree,DaviesandFinney,CalculatingthePovertyPremium,UniversityofBristol,April2016
2
Hartfree,DaviesandFinney,CalculatingthePovertyPremium,UniversityofBristol,April2016
Adaptedfrom:
http://www.raceequalityfoundation.org.uk/sites/default/files/publications/downloads/high%20cost%20paid%20by%20lo
w%20income%20consumers%20-%20FINAL_1.pdf
4
Foradetaileddiscussionofthemethodology,seeSavetheChildren,TheUKPovertyRip-Off:thepovertypremium,2010
andThePovertyPremium:howpoorhouseholdspaymoreforessentialgoodsandservices,2007
5
Goodman,1968;Kaufmanandothers,1997;Robinsonandothers,2000;Maslenandothers,2013
3
11
Conclusion
Povertyhasamassiveimpactonchildren’slives.Itleadstoapoorerchildhoodandworseoutcomes
throughoutlife.Thereisa28percentgapbetweenchildrenreceivingfreeschoolmealsandtheir
wealthierpeersintermsofthenumberachievingatleastfiveA*-CGCSEgrades.1Childpovertyalso
hasacosttosocietyasawhole–estimatedtobeatleast£29billionayear.2
Weneedactionfromnationalandlocalgovernment,frombusiness,andrightacrosssocietyifwe
aretoimprovethelifechancesofthemillionsofchildrenlivinginpovertyacrossthecountry.
Freezingbenefitsmaynotreducetheamountofcashinpeople'spockets,butcashisnottheonly
thingthatmatters–whatmattersiswhatpeoplecanaffordtobuywithit.Theimpactofthebenefit
freeze,inthecontextofrapidpricerises,hasadramaticeffectonfamilyincomes.Familiesonalow
incomesimplycannotaffordtopaytheincreasedpricesoffood,fuelandtravelwhenthereisno
increasetothepoundsintheirpocket.Theimpactofthisisfurthercompoundedbythepoverty
premium,whichseesfamiliesonalowincomepayingmoreformanyessentialgoodsandservices.
‘Myheatingbillsarethroughtheroof.Thingsinshopsaremore
expensiveandyougetlessforyourmoney.Youconstantly
robPetertopayPaul.’-parent
Itispoliticallytemptingforthegovernmenttoupratebenefitsbelowinflation–onthefaceofit,it
doesnotlooklikeacutand,becauseitaffectsaverylargenumberofpeople,itsavesanawfullotof
money.Whenitwasintroduced,thefour-yearbenefitfreezealonewasexpectedtosavearound£4
billionperyear(in2020prices)bytheendofthedecade.3
But,hiddenreductionsinincomelikethisstillhavearealimpactonpeople'slives.Thegradual
erosionofbenefitsisagradualerosionoflivingstandardsforthosechildrenwhorelyonthissupport
themost.EndChildPovertycallsonthegovernmenttounfreezechildren’sbenefitsandtoreinstatethelinkbetweenbenefitlevelsandinflationassoonaspossible.
Oneareaofparticularconcernisthecurrentfreezeonincreasesinlocalhousingallowanceratesfor
familiesinprivaterentedhomes.Inordertoaddressthis,thegovernmentshouldre-establishthe
linkbetweenincreasesinlocalhousingallowanceratesandrisesinlocalrentalprices.
Solutionstothepovertypremiumarelessstraightforward.Thereareoftenreasonswhypricesmight
behigher–forexample,carsmightbemorelikelytobestoleninareasofdeprivation,leadingto
higherinsurancecosts;orsupermarketconveniencestoresmayhavehigherrentanddeliverycosts.
However,itisclearthatthedifferentstakeholdersneedtothinkabouttheirconsumersina
differentway:bothtopromoteethicaltradingandalsotodevelopasustainableconsumerbase
byensuringfamiliesarenotoutofpocket.
EndChildPovertyisdeeplyconcernedaboutthesefamilieswhoarefeelingthepinch.Wecallon
thegovernmentto:
• EndthefreezeonChildBenefitandChildTaxCredit,andreinstatethelinkbetweenannual
increasesinbenefitlevelsandinflation.
• Ensurethatsupportwithhousingcostsforfamiliesrentingprivatelyrisesinlinewith
increasesinlocalrents.
• Establishacommissiontoconsiderhowbusinessescanensurethattheircustomersona
lowincomedonotfacepayingthehighestpricesforgoodsandservices.
12
Notes
1
DepartmentforEducation,GCSEandEquivalentAttainmentbyPupilCharacteristics:2014,February2015,
https://www.gov.uk/government/statistics/gcse-and-equivalent-attainment-by-pupil-characteristics-2014
2
DHirsch,EstimatingtheCostsofChildPoverty,ChildPovertyActionGroup,2013
3
HMGovernment,PolicyCostings:SummerBudget2015,2015
13
Appendix
Notesbehindconstituentpartsofthepoverty
premium
Aloanfor£500
Thepovertypremiumillustrationcalculatesthecostofahigh-interestloanof£500repaidovera12monthperiod.ThisisreplicatedinTable3aboveandisbasedontheaveragecostofborrowingfrom
twowidelyusedhigh-interestlenders.
