New research published today provides new evidence that households with lower incomes are facing greater financial pressures than existing inflation measures are capturing.
The Decent Living Index (DLI) has been developed by the team behind the Minimum Income Standard (which underpins the Living Wage calculations) at the Centre for Research in Social Policy at Loughborough University, with the support of abrdn Financial Fairness Trust. Like the Minimum Income Standard, it is based on household-specific baskets of goods and services that the public agree are necessary to maintain a decent standard of living. It tracks what is happening to the cost of items that people need rather than actual expenditure.
The DLI is a pilot measure and has initially been calculated for two household types: a single, working-age female, and a couple with two children of pre-school and primary school age. The research compares this new index with CPI and CPIH indices over the same period.
By May 2023, prices were 23% higher than in January 2022 for a single working-age female and 16% for partnered parents with two children, compared with 14% based on CPI, and 13% based on CPIH (see chart in notes section). In January 2022, the total weekly Minimum Income Standard budget for a single working-age adult was £367. By May 2023, the DLI indicates that they would need £453 to achieve the same standard of living – an additional £86 per week. For the household with children, the weekly cost would increase from £903 to £1,044 per week using the DLI measure, an additional £141. Using CPI, a single working-age adult would be assumed to need only £48 additional income per week, and the household with children £114 per week.
The DLI therefore estimates that a single working-age adult would need around £2,000 more per year than the CPI measure; and a couple with children would need an additional £1,400.
The difference is particularly stark for the single working-age female. This is due to the greater proportion of spending on food and housing (which have higher than average inflation rates) for this household type, compared to average consumption. For example, for the single female, under the DLI housing costs are 40% of their total household budget, but under CPI only 14% of the budget is attributed to housing costs.
The DLI has the potential to inform debates around how we think about the adequacy of earnings in the context of high inflation, and how we should determine levels of income that entitle households to additional state support if high rates of inflation are leaving people far short of being able to achieve a minimum, socially acceptable standard of living.
Juliet Stone, Researcher from Centre for Research in Social Policy at Loughborough University, said:
“The cumulative and persistent impact of high inflation is already stretching incomes to breaking point in many households, and preventing them from achieving a socially acceptable standard of living. We hope that the Decent Living Index will be a valuable addition to the currently available suite of inflation indices, providing a unique opportunity to track the ways in which the changing cost of living affects people’s ability to live with dignity, and informing ways in which this can be addressed.”
Mubin Haq, Chief Executive of abrdn Financial Fairness Trust, said:
“Increasingly evidence indicates that those on lower incomes have faced higher rates of inflation during the cost of living crisis. We also find that some low-income households such as single adults have experienced particularly high levels of inflation. In the main this is because our current measures of inflation do not adequately capture the greater amounts some groups have to spend on food and housing which have seen the highest increases.
This matters for government so that it can better understand which groups are most in need of help and where additional support may need to be targeted. And this is vital for employers to understand the pressures their employees on lower incomes are experiencing, when thinking about pay increases.”