For non-working families of working age, benefits provide too little to reach an acceptable living standard as defined by MIS. Benefits provide enough for pensioners if those on low incomes claim Pension Credit. Adequacy of benefits has declined substantially in the past five years, especially for lone parents, who can now afford only 57 per cent of MIS, compared with 68 per cent in 2008.

For most households in work, pay rates required to reach MIS remain well above the National Minimum Wage, currently £6.19 an hour, equivalent to just over £12,000 a year for someone in fulltime work. A single person now needs to earn £16,850 a year before tax to reach an adequate living standard as defined by MIS. Families with children, helped by tax credits, get closer to MIS on low wages than single people. However, since tax credits are withdrawn rapidly as earnings rise, working families with children need higher earnings to raise their incomes to the minimum level, compared with households without children.

Changes in income tax and tax credits affect how much households need to earn to reach what the public think is an adequate living standard. For all working households, the large increase in personal tax allowance in 2013 has lowered this amount. However, this gain is offset by the above-inflation rise in the cost of a minimum basket and, for families with children, by a real-terms cut in tax credits. A single person needs to earn 2.9 per cent more than a year ago to make ends meet, while a couple with two children need 5.5 per cent more.

Conclusion

The squeeze in living standards caused by the combination of rising prices and stagnant incomes continues to hit people on low incomes hard. Over the past five years, the spending needed to reach an acceptable living standard according to MIS has risen by a quarter or more for various households, while earnings have hardly risen at all. During this period, real-terms cuts in benefits and tax credits have exacerbated the squeeze. This has been offset to only a small degree by increases in tax allowances enabling households to keep more of what they earn. Families with children have had the greatest setbacks in terms of earning enough to make ends meet, since they rely most on the state support that is now being cut back.