Calculating the Living Wage: The Minimum Income Standard

Over the weekend it was announced that The Living Wage has increased to £8.25 per hour and if you’re in London, to £9.40 per hour, which means a pay rise for those on our Living Wage Internship Programme. In light of this good news we thought we would take a look at some of the research used to calculate the living wage.

The Minimum Income Standard (MIS) in the UK, funded by the Joseph Rowntree Foundation, is an annual study undertaken by The Centre for Research in Social Policy at Loughborough University.

The MIS has been updated annually since 2008 and is the result of detailed research to discover what the British public consider to be necessary for an adequate standard of living, and how much money is required to meet this standard.

The expectations of the public have remained fairly frugal over the last six years, and their expectations haven’t really changed. The types of things considered essential include three square meals a day, shelter, clothing, a TV, a bed, internet access, and some basic treats like the occasional meal out or trip to the movies.

The 2015 report, published earlier this year showed, however, that despite needs staying the same, the costs of these goods and services has risen by 28% over the past six years, which is above the rate of inflation at 19%. The report found that a couple with two children needs to earn £20,000 each, up from £14,000 in 2008; a lone parent with one child needs to earn £26,700, a drastic rise from £12,000 needed in 2008; and a single person without children needs to earn £17,100, up from £13,500 in 2008.

MIS

The MIS gives us an honest insight into the lives of benefit claimants. The figures, when compared with welfare entitlements, show that safety net benefits meet 57% of the cost of an adequate life a lone parent with one child, and 40% of the income requirements of a single person. Not all benefits are stringent though – pensioners’ benefits cover 96% of their needs.

The report, found that those in full employment also struggle to reach the publicly recognised adequate standard of living. For instance a single person earning the minimum wage was found to earn only 70% of income requirements, and a couple both earning the minimum wage with two children fall short with 84% of the required income.

The figures from the MIS provide a useful benchmark to assess local and national income data, but do not serve as a new poverty line. Over the last couple of years we have been working with The Centre of Social Research to analyse the number of people that fall below the MIS in specific areas, and what demographics are worst affected. Last year we worked on two reports, Making Ends Meet in Leicester and Making Ends Meet in Birmingham.

The Birmingham report, published in July this year, used the most recent data available to assess deprivation with relation to the MIS. We found that individuals and families in Birmingham are increasingly struggling to have a socially acceptable living standard. Here are some key findings:

  • Between 2009 and 2014, self-employment has increased by 65% to 53,300. One in every eight people in Birmingham are currently self-employed. It was argued in the report that this increase in self-employment does not represent an upturn in entrepreneurialism, but in reality many self-employed workers experience insecure employment and low pay. Evidence for this is provided from the Resolution Foundation who found that the typical self-employed worker earns 40% less than the typical employee.
  • The report shows that Birmingham has a smaller proportion of workers paid less than the living wage than nationally, 19% compared to 21%. However, there was a big difference between public and private sector workers, with 27% of people in the private sector in low wages compared to only 2% in the public sector.
  • The Birmingham report drew important attention to the new and growing form of acute deprivation caused by insufficient housing support: A combination of the drop in social housing, housing benefit reductions, a dramatic increase in households living in the private rented sector and increased private rental costs has been a squeeze on households leaving them little to spend on the rest of life’s essentials.

In conclusion, the Living Wage is calculated with the specific purpose of ensuring people in full time employment get what is considered to be a socially acceptable standard of living. It has entered into the public consciousness following many successful campaigns by civil society and workers unions.

The Living Wage Campaign has had influence in the halls of government and has led to the introduction of a ‘National Living Wage’ for over-25s in Osborne’s July budget. The increased minimum wage is due to be in place in April 2016 at a rate of £7.20 per hour rising to £9 per hour by 2020. There has been much debate surrounding this new wage and whether it is sufficient to improve people’s standard of living, when considered alongside welfare reform. Overall, however, it is always great to see and be involved in research which has such a large impact on public discourse and the policies adopted by government.