Cuts Will Leave Poor Families ‘Close To Destitution’

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Protest outside Parliament on July 9th, the day Chancellor Osborne announced his massive austerity budget
Protest outside Parliament on July 9th, the day Chancellor Osborne announced his massive austerity budget

PARENTS working on the minimum wage are on the brink of a new crisis in family finances that will leave many close to destitution, warns a new report produced by Loughborough University’s Donald Hirsch for Child Poverty Action Group.

Families with both parents working full time at the national minimum wage are 16 per cent short of the basic amount needed to provide themselves a minimum standard of living, warns the new report. Entitled Cost of a Child 2015, the report finds the minimum cost of a child from birth to age 18 remains high at £149,805 – a 5% increase since 2012.

It also says that state support in covering these costs is set to deteriorate sharply as a result of government policies, creating a net loss for most low income families. For a couple with two children, that’s a gap of £75.75 per week. The report shows a wider gap for out-of-work couple families – at 43%.

For lone parents, the shortfall is 13% for those in work – 39% for those not working. In the year to 2015, the cost of a child increased to £84,188 over 18 years for a couple – or £149,805 if rent, council tax and childcare are included. For lone parent families – where only one adult can make offsetting savings from their own living expenses – the costs of a child are higher: £97,576 over 18 years or £167,339 including rent, childcare and council tax.

Now in its fourth year, The Cost of a Child 2015 draws on what the public says every family requires to meet its basic needs and participate in society. It examines the costs associated with raising children, and the extent to which parents struggle to meet them even when they work.

The report also finds: The adequacy of children’s benefits in meeting basic needs has deteriorated significantly since 2012, particularly for lone parents. Child benefit and child tax credit has suffered a significant deterioration since 2012. In 2012, for a lone parent on a low income, child tax credit plus child benefit fell 22% short of covering the minimum cost of a child, and now falls 27% short.

Child benefit currently covers 19.2% of the cost of a child for couple-families and 16.5% for lone parent families. Child benefit and the maximum amount of child tax credit together cover 84.3% of the basic costs of a child for a couple family, 72.7% for a lone parent family. Out-of-work benefits fall far short of what is needed for a minimum living standard.

Out-of-work benefits are significantly lower in relation to the cost of a child than in 2012. A family on benefits is left well over a third short of being able to afford a minimum living standard. The report lists several July 2015 Budget measures expected to make it very much harder to meet children’s basic needs:

1. A four-year freeze on working age benefits, including child benefit.

This means that as children’s costs increase, help to cover them will not. The OBR forecast of a 7% cumulative inflation rate from 2015-2019 will potentially cause the basic cost of a first child to rise by approximately £6 to £8 a week, leaving low-income families both in and out of work that much behind in meeting this cost. From 2017, new claimants will have their tax credit or universal credit cut by a further £10.45 per week per family, with the loss of the family element of child tax credit.

2. Cuts in the amount parents can earn before tax credits or Universal Credit start to be withdrawn.

For families on tax credits, this lower earnings level once combined with the new, higher rate at which credits are withdrawn as wages rise, means that top ups for the low paid will start being reduced earlier and also at a steeper rate, amounting to a major loss of £24 per week. Combined with the freeze and the removal of the family element (see previous paragraph), this means a cut of nearly £50 a week in the level of support for a working family with two children, relative to the cost of those children, by 2019 for new claims. For families claiming universal credit, the reduction in the amount they can earn before the credit starts to be withdrawn (at 65p from every extra pound), will mean a £12 weekly loss for lone parents and £5 for couples.

3. Lowering the benefit cap to £23,000 in London and £20,000 outside the capital will reduce the net income of families already hit by the cap by £58 per week in London and £115 outside it.

For those affected, out-of-work benefits, which until recently covered about two-thirds of minimum needs, will typically be slashed to less than half the minimum needed.

4. Limiting tax credits to two children from 2017.

For a couple with three children, the cut represents 16% of minimum family costs. The report says the new, extra support for childcare is potentially good news. Extra provision and help with 85% of the costs for Universal Credit claimants from 2016 could bring down costs substantially for families using paid childcare. But, the report warns, the new financial support will not be available to families on tax credits and the delay in rolling out universal credit will put off any gains for families until 2016 at the earliest. And cash limits on support levels could leave many parents having to bear ongoing cost increases in childcare.

Child Poverty Action Group Chief Executive Alison Garnham said: ‘Low inflation helped keep the cost of a child relatively flat last year but the barrage of cuts announced in the Budget will batter modest and low-income family budgets, making it very much harder to afford even bottom-line, basic children’s costs.

‘Shockingly, even couple-parents – both working full time on the current minimum wage – are already well short of what they need for no-frills basics. One in four children lives in poverty in the UK and the oncoming social security cuts will push the number higher – at greater cost to the taxpayer. We should be backing parents’ efforts to build a future with prospects for their children, not consigning them to financial misery and narrow horizons. The Government should invest in a real living wage and give children’s benefits the “triple lock” protection that pensions enjoy.’

Author of the report Donald Hirsch said: ‘With low inflation, the cost of raising children has stopped growing, but many families still lack the incomes they need to afford even the basics. Over the next five years, some of the most vulnerable families will see support for meeting these costs reduce, sometimes leaving them with less than half of their family’s minimum needs if they are not working.

‘The hardest hit will be larger families – the punishment for falling on hard times if you have more than two children will be something close to destitution. However, even with two children, many families with anything more than a very modest rent will hit the new Benefit Cap levels, and have their benefits reduced to levels that make it ever tougher just to get by.’

• The National Union of Teachers (NUT) has commented on The Good Childhood Report 2015, an international survey by the Children’s Society.

Kevin Courtney, NUT Deputy General Secretary, said on Monday: ‘It is very concerning that this survey shows again that children in schools in England and Wales are more unhappy than in many other countries. There needs to be the time devoted in the curriculum to preventing bullying through challenging negative attitudes.

‘The lessons learnt make a significant difference to pupils’ attitudes, not only during their school career but throughout their adult life as well. As our own research demonstrates, the accountability agenda handed down to schools by both Ofsted and the Department for Education is having a tangible effect on pupil behaviour.

‘Children can now expect to be branded “failures” when barely into primary education, and many of those who undergo high-stakes tests and examinations at all stages of school life experience serious stress-related anxiety. In addition, the narrow curriculum is failing to engage some students and this “exam factories” culture can lead, perversely, to disruptive behaviour. With the addition of the Children’s Society’s important report, we call on the Government to consider seriously the impact of their policies on children’s well-being.’