Select Committee on Social Security Appendices to the Minutes of Evidence

Figure 1



  1.1  The purpose of this evidence is to provide reference points for Members of Parliament and Government, against which proposals for modernisation of Britain's systems of personal income taxation and social security benefits can be judged—with particular reference to Child Benefit, Working Families Tax Credit and Integrated Child Credit. [13]

  1.2  One of the Treasury's key objectives is the elimination of child poverty, but it is unlikely that poverty will be eliminated unless it is clearly defined and quantified. In this report we use a methodology called budget standards to estimate the living costs in October 2000 of a girl aged four years, a boy aged eleven years and a boy aged sixteen years, at a standard called Low Cost but Acceptable (LCA) and defined as the poverty threshold.

  1.3  The figure-work updates earlier research by the Family Budget Unit, published in November 1998. [14] That research estimated the living costs of one-parent and two-parent families, each with a boy aged ten and a girl aged four years, at a Low Cost but Acceptable (LCA) standard. The living costs of the boy aged 16 years have been calculated separately, using similar methods.

  1.4  Finally, a word of warning. The purpose of this evidence is to shed light on an extremely complex situation—to demonstrate its complexity and to point in the direction of change. For too long living standards at the bottom of the income distribution have had more to do with politics than objectively based assessments of human need. The problem of poverty has also been clouded by the use of equivalence scales derived from Family Expenditure Surveys, [15] on the questionable assumption that the money families on low incomes spend is also the money they need to spend.

  1.5  Needs and living costs are immensely variable, even for households of similar composition. Social security benefit levels, income tax allowances and other forms of income maintenance are for Parliament to decide. Our purpose here is to help inform the decision making process. In presenting this evidence, we are not pretending that budget standards methodology is the only way to ensure that social security benefits are sufficient and that no household is taxed beyond its ability to pay. But we do think budget standards could become a useful weapon in the fight against poverty.


  2.1  Figure 2 illustrates the relationships between three levels of living:

    —  Level 1, The Poverty threshold

    This level equates to the FBU's Low Cost but Acceptable standard and is the subject of this evidence. Households with incomes below LCA level risk poverty. The LCA logo (Figure 1) encapsulates the LCA concept. The costs of education and healthcare are excluded, on the assumption that they are freely and readily available. But the costs of access to them—transport, school uniforms, sports gear etc—are included, as are the costs of food, housing, fuel, clothing, personal care, household goods, household services and leisure (including games and toys). Overall, the budgets are designed to promote healthy, socially inclusive living, in the UK, at the start of the second millennium.

    —  Level 2, Modest But Adequate (MBA)

    MBA represents the living standard at which most households—in a given country at a given period of time—aim to live, including lower paid households. MBA is enough to "keep up with the Jones's". Households at MBA level can afford to live comfortably, run a car, avoid debt problems and take an annual holiday. In the Netherlands, Scandinavia and Finland, a similar standard, called Reasonable, is widely used.

    —  Level 5, Affluence, is irrelevant to this evidence.

13   HM Treasury, March 2000, Tackling Poverty and Making Work Pay - Tax Credits for the 21st Century: The Modernisation of Britain's Tax and Benefit System, No Six, HM Back

14   Hermione Parker (ed), 1998, Low Cost but Acceptable. A minimum income standard for the UK: families with young children, Bristol: The Policy Press. Back

15   Households Below Average Incomes (HBAI) equivalence ratios Back

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