Families in private rental face expanding ‘income adequacy’ gap

New report exposes the likely impact of government ‘poverty policies’ on those least able to absorb the impact.

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Within the next five years, rising costs and falling benefits will double the ‘income adequacy’ gap for struggling families in private rental a new report reveals.

Cost of Child, released by the Child Poverty Action Group (CPAG), calls for an increase in the government’s national living wage so struggling families can have an acceptable standard of living.

CPAG blames a combination of rising prices, freezes on benefits and tax credit, the bedroom tax and the toxic Universal Credit roll out for snapped ever-stretched family budgets, with

chief executive Alison Garnham saying there was strong public support for government topping up the wages of low-paid parents and investing in children.

“By using the forthcoming budget to unfreeze benefits and restore work allowances, the government can take steps towards making work really pay.”

The Cost of a Child reserach revealed gains from increased minimum wages were offset by a freeze in tax credit support.

But the findings did, however, show an improvement on last year when the family with an 11% shortfall would have found themselves with a 13% deficit.

The overall cost for a couple raising a first child until they are 18 fell from £155,100 to £150,800.

Cost of a Child singles out the benefit cap and ‘two child limit’ as severely affecting incomes already constrained by general benefit cuts, saying that by 2021 private tenants will have little over a third of what they need to cover costs – a major reduction in the living standards of families who already had considerably less than they required to cover children’s costs alone.

The benefit cap limits the total amount that out-of-work families or those on very low earnings can receive in benefits.

Since this is the same level regardless of the size of family, larger families with higher entitlements are the most affected.

In November 2016, the benefit limit for out of work families was lowered from £26,000 a year to £23,000 in London and £20,000 outside London – more than tripling the number of affected families.

The ‘two-child limit restricts the amount paid for children in child tax credit and Universal Credit to two children – although this is not applied to the third and subsequent children born before April 1 2017.

Cost of Child says affected families will receive nearly £2,800 less a year for each third and subsequent child with such large cuts affecting the majority of children living in larger families in the UK.

Some 3m out of 3.8m children with at least two siblings have parents in receipt of child tax credit – all will face large losses, whether working or not.

The cuts are coming sooner for out-of-work families than for working families due to the immediate implementation of the benefit cap, but only the gradual introduction of the two-child limit.

CPAG says for those with more children, the losses from both policies will be more serious.

Up until 2016, most families with three children with modest rents outside London were not affected by the benefit cap of £500 a week.

However, its lowering late in that year resulted in a severe cut in disposable income for such families, particularly those with private rents, even at a modest level.

Since income based on the entitlements of a two-child family with a private rent is now subject to the benefit cap, the two-child limit will not lower such families’ income further.

For social tenants, on the other hand, who do not yet reach the cap with two children, the two-child limit does reduce income – according to the Cost of a Child findings.

However, if the benefit cap remains frozen and benefits are uprated with inflation from 2020 when the announced freeze ends, the entitlement for a three-child family is shown to be the same by 2021 – regardless of whether the two-child limit is applied – since even families in social housing subject to the limit will have benefit entitlements about equal to the cap.

Overall, the report exposes the adequacy of incomes as set to fall drastically over this period.

In 2016, families were already falling 40% short of what they needed, and had over £200 a week too little to cover costs.

Cost of a Child says that by 2021, with rising costs and falling benefits, this gap will have nearly doubled for private tenants, who will have little over a third of what they need to cover their costs.

For a lone parent with a social rent, the report says the benefit cap –  which is the same as for a couple – does not ‘bite’ where overall benefit entitlement is lower than for a couple.

Since last year, the most serious losses have been seen in families with a third child born after April 2017, and for those with a private rent for whom the benefit cap does bite if families still have tax credit entitlement for the third child.

CPAG acknowledges that the results illustrate how the benefit cap is likely to be the most significant determinant of reduced income for larger families in the cases of nonworking couples and of non-working lone parents who rent privately.

On the other hand, the two-child limit will be more significant for lone parents with social rents, as well as for working parents, to whom the benefit cap does not apply.

Working families receiving tax credits or Universal Credit will receive up to £2,800 a year less for each child who does not qualify for support because of the limit.

Taking today’s tax credit and wage rates, the report says this would mean a couple with three children aged four, eight and 12, with parents working full time on the national living wage, having disposable income 28% below what they need – rather than 19% without this policy.

For a lone parent working full time, it would be 35% rather than 24% – so even those working full time could find themselves up to a third short of what they need to provide for their families as a result of having a third child unsupported under the two-child policy.

Responding to the report, the government maintains fewer people are living in “absolute poverty”  with the national living wage delivering he highest pay increase for the lowest paid in 20 years – worth £2,000 extra per year for a full-time worker.


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