Grim predictions for UK family finances up to 2015 as cuts bite

By agency reporter
5 Jan 2012

Grim predictions for UK family finances up to 2015 are revealed in new evidence produced by the Institute for Fiscal Studies (IFS) for the Family and Parenting Institute (FPI), published yesterday.

The report says the median income among families with children is projected to fall between 2010 and 2015 by 4.2 per cent. For a couple with two children this equates to £1,250 less a year by 2015.

Families with children aged under five, families with more than two children, and lone parent families not in paid work will bear the biggest financial pain in years ahead, says the research.

An Institute for Fiscal Studies report, commissioned by the Family and Parenting Institute, is the first to reveal the prospects for poverty rates and income for different family types up to the year 2015.

The study has found:

* The median (middle) household with children faces an average drop in income of 4.2 per cent by 2015-16, equivalent to an annual income drop of £1,250 for a couple with two children. The 4.2 per cent average drop for families with children is significantly higher than the loss for the median household overall, which is 0.9 per cent. This is equivalent to a reduction in annual income of £215 for a couple without children.

* Families with children under five will experience a significant financial hit. Between 2010-11 and 2015-16, 500,000 more children will fall into absolute poverty as defined by the Child Poverty Act (2010), where the poverty line is fixed at 60 per cent of the median income in 2010–11. 300,000 of these children come from households where the youngest child is under five. The median household with a child under five faces a drop in income of 4.9 per cent by 2015-16.

* Larger families will suffer a disproportionate financial hit. For example, the median household with three children see their income fall by 6.8 per cent by 2015-16, compared to the median household with one child which sees it fall by 3.3 per cent.

The reports also points out that these patterns have a differential impact on children from ethnic minority groups who tend to have more children per family.

For example, the absolute and relative poverty rates for Pakistani and Bangladeshi children increases by more than 5 percentage points by 2015-16 (the relative increase is from 49.2 per cent to 54.6 per cent and the absolute increase is from 49.2 per cent to 55.8 per cent).

The study also examines the impact of tax and benefit changes to be introduced between 2010–11 and 2014–15 on different family types.

It confirms that families with children will lose more through tax and benefit changes than pensioners or adults without children – before and after the introduction of Universal Credit. This reflects the fact that benefits for those of working age are being cut, and families with children are more reliant on benefits than those without children.

The UK’s poorest families with children lose the largest proportion of their income from tax and benefit changes.

Before taking Universal Credit into account, families in the poorest income decile will be 10 per cent worse off in 2014–15 than they would have been had no changes been made to the tax and benefit system.

Even after the introduction of Universal Credit, this group loses more than average, at just over six per cent. In particular, lone parents not in employment lose more than 12 per cent of their income on average as a result of tax and benefit changes to be introduced between 2010–11 and 2014–15, or £2,000 per year.

Significantly, the government’s plan to introduce Universal Credit, although it will soften the blow for certain family types, will not be introduced fully in place for existing claimants until 2018.

The report offers evidence that although Universal Credit strengthens work incentives for most individuals, it weakens the incentive for a second earner in a couple, typically the mother in a couple household, to take up employment.

Carers will suffer a disproportionate financial hit. Average loss from tax and benefit changes for households claiming carer’s allowance is just over six per cent, compared to a loss of just over four per cent (pre or post-Universal Credit) for all households.

Dr Katherine Rake, Chief Executive of the Family and Parenting Institute, commented: “These figures reveal the full extent to which families with children are shouldering the burden of austerity. Having children has always been expensive. But now many families with children face an extra penalty of more than £1000.”

“It is particularly surprising to see that some of the most vulnerable groups – such as families with new babies and lone parents out of work– are bearing the brunt of the tax and benefit reforms. Many families will be left struggling to understand why they have been singled out in this way and how this sits alongside the Government’s ambition for the UK to become a family friendly nation,” she added.

The Family and Parenting Institute released the report as part of its national Family Friendly scheme, which aims to make the UK more supportive of family life.

* See www.wearefamilyfriendly.org for more details of the Family Friendly scheme.

* The full report, entitled The Impact of Austerity Measures on Households with Children, is available at www.familyandparenting.org for reading and download.

[Ekk/3]

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