Soaring energy bills have opened up a debate about living standards and costs in the UK. But the cost-of-living crisis goes well beyond the price of energy and long predates the invasion of Ukraine. The terms of the debate are too narrow. To tackle the wider problem over the long term, better income support must be combined with collective action to make sure everyone’s needs are met. Publicly funded services that people don’t have to pay for directly can help reduce household costs and improve living standards.
To understand what the public thinks is a minimum acceptable standard of living in the UK today, the Centre for Research in Social Policy (CRSP) asks a large number of people from different backgrounds about everything that a household would need “to have the opportunities and choices necessary to participate in society”. They then produce budgets to show how much income different household types would need to reach this standard, given the current array of services available: this is the Minimum Income Standard (MIS). It’s important to note that the MIS is about sufficiency, not luxury. As CRSP notes, “it covers needs, not wants; and necessities, not luxuries: items that the public think people need to be part of society.”
Stagnant growth in real earnings, rising costs, cuts to public services, and freezes, cuts and caps to working age benefits, have resulted in a decade with increasing numbers of people failing to reach this minimum standard. In 2018/2019, before the pandemic, three in ten people were living in a household below the MIS, marking an increase from 27% in 2008/2009. The combination of covid-related labour market impacts and a weak safety net led to a significant acceleration of this living standards crisis. The energy crisis and the invasion of Ukraine will add to the story, not start it. Energy is about to cost £600-800 extra this year on average, totalling 14bn, with those on the lowest incomes hardest hit. Analysis by the New Economics Foundation (NEF) of Ofgem’s new energy price cap shows that the poorest 10% of families will see energy costs increase by 5% of their disposable income, compared with 0.75% for the richest. Over a third of households, or 23.4 million people, will be living below the Minimum Income Standard by April.
Given the urgency of the situation, the best way to shield those most vulnerable to the energy price rise is through a boost to the existing means tested benefits system. New modelling by NEF shows that a £800 boost would offset 60% of the expected rise, with the remaining 40 shouldered by richer households. But to deal with the broader cost of living challenge, beyond energy alone, further interventions are required to boost incomes: NEF argues that we need an income floor below which no one should fall.
We also need to rethink how essential goods and services are accessed, organised and delivered. Money and markets don’t always work, and we need to think more about collective ways of meeting needs. Several of the highest costs in the MIS research – including childcare and housing – can only be adequately addressed collectively, through investment, regulation and service provision. Yet far too often, this crucial aspect is missed out.
NEF and the Social Guarantee we are calling for a significant expansion of benefits in-kind in the form of collective services. This means reversing the damage of 10 years of cuts to existing services, whilst expanding the principle of universal access to life’s essentials.
How services affect living standards
Without public services, such as education and healthcare, the income needed to meet a minimum standard of living would be much higher. So would the number of households with incomes below that level. If more of life’s essentials were provided collectively as a right, less money would be needed to meet a socially acceptable minimum, freeing up the money that people earn to pay for other essentials, such as food and clothing. This is especially important for those on lower incomes.
Childcare is a case in point. Even accounting for current free entitlements, Minimum Income Standard (MIS) research shows just how much parents must pay to reach consensually agreed minimum childcare requirements. For 2021 the cost was £219.42 a week for a couple with two children (one aged between two and four and the other of primary school age). This is higher than any other cost category in the research – including energy.
Developing childcare into a universal service, whereby quality care is accessible to all according to need, rather than ability to pay, could therefore greatly decrease the level of
income needed to meet a socially acceptable standard of living. If fees were taken out entirely, the earnings needed to meet this standard of living would drop by more than £7,500 a year for a lone parent with one child (aged 2–4) and by more than £13,000 a year for the combined income of a couple with two children in the same age group.
As well as improving living standards, childcare as a universal service could improve the quality of care, overcoming a wide range of problems caused by years of privatisation. And interventions aimed at ensuring universal, sufficient access to social care, housing and transport, for example, could reap similar dividends.
So let’s broaden out the debate about living costs. Rather than defaulting solely to boosting income from wages and social security, let’s turn our attention to ‘in-kind benefits’ and universal services. With their ability to bring down costs and improve quality, they are a vital part of the picture.
Daniel Button is a Senior Researcher at the New Economics Foundation.