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Miserable outlook for UK family finances

Wednesday 4th January 2012

Grim predictions for UK family finances up to 2015 have been revealed in evidence produced by the Institute for Fiscal Studies for the Family and Parenting Institute.

The study found:

* The median (middle) household with children faces an average drop in income of 4.2% by 2015-16, equivalent to an annual income drop of £1250 for a couple with two children. The 4.2% average drop for families with children is significantly higher than the loss for the median household overall, which is 0.9%. 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% 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% 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% by 2015-16, compared to the median household with one child which sees it fall by 3.3%;
* 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% to 54.6% and the absolute increase is from 49.2% to 55.8%).

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% 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 6%. In particular, lone parents not in employment lose more than 12% of their income on average as a result of tax and benefit changes to be introduced between 2010–11 and 2014–15, or £2000 per year.

The Government’s plan to introduce Universal Credit will soften the blow for certain family types but 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 6%, compared to a loss of just over 4% (pre or post-Universal Credit) for all households.

Dr Katherine Rake, Chief Executive of the Family and Parenting Institute, said: "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."

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Mike Jones





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Editorial Contact Details - Conor Shilling
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