Thereareanumberofissuestonotehere:(1)low-incomehouseholdsarelesslikelytohaveaccess
tobankaccountoverdrafts(chargingnoorlowinterest);(2)thelackofavailabilityofloansforless
than£1,000frommainstreambanks;(3)thecalculationusedintheillustrationdoesnotreflectthe
widespreaduseofpaydayloans(ie,relativelysmallloansrepaidovershorttimeperiods–typically
onemonth),whichincreasedsignificantlyfollowingthefinancialcrash;and(4)governmentpolicyon
paydaylendingdoesnotimpactonthehighinterestloansillustratedinthetable.
Basichouseholditem:cooker
TheillustrationtakesanessentialhouseholditemthatiswidelyavailableatretailersacrosstheUK.
Table3showstheaveragecostofpurchasingabasicovenoutrightfromthreewell-knownUK
retailersandcomparesthistothecostofbuyingexactlythesameitemoncreditfromawidelyused
rent-to-ownretailer.
Costtocashthree£200cheques
AsintheoriginalSavetheChildrenmethodology,thiscomparesthecostofcashingachequeata
bankwiththecostofacheque-cashingservice.Thelatterchargesaflatfee,plusapercentageofthe
chequeamount.
Annualgasandelectricitybill
TheillustrationisbasedonaveragehouseholdelectricityandgasconsumptionintheUKin2015as
reportedbytheDepartmentofEnergyandClimateChange.1Itcomparesdualfueltariffcostsby
paymenttype(monthlydirectdebitversusprepaymentmeter)andisbasedonBritishGasprice
plans.
Thereareanumberofissuestonotehere:(1)itisunclearatthisstagewhatimpact,ifany,Ofgem’s
prepaymentmeterpricecap(introducedinApril2016)willhaveonthepricedifferentialpresented
inTable3;(2)theillustrationdoesnotreflectthefactthatmanyprepaymentmetercustomersarein
debtand,therefore,arelikelytoberepayingthosedebtsaspartoftheirtariffalongsidedirect
paymentsforenergyuse;and(3)thepricedifferentialshowninthetableissignificantlylowerfor
thisitemthaninpreviousillustrations,whichmaysuggestthatthepovertypremiuminrespectof
energycostshasfallen.
Homecontentsinsurance2
Thefiguresusedareaveragesforfourrandomlyselecteddeprivedareasandfourrandomlyselected
affluentareas.AsintheSavetheChildrenmethodology,householdcircumstancesarekeptthesame
(ie,samevalueofcontents,sameexcessandforafamilyoffour)acrosstheareas.
Thereareanumberofissuestonotehere:(1)higherincomehouseholdsmayhavehighervalue
itemstoinsure,whichmayincreasetheirpremiums,butmaybemorelikelytooptforalower
excess,thusreducingtheirpremiums;and(2)low-incomehouseholdsarefarlesslikelytohave
homecontentsinsurance.
14
Carinsurance3
Thefiguresusedareaveragesforfourrandomlyselecteddeprivedareasandfourrandomlyselected
affluentareas.AsintheSavetheChildrenmethodology,householdcircumstancesarekeptthesame
(ie,samevalueofcontents,sameexcessandforafamilyoffour)acrosstheareas.
Itisworthnotingthattheillustrationkeepsallaspectsofthehouseholdthesameandassumesthe
cariskeptonadriveway;theoccupationoftheinsuranceapplicantiskeptthesame.However,both
aspectscanimpactoncarinsurancequotesandchangestotheseelementscouldwidenprice
differentials(ifweassume,forexample,thatabetter-offhouseholdismorelikelytokeepacarina
garageorhaveanoccupationthatlowerspremiums).
Note:Bothinsurancefigures(fordeprivedpostcodesandaffluentpostcodes)assumetheconsumer
paysmonthlybydirectdebit.However,ifpaidannually,thetotalcostscanbesignificantlylessandit
isperhapsmorelikelytoexpectabetter-offhouseholdtomakepaymentsinthisway.Thiscould
thereforeincreaseinsurancedifferentials.
Notes
1
https://www.gov.uk/government/collections/energy-consumption-in-the-uk
2
Allfiguressourcedfromwww.confused.com
3
Allfiguressourcesfromwww.comparethemarket.com
15
With thanks to Sam Royston, Chair of End Child Poverty and Director of Research and Policy at
the Children’s Society (www.childrenssociety.org.uk), and Graham Whitham, Vice Chair of End Child Poverty,
for the research that has formed this briefing paper. Thanks are also due to Rosario Piazza and Olu Alake at
Buttle UK (www.buttleuk.org) for their help in surveying parents
©End Child Poverty 2017
www.endchildpoverty.org.uk
www.endchildpoverty.org.uk/feelingthepinch [email protected]
#feelingthepinch