How can reference budgets contribute to the construction of social indicators to assess the adequacy of minimum income and the affordability of necessary goods and services?

Abstract

In this working paper we argue that the EU needs a new, additional indicator to implement and monitor the right to an adequate minimum income, as stipulated in principle 14 of the European Pillar of Social Rights. In article 5 of the ‘Council recommendation on adequate minimum income ensuring active inclusion’ three kind of indicators are recommended for this purpose. We explain why they all can be criticized, particularly because they insufficiently grasp the essence of what is meant by an adequate minimum income. We define a minimum income as adequate when it succeeds in guaranteeing individual citizens a living standard that enables them to fully participate in society. An adequate level of income is not only determined by the net level of cash benefits or labour income, but also by the extent to which essential goods and services are affordable. Affordability and adequacy are two sites of the same coin. An income is adequate when essential goods and services are affordable, and vice versa, a good or service is affordable when the disposable household income is at an adequate level to consume a particular good or service without sacrificing consumption of other essential goods and services. Indicators that suffer from insufficient recognition of the link between these two concepts, can result in inadequate monitoring, misleading policy conclusions and ineffective personal assistance interventions. We are convinced that high-quality reference budgets can make an important contribution to developing adequacy and affordability indicators that are helpful for both, contextualizing existing indicators, and providing combined guidance for successful, multi-level anti-poverty strategies. Reference budgets are priced baskets of goods and services, that illustrate the amount of income that well-defined family types need at the minimum to fully participate in the society in which they live. Departing from a solid theoretical and methodological framework, they look for the financial fulfilment of so-called 'thick needs', while taking account of the differences in socio-economic living conditions between and across Member States. In this paper we are describing the essential building blocks for the development of high-quality reference budgets and discuss their merits and drawbacks. We strongly recommend setting up projects aimed at improving methodology and data availability to improve their comparability. So, they can be very helpful for the Commission to monitor the progress of the implementation of the Council Recommendation and to enhance cross-border learning. In this project we have taken some major steps forward in constructing cross-national comparable food budgets, in terms of their content as well as well as in terms of the pricing strategy. Moreover, we added the sustainability aspect to the reference budget approach, ensuring that an adequate standard of living defined could also be safeguarded for the next generation. Based on the improved methodology, we have worked out comparable food budgets for households living in an urban context in Belgium, Finland, Hungary and Spain and we used these budgets in a tentative exercise to assess the affordability of a healthy and sustainable diet.