A third source to boost living standards: the family

Policymakers should seek to mitigate the barriers to the giving and receiving of financial and practical support between family members.

Alongside tackling the deficit, the government‘s priority is now tackling another major economic problem: the rising cost of living, caused by a mix of stagnant wages, a real terms reduction in benefits, and inflation. But with public spending constrained and economic growth still fragile, policymakers need to think creatively about solutions beyond the traditional reliance on the state or the market to help struggling families.

A recent report by the Child Poverty Action Group and Joseph Rowntree Foundation demonstrates the scale of the problem for families on modest incomes: over the past year the average cost of raising children has risen by 4% for those also paying for childcare. 

To boost family incomes, policymakers tend to fixate on two levers: the state or the market. Either government, through increased cash transfers or reduced taxation, or businesses, through increased wages, are called upon to do more. Under the last Labour government, cash transfers from the state to low-income families increased substantially with some notable successes, such as the reduction in the number of children living in poverty. The coalition government has prioritised reducing income tax. Recent emphasis has shifted to the role employers can play in boosting income: there is campaigning from across the main political parties to increase the minimum wage and spread the voluntary living wage to more employers.

The state and market should do more to help alleviate poverty. But the current economic conditions limit their reach. So it is also worth exploring how a third major resource can help improve family incomes: a person’s wider family.

Already, a significant minority of households receive regular financial support from their wider family, predominantly their parents. It is estimated that about 1 in 6 households regularly receive financial help from their parents with the average received in one year about £1,400. The national annual flow of such transfers is estimated to be about £1.2bn. But this undervalues the scale of transfers taking place: it misses out those who receive money through inheritance, which is estimated to be about £30bn a year.

Forthcoming research from the Social Market Foundation found that many on the lowest incomes, especially those experiencing circumstantial poverty due to unemployment or divorce, receive significant financial support from their parents, often worth thousands of pounds. And in-kind support such as the provision of childcare and shopping is also common and saves households significant amounts of money.

The family, then, is often a major but hidden form of welfare. Its impact can be quite remarkable. There can be a considerable improvement in living standards of low income families who receive support from parents: they are better able to work or train, and afford a wider range of goods from children’s clothes to holidays.

Policymakers should seek how to mitigate some of the barriers to the giving and receiving of financial and practical support between family members. Obviously, the lack of familial exchange may be explained by geographical or emotional distance between relatives. But there are other barriers such as money and time: for example, especially with cultural and governmental expectations to work for longer in older age, grandparents will have less time in the week to provide support.

Employment for older people could be more flexible. Since the late 1980s, DIY retailer B&Q has encouraged older workers, with a quarter of its workforce now over the age of 50, by ensuring flexible working – including for caring responsibilities – is part of the company culture. Maybe this could be nudged along by making parental leave, especially parents’ unpaid entitlement, transferable to grandparents if unused?

To tackle the financial constraints some families face, maybe tax efficient, high-interest multigenerational family trusts could be established to encourage low-income families to build up a pot of money to help different generations in testing times?

This year’s Budget – with announcements to help families with childcare, petrol and housing costs – showed that the government is focussing on measures to boost living standards for those on modest incomes. But policymakers will need to think creatively and draw on multiple sources: the state and the market, yes, but also the family.   

About 1 in 6 households regularly receive financial help from their parents with the average received in one year about £1,400. Photograph: Getty Images.

Ryan Shorthouse is the Director of Bright Blue, a think tank for liberal conservativism 

Photo: Getty
Show Hide image

Can Philip Hammond save the Conservatives from public anger at their DUP deal?

The Chancellor has the wriggle room to get close to the DUP's spending increase – but emotion matters more than facts in politics.

The magic money tree exists, and it is growing in Northern Ireland. That’s the attack line that Labour will throw at Theresa May in the wake of her £1bn deal with the DUP to keep her party in office.

It’s worth noting that while £1bn is a big deal in terms of Northern Ireland’s budget – just a touch under £10bn in 2016/17 – as far as the total expenditure of the British government goes, it’s peanuts.

The British government spent £778bn last year – we’re talking about spending an amount of money in Northern Ireland over the course of two years that the NHS loses in pen theft over the course of one in England. To match the increase in relative terms, you’d be looking at a £35bn increase in spending.

But, of course, political arguments are about gut instinct rather than actual numbers. The perception that the streets of Antrim are being paved by gold while the public realm in England, Scotland and Wales falls into disrepair is a real danger to the Conservatives.

But the good news for them is that last year Philip Hammond tweaked his targets to give himself greater headroom in case of a Brexit shock. Now the Tories have experienced a shock of a different kind – a Corbyn shock. That shock was partly due to the Labour leader’s good campaign and May’s bad campaign, but it was also powered by anger at cuts to schools and anger among NHS workers at Jeremy Hunt’s stewardship of the NHS. Conservative MPs have already made it clear to May that the party must not go to the country again while defending cuts to school spending.

Hammond can get to slightly under that £35bn and still stick to his targets. That will mean that the DUP still get to rave about their higher-than-average increase, while avoiding another election in which cuts to schools are front-and-centre. But whether that deprives Labour of their “cuts for you, but not for them” attack line is another question entirely. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

0800 7318496