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Unhappy Families

Issue date
How ordinary people are paying the price for austerity

Introduction

'The cost of this crisis is only now beginning to be felt. It may have been 2008 and 2009 when the headlines and the television bulletins were full of stories about the financial crisis, but now is the period when the cost is being paid, and I am surprised that the degree of anger hasn't been greater than it has been.'

Mervyn King, Governor of the Bank of England, 1 March 2011

The cost of the economic crisis and the pain of austerity are severe, but are not being fairly shared.

In this report the TUC works out the living standards gap for a range of ordinary families. By using official statistics and the innovative model of the effects of spending cuts on different types of people commissioned by the TUC, we show that people at the bottom and in the middle are suffering a bigger attack on their living standards than those at the top.

They have every right to be angry.

The living standards gap measures how people will suffer from the failure of wages to keep with inflation, the impact of changes in tax, child benefit and tax credits, and the effect of service cuts on different family types.

Meet the families

The TUC has constructed four typical families designed to show the impact of the recession and government policies on a range of households.

Mike and Jenny

Mike is 29 and his wife Jenny is 28. They live in the East Midlands and have two children. Sam is five and has just started school, while Emma is two and at a nursery school. They both work full time and own their own home with a mortgage. Their gross earnings are £37,000. This makes them a middle income household as this puts them in the 5th of ten equal income bands (the 5th decile).

By April 2013 their living standard gap will be more than £4,600 a year - equivalent to 6.2 per cent of their total earnings over the two year period.

Anisha

Anisha is a single mother renting a flat in London. She's a 46 year old single parent with two children. Hari is 19 and a university student. Miah is 10 and at school. Anisha earns £31,000 a year. This puts them in the middle income band.

Anisha and her family are the biggest percentage losers as she will face a fall in her living standards equivalent to 10 per cent of her earnings - a cumulative living standards gap of £6,200.

Graham and Sally

Graham is 32 and his partner Sally is 33. Their daughter Lauren is six and at school. They rent a flat in a deprived area the North West. Sally is unemployed and looking for work, while Graham works full time. Graham earns £16,000, which put them in the third of ten household income deciles.

Despite being poorer than Mike and Jenny, Graham and Sally will face a bigger proportionate living standards gap by 2013 - equivalent to 6.2 per cent of their earnings. By April 2013, this will be a cumulative gap of £2,000.

Paul and Deborah

Paul and Deborah live in the London commuter belt though outside the capital. He is 45, while his wife is 43. They have three children. Hugh is 19 and at university. Sarah is 14 and at secondary school. Timothy is 10 and at primary school. They own their own home, though have a mortgage, and are our richest household with annual earnings of £84,000 thanks to them both working full time in good jobs. This puts them in the 8th income decile.

Not surprisingly they have the biggest living standards gap in cash terms, but as a proportion of their earnings face the smallest gap of any of the families we have studied at 6.1 per cent. This adds up to a cumulative gap of £10,200 by 2013.

How we worked this out

The analysis in this report takes the following factors into account in working out likely changes in family living standards:

  • We assume that wages will go up in line with the government's projected annual increase.
  • We take into account the likely effects of RPI inflation, again using government projections.
  • We take into account the increase in personal tax allowances (which have a positive effect on living standards for most), changes to tax credits (negative for some) and changes to child benefit (negative) that have already been announced.
  • We have used the model developed for the TUC by Howard Reed and Tim Horton to work out the likely negative impact on living standards of cuts in public services on each of the households. This is based on the most detailed analysis to date of spending on public services and how different people benefit. The details are explained in www.tuc.org.uk/extras/wherethemoneygoes.pdf
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