The Minimum Income Standard: the wisdom of crowds?

Recently, the Joseph Rowntree Foundation released an updated version of its Minimum Income Standard (MIS) which looks at what modern Britons need to achieve an ‘acceptable standard of living’. It provides a useful illustration of how the cost of living has risen in recent years, with a family of four needing £40,600 a year to meet what the Guardian calls “basic needs”. This is up by 46 per cent since 2008, whereas average earnings have risen by just 9 per cent.

The cost of living crisis is real, but - and call me a tight Yorkshireman if you must - from where I’m sitting the 'needs' listed in the MIS are not so basic. For example, this is the list of clothes that an adult woman must buy herself every twelve months in order to meet the minimum standard of living (although these figures come from the 2012 MIS, the JRF says that the list of ‘essentials’ is not significantly different in the 2014 edition):

Five short sleeved T-shirts, five long sleeved T shirts, two jumpers, two pairs of jeans, two pairs of leggings, two summer skirts, two winter skirts, one pair of sheer tights, two pairs of summer trousers, two pairs of winter trousers, two pairs of shorts, two casual tops, two formal dresses, two casual dresses, two summer dresses, one winter coat, one summer coat, one pair of slippers, one pair of flipflops, one pair of boots, one pair of trainers, one pair of going out heels, one pair of smart heels, one pair of smart flats and one pair of pyjamas.

All of these items must be replaced (brand new) once a year in addition to more regular purchases such a tights and bras and less frequent purchases such as walking boots and dressing gowns.

Along with this annual change of wardrobe, the JRF’s mother-of-three lives in a home in which nothing, from the carpets to the coat hooks, is more than ten years old. Her family has several mobile phones, a landline for broadband, a laptop, a netbook, a printer, a washing machine, a tumble dryer, a microwave, two televisions, two DVD players, a bike, a seven seater car (with a roofbox), a strimmer, a lawnmower and a garden shed, plus £1,015 to spend on a holiday, £857 to spend on presents, £7,700 to spend on childcare and £355 to spend on alcohol. Taken together, this inventory suggests a standard of living that it closer to comfortable than minimal.

You may disagree with my view. You may think that people simply cannot have a ‘socially-acceptable quality of life’ without buying a new umbrella every six months (a MIS requirement). You may think that a barbecue set is a basic need for a single man (another MIS requirement). Fair enough. If, for every person who thinks like me, there is someone who thinks that the Minimum Income Standard is too frugal, JRF have done their job. The MIS shopping list is not devised by JRF staffers, but by a focus group of ordinary people who reach their conclusions by consensus (the exception is the list of food products which is amended by nutritionists to make sure it conforms to whatever the government currently thinks is ‘healthy’). This is the ultimate defence of the MIS, that it is not the bleeding hearts who have come up with this list, but ordinary people themselves. Who dares to question the wisdom of crowds?

My colleague Kristian Niemietz has pointed out that the focus group approach carries a risk of ‘log-rolling’, with one individual voting to add, for example, a pair of walking boots in exchange for someone else supporting his argument for adding an extra DVD player. I think there might be something in that. I also suspect that the use of a cross-section of the public in the focus group leads to a sort of regression to the mean. If the focus group consisted exclusively of millionaires, the list of items needed to attain an ‘acceptable standard of living’ would probably be more extravagant than the MIS. Similarly, a group of students or unemployed people would probably come up with a more frugal list than the MIS. Context is everything. People's view of what is adequate is bound to be influenced by their own living standards. Quite reasonably, the JRF strives to gather together a cross-section of the public, but this only means that the final list will reflect an average standard of living. They might cut a few corners by suggesting people shop at Asda rather than Waitrose, but the average earner will be the group’s centre of gravity.

It is not great surprise, then, that the amount a family of four needs to attain an ‘adequate standard of living’ in the MIS is very close to the average income for a family of four in Britain today. It is self-evident that half the population earns less than average. Whether this means that half the population cannot afford “basic needs” and (with a nod and a wink) are close to poverty is another question altogether.

You have to wonder whether the participants of these focus group would look back on their wish list in the cold light of day and agree that it represents the “cost of a basic, no-frills human existence” or that “its frugality is striking” (The Guardian). JRF might argue that the Guardian has got the wrong end of the stick and that they have never claimed that the MIS is a measure of poverty, but confusion is inevitable when a well known poverty charity tells us what is needed for a ‘minimum income’. Having less than a minimum income means that you are in poverty, surely?

I have two suggestions for how the MIS methodology could be improved to help settle the question of whether it is a measure of ‘basic needs’ or average consumption. Firstly, the focus group - or, perhaps, a different group of people drawn from a cross-section of society - could be asked what items they own themselves, how many of them they own, and how often they replace them. This would provide a useful benchmark for average consumption.

Secondly, once the focus group has finished its negotiations and arrived at its final list, it could be presented to another group of people who would be asked to give a second opinion. This time, however, the list would be presented to them individually so that they cannot be swayed by others. An example question would be ‘How many pairs of shorts does a single male need to attain an acceptable standard of living in Britain today?’ (according to the MIS, the answer is five).

It would be interesting to see what difference these checks and balances made. Perhaps none. They might show that average consumption is much greater than the minimum and that people have the same view of ‘basic needs’ when asked in private as in a group. Then again, they might not.

The MIS would still have value if it was nothing more than a measure of average consumption because it highlights changes in the cost of living over time. But we already have a perfectly serviceable list of bare necessities in the Poverty and Social Exclusion Survey whereas the MIS currently reads more like a wedding list.

MIS is rooted in consensus among ordinary members regarding what is needed for a minimum, socially acceptable standard of living. The definition people work to while discussing what should be included in the basket is: "A minimum standard of living in the United Kingdom today includes, but is more than just food, clothes and shelter. It is about having what you need in order to have the opportunities and choices necessary to participate in society" Contrary to the suggestion of 'log rolling', the groups are very good at challenging each other about what is a necessity and what is a ‘nice to have’. Where there is no consensus, items are not included - for example only in 2014 was there consensus among pensioners that they need internet access in the home, previously opinion had been divided and so it didn't feature in their budgets. MIS provides a independent barometer of living standards. Earlier this year we published analysis of the (at that time) most recent households income data, and found just under a quarter of households don't have enough to reach MIS - a lower figure than you might expect if you were to think MIS represents generous living standard.
"It is self-evident that half the population earns less than average." No it is not. It is self-evident (by definition) that half the population earns less than the median, but it is not at all evident (or true) that half the population earns less than the mean. It all depends whether you use the median or the mean as your average.

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