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Why families are most exposed to the living standards squeeze

August 19, 2013

We have still not fully adjusted to the passing of a world where a working class man could earn enough to provide what would be considered the minimum essentials for his family. A growth in both wage inequality and lone parenthood fed increases in child poverty in the 1980s and 90s. The last government addressed this by making it easier for lone parents and second earners to work by subsidising childcare and by topping up the incomes of working families through tax credits. These policies eased, but did not end, the growing difficulty that low-wage families have in making ends meet.
Unfortunately, these changes have also made such families vulnerable in new ways. According to our estimates, about 40% of the minimum cost of bringing up a child in working families now goes on childcare. Our latest update of these costs shows that a steep rise in the price of childcare last year has pushed the rise in family costs well above the general inflation rate. Compared with countries that provide early childhood care and after-school facilities in the form of free provision rather than help accessing paid-for services, British parents are highly exposed to market fluctuations that make this already-expensive item cost more.
They have also become more exposed to government cuts, as a result of all that dependence on tax credits. The decision to stop uprating benefits and tax credits in line with prices and to raise them only by 1 per cent hits all working age people out of work, but mainly families with children who are in work. Other low-earning households, depending only on their wages, have not done much better than this due to slow pay rises. But economic recovery is likely to bring improved wage increases much sooner than a loosening of public austerity. In other words, Gordon Brown’s generosity to working families also created a dependency on a state that was also over-borrowing, and would later have to reduce the support on which they had come to rely.

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