Minimum budget standards

Author/s: 
Joanna Mack

Minimum budget standards aim to establish the budget necessary for different types of households to maintain a minimum standard of living. It does this by determining what it costs to meet minimum standards on food, goods, services, activities and other items – that is, a minimum weekly budget is drawn up that covers the costs of these items based on actual market prices. Those whose incomes fall below this minimum budget are seen to be living in poverty. This approach was taken by Joseph Rowntree in his classic study of poverty in York in 1899, where he set out to establish a minimum budget level for subsistence. The same approach was used by William Beveridge in 1942 to rationalise the proposal for social security levels.

In determining a minimum budget, the key question is how do you decide which items should be included in the basket of goods and services. Broadly speaking there are two approaches: the first draws on expert opinion and the second on public opinion, though there are other possible variations combining both approaches.

A minimum income for healthy living

Expert opinion is most often used to establish what is needed to live a healthy life. A standard for healthy living has, for example, been developed (among others) by a team of scientists at the London School of Hygiene and Tropical Medicine. This standard draws on scientific evidence on nutrition, physical activity, housing, social relations and social inclusion to identify the requirements for health for various groups of the population. These elements are then costed to form the Minimum Income for Healthy Living (MIHL) (Morris et al., 2000). This is often seen to be of particular importance for public policy in relation to older people given the loss of health, well-being and independence resulting among older people on inadequate incomes (see Defining a minimum income for healthy living (MIHL): older age, England, Morris et al., 2007).

Consensual budget standards

The second approach follows the consensual method by involving members of the public, rather than experts, in establishing what people need to afford a minimum, socially acceptable standard of living. This approach has been primarily developed at the Centre for Research in Social Policy (CRSP), University of Loughborough and at (what was) the Family Budget Unit at the University of York.

More recently, Kristian Niemietz (for the Institute of Economic Affairs) has proposed a ‘Consensual Budget Standards’ approach for measuring poverty, which is based on ‘identifying a majoritarian basket of necessities’.

 

Last updated: 21 January, 2016

Niemietz proposed (as in the consensual method) that necessities should be defined by majority opinion. The necessities are then converted into a consumption basket and budget using actual products (as revealed by actual purchasing decisions) and their market prices. It is this budget that becomes the poverty line. Households with expenditure below this line are defined as poor. Those above are not, even if the households forego some items of the basket because they choose to buy other things.

Minimum Income Standards

The Minimum Income Standards project, funded by the Joseph Rowntree Foundation, combines the expert and consensual approaches by allowing budgets based on social consensus to be tested against expert knowledge and research. In this approach, consensus on what should be in the basket is reached by discussion and negotiation through a sequential series of discussion groups rather than (as in the consensual method) through large-scale surveys to establish majority opinion. Different baskets are discussed for different family types. The groups, advised by experts where necessary on issues like nutrition, are charged with defining a minimum contemporary standard necessary to meet basic needs rather than wants. They have to exclude items that could be regarded as ‘aspirational’.

The costs for each recommended item are then drawn up by experts in each area, on the basis of actual market prices at outlets agreed by the groups participating in the study. Having established the breakdown of a minimum weekly budget, checkbacks are made against actual spending preferences, as shown in expenditure surveys, to ensure that the minimum budgets set reflected spending patterns. In this way, the budget necessary to achieve the minimum socially acceptable standard of living for different household types in the UK is established. Full details can be found on the MIS project website.

Further reading

The methodology underlying the Minimum Income Standards project is set out by Jonathan Bradshaw et al. in A Minimum Income Standard for Britain: What People Think. Further details can be found at the project website.

Budget Standards for Jersey: A Handbook by Sue Middleton describes how a consensual budget standard was established for the State of Jersey.

Minimum Income Standards: how might budget standards be set for the UK?’ by Christopher Deeming provides a summary of different approaches to setting minimum budgets within the UK.

Setting Adequacy Standards: How Governments Define Minimum Incomes by John Veit-Wilson takes a broader look at international approaches to setting Minimum Income.

References

Bradshaw, J., Middleton, S., Davis, A., Oldfield, N., Smith, N., Cusworth, L. and Williams, J. (2008) A Minimum Income Standard for Britain: What People Think, York, Joseph Rowntree Foundation; also available online at http://www.jrf.org.uk/sites/files/jrf/2226-income-poverty-standards.pdf (accessed 3 January 2012).
Deeming, C. (2005) ‘Minimum Income Standards: how might budget standards be set for the UK?’, Journal of Social Policy, vol. 34, no. 4, pp. 619–36; also available online at http://www.crsp.ac.uk/MIS/downloads/Reports/MIS_deeming.pdf (accessed 3 January 2012).
Middleton, S. (2001) Budget Standards for Jersey: A Handbook, Loughborough, Centre for Research in Social Policy; also available online at http://www.crsp.ac.uk/MIS/downloads/Reports/CRSP444%20Jersey%20Handbook.pdf (accessed 3 January 2012).
Morris, J.N. and Deeming, C. (2004), ‘Minimum incomes for healthy living (MIHL): next thrust in UK social policy?’, Policy and Politics, vol. 32, no. 4, pp. 441–54.
Morris, J.N., Donkin, A.J.M., Wonderling, D., Wilkinson, P. and Dowler, E.A. (2000) ‘A minimum income for healthy living’, Journal of Epidemiology and Community Health, vol. 54, no. 12, pp. 885–9; available online at http://jech.bmj.com/content/54/12/885.full.pdf (accessed 27 January 2012).
Morris, J.N., Wilkinson, P., Dangour, A.D., Deeming, C. and Fletcher, A. (2007) ‘Defining a minimum income for healthy living (MIHL): older age, England’, International Journal of Epidemiology, vol. 36, pp.1300–7; also available online at http://ije.oxfordjournals.org/content/36/6/1300.full.pdf?keytype=ref&ijkey=SxNp9YzC7VUzlLO (accessed 27 January 2012).
Niemietz, K. (2011) A New Understanding of Poverty: Poverty Measurement and Policy Implications, London, Institute of Economic Affairs; also available online at http://www.iea.org.uk/sites/default/files/publications/files/IEA%20New%20Understanding%20of%20Poverty.pdf (accessed 3 January 2012).
Veit-Wilson, J. (1998) Setting Adequacy Standards: How Governments Define Minimum Incomes, Bristol, The Policy Press; also available online at http://www.staff.ncl.ac.uk/j.veit-wilson/documents/sas.pdf (accessed 3 January 2012).