Totting up the true cost of living will be key to whether insolvency programme works
The authorities are working out how much money is needed to live
Just how much money does a person or a family need to get by, without being forced to wear a hair shirt, is a question that has been occupying the minds of the number-crunchers in the newly established Insolvency Service of Ireland (ISI) for months. Their answer is likely to be known within a week, though it is unlikely to make many people outside the State’s financial institutions particularly happy.
The ISI was set up to help tens of thousands of people to escape unmanageable debts and, while it is unclear how much it thinks those who will use its services will need, leaks have indicated that it is not inclined to be generous. Families who enter insolvency arrangements – which could last more than five years – may be forbidden from taking holidays for the duration of any deal, while adults could be allowed just €31 a month to cover all health costs including over-the-counter medicines and visits to the GP, dentist and optician.
Single people may be left with just €29 a week for “social participation” while those living close to public transport could have to abandon their cars and rely instead on a monthly allowance of €136 for public transport. Little more than €100 is to be allocated to cover all energy costs. Health insurance is out. Fee-paying schools are gone and even jobs may have to be surrendered if they are worth less than the cost of childcare.
When these figures became public over Easter, a spokeswoman for the Department of Justice said they were “draft guidelines” and it was “anticipated that some changes/additions will be made”. The final version would “strike an appropriate balance between the interests of debtors and creditors” and it “would be a mistake to assume that the final guidelines published will be identical to those referenced in some reports,” she said.
But the numbers were very specific so where were they coming from? And how realistic would they be? The ISI is understood to have relied heavily on work done by the Money Advice and Budgeting Service (Mabs) and the Vincentian Partnership for Social Justice. Last year the two groups launched an online living standards calculator, which gives the minimum income necessary to live a dignified life for a range of household types.
It calculates a minimum basic income for families with children; adults of working age living alone; pensioner couples and pensioners living alone.
The figures come from discussions with focus groups on what they believe is a minimum standard below which no household should have to fall and is based on needs not wants. Crucially, the figures are concerned with more than just getting by and take into account access to a social life, entertainment, transport, as well a nutritious diet, heat and clothes.
“The leaks have been scaring people, there is no question of that. You can’t take one piece of the jigsaw and look at it in isolation,” says Michael Culloty, the national development officer for social policy and communications with Mabs.
“These are only indications about how much people will be expected to live on but they are not written in stone. If I am allowed €500 to visit my GP each year but don’t have to go, then that money is not going to be diverted to my creditors. There will not be a forensic approach once people stay beneath the radar.”
And how will a person stay beneath that radar? Culloty says the calculator – which is “not ungenerous but nor is it excessively generous” – can help. “It gives people a bottom line and, once they stay below that figure, then I can’t see their expenses being examined forensically.”
Using the Mabs/VP calculator, people answer a series of questions about their household including whether it is urban or rural, whether there are children living in the home, whether the adults are working full- or part-time, and how much the mortgage or rent is.
A two-parent urban household with two children of primary school age where both parents are working full-time and paying a mortgage of €1,500 per month will need earnings of €51,285 after tax per year, according to the calculator. The weekly expenditure is put at just over €900. That may sound like a lot but a closer look reveals that this amount does not facilitate a lavish lifestyle.
It allows €119.57 for food, €27.98 for clothes, €20.61 for personal care, €22.42 for household goods, €15 for communications, €16.13 for education, €28.18 for savings and contingencies. Also included in the weekly spending breakdown are health costs of just €1.06, household goods of €22.42 and transport costs of €57.88. The cost of servicing a mortgage is €346.15, fuel is €39.95, personal costs, including union memberships are put at €7.83, childcare is €105.14, insurance is set at €4.03 while household services will cost €10.27. The cost of social inclusion is €82.54 a week. For four people.
A single person living alone and paying €750 in monthly rent, meanwhile, will need €22,717.76 after tax to cover their essential bills. The amount allocated for social life is €38.59 a week.
“People must have enough to live on and they have to take part in our society and they have to be allowed to save for a rainy day. Remember these arrangements will be in place for a very long time for some people and, while I may not have to buy a new pair of shoes this year, I will need a pair next year so allowances for discretionary spending will always have to be there,” Culloty says.
“You may decide not to go out and to instead spend your money on Sky Sports if that is the judgment you want to make. There has to be a degree of flexibility and common sense shown by the banks and, if there isn’t, the arrangements simply will not work.”
Culloty repeatedly stresses the need for common sense and warns that a one-size-fits-all policy will not work. “If you say you want to go to Spain for three weeks every year, then that is obviously going to come under the spotlight with your creditors but if you want to go on a diet or spend less on your groceries for four months so you can afford to go abroad for a holiday, then who are the banks to say you can’t do that,” he says.
“And how would they police it? They are not going to be following people around watching what they are putting into their shopping trolleys. Some of the discussion . . . around this has been a bit mad and it is not helping .”