Cost of living measures must prioritise those on lowest incomes and address long-term causes

One of the main areas of political and media focus over the past number of months has been the steep rise in the cost of living experienced by people across the country. This is an experience shared across the world. This spike over the past year has been driven mainly by increasing cost of fuel and energy, and more recently, by the war in Ukraine. Price inflation rose by 5.7% for the year to March 2022, with the ESRI forecasting that it could hit 8.5% later this year, a level not seen since the 1980’s.

This is a very worrying situation, particularly for those on the lowest incomes who were already facing great challenges making ends meet and facing deepening poverty.

In 2020, before the current spike in inflation, 15.6% of the population or around 776,000 people were living in enforced deprivation. One quarter of these people were in work. At the same time 13.2% of the population or around 647,000 people had an income that was below the poverty line.

The Minimum Essential Standard of Living research by the Vincentian Partnership for Social Justice in 2021 showed that of the 214 household types it looked at that depended on social welfare, less than a third had an income that was adequate to afford a Minimum Essential Standard of Living (MESL). In addition, a poll carried out by the Society of St Vincent de Paul showed that 9% of people had difficulty managing financially pre-Covid, rising to 18% in January 2022, with 30% cutting back on essentials such as food and heating.

Charities, foodbanks and community and voluntary organisations have seen an increasing demand from people who need their support to make ends meet, put food on the table and pay essential bills. This is a reality that preceded Covid-19, and it is now something that urgently needs to be fully understood and addressed. EAPN Ireland will publish research on this issue later this year.

While the supports with basic necessities provided by charities and foodbanks plays a very important role in addressing the immediate and unexpected needs of people living in poverty, their existence highlights the failure of our social protection system and wages to ensure that everyone can have an adequate income to meet the cost of goods and services.

Policy solutions

There are two structural ways to ensure that people have an adequate income to meet the cost of living.

The first is to ensure that income from social welfare supports and wages are adequate. Social welfare supports need to be set at a level that is adequate to ensure people are lifted above the poverty line and can afford a Minimum Essential Standard of Living (MESL). The detailed work by the VPSJ shows that in 2021 there was a gap of €48.81 between the income and MESL for a single working age adult on social welfare in an urban area, rising to €139.98 for someone in a rural area. For a couple with a primary and a secondary school age child the gap was €79.41 in an urban area and €69.00 in a rural area. There is also a gap of over €64 between the weekly social welfare rate and the poverty line. There is an even bigger gap for those under 25 years of age on the reduced welfare rate.

Specifically, regarding the cost of fuel, the Fuel Allowance can also be improved by making it more immediately accessible to people when they become eligible for social welfare rather than in many cases having to wait 390 days. Alongside this low-income households must be supported to transition away from fossil fuels, including through the speedy retrofitting of social housing and housing and accommodation used by those on low incomes and on social housing supports.

For those in work the hourly National Minimum Wage is €10.40, while a Living Wage based of the cost of living is €12.90 for someone working full-time (39 hours), a gap of €2.50 per hour.

Therefore, a key step to address the cost of living is to set welfare rates and wages against the MESL and the Living Wage respectively.

In Budget 2022 the Government only increased social welfare rates by €5 per week and the living wage by 30c per hour. Neither of which was sufficient progress towards a MESL or a Living Wage, with inflation last year already eroding any benefit of these increases as they were announced. Since Budget day the Government has announced additional measures to tackle the cost of living. Despite those on the lowest incomes being impacted the most by increases in the cost of living the majority of these measures aim to ease the burden across all of society irrespective of income or wealth, with only the additional payment to those on the fuel allowance targeted at those on low incomes. As their situation continues to worsen, urgent action is needed to target supports at those on low incomes.

The second way to ensure that can people have an adequate income is to manage the cost of goods and services. Ireland’s historical underinvestment in public services is well known, resulting in a situation where there is inadequate provision and a high cost for many public services. In addition, Irish people and the state rely heavily on the for-profit private market to provide many of our essential public services. Work on the Minimum Essential Standard of Living and Living Wage shows that the cost of housing and childcare are particularly problematic, reflecting the experience of people across society. Investing in affordable services would go a long way to bringing the high cost of living under control and mean that people would not need as much cash in hand to pay for essential services.

If these two solutions are in place, then people will be able to live with dignity without depending on charities as an ongoing way of meeting living costs. It would also ensure that Government will be better able to respond when unexpected spikes in prices come along.

The Government can move to implement these two solutions immediately. Despite the current challenges, Ireland, as one of the wealthiest countries in the world with strong economic growth predicted for this year, is well positioned to address the longer term need for investment and respond to crises as they emerge. The decision then is how to use these resources to ensure we build a society where no-one is left behind.

In 2022 the Government will review the Roadmap for Social Inclusion which includes the commitment to reduce consistent poverty (people who are both living below the poverty line and experiencing deprivation) to 2% or less by 2025. This would mean reducing the number of people in consist poverty from almost 250,000 people currently to 100,000 or less. If the Government is serious in achieving this commitment it needs to take immediate measures to address the cost of living for those on the lowest incomes, while bringing about longer-term changes to ensure that everyone has access to an adequate income and to affordable and quality public services.

By Paul Ginnell Director EAPN Ireland

(1) https://www.budgeting.ie/publications/mesl-2021/

(2) https://www.svp.ie/news-media/submissions/poverty-in-ireland/cutting-back-and-falling-behind-red-c-report-march.aspx