Earning more, but worse off

How can some families be worse off when they start to earn more?

It sounds like a trick question, but that’s what happens when low-income families stop being eligible for Free School Meals (FSMs). And because the National Living Wage (NLW) went up in April, this year even more families will be locked out of essential FSM support.

In England, all children in government-funded schools get FSMs up to year 2. After this, a child can only get FSMs if their family receives certain means-tested benefits. Families receiving Universal Credit (UC) have to earn less than £7,400 a year to be eligible for FSMs. This threshold is a cliff-edge: children in families earning anything at all above that can’t get FSMs.

In the autumn budget, the government announced an increase to the NLW of 6.7%. This very welcome increase boosted wages for millions of people when it came into effect in April this year. But in the benefits system, there are catches when the NLW rises. FSM eligibility is one of these catches: some families will be pushed over the £7,400 threshold when their wage increases, leaving them worse off when they lose access to FSMs for their children. A single parent of two children earning £7,399 and keeping their FSMs would be better off than earning up to £9,400 and losing FSMs.

Lisa* works, and is a single-parent to a 11 year old son, who has ADHD and dyspraxia. When Lisa got a pay rise, her son stopped being eligible for FSMs. The increase in Lisa’s earnings doesn’t cover the cost of needing to pay for her son’s school lunches. Lisa’s budget was already stretched because the Housing Element of Universal Credit doesn’t cover her rent. Lisa visited her local Citizens Advice for help because she was struggling to afford essentials. Our advisers can’t help Lisa access FSMs now she’s earning over the threshold, but are helping her get other support, including social tariffs and Disability Living Allowance (DLA), a benefit which could help her with the additional costs of her son’s disability.

Parents can save around £450–500 a year per child from receiving FSMs — but it’s important to remember that losing FSMs isn’t just about parents’ budgets. There’s evidence that FSMs can improve children’s attainment and health.

The cliff-edge that keeps getting closer

Falling foul off the Free School Meals (FSMs) cliff-edge isn’t a new problem — it’s an issue that’s been growing for years. When UC was first introduced, everyone eligible for UC was eligible for FSMs. Then in 2018 the £7,400 threshold was put in place, and it’s been frozen since then. This means every time the National Living Wage (NLW) rises, the threshold is harsher, with people breaching the threshold working fewer and fewer hours. In 2018, you could work around 18 hours per week at the NLW before earning over £7,400, but now £7,400 is equivalent to less than 12 hours’ work.

“Making work pay” must mean reforming Free School Meals

Around 70% of children whose families receive UC, who are by definition on a low-income, miss out on FSMs. In total, an estimated 900,000 school children living in poverty in England don’t qualify for FSMs. Where children live also determines whether they can get FSMs. In Wales, Scotland and Northern Ireland, FSM are either offered to all children for longer, or earnings thresholds are higher. Since 2023, FSMs have been expanded to all primary school pupils in London.

The government needs to prioritise fixing the FSM system so all children can get the support they need to thrive at school, and parents can progress in work without dealing with the consequences of losing FSM entitlement.

Fixing FSMs means looking at the frozen earnings threshold, but also at the other gaps in the system:

1. There should be auto-enrollment for FSMs. At the moment, even eligible children are missing out on support because their families face barriers applying for FSMs.
2. There needs to be a reliable, national source of FSM support during school holidays. Many local authorities use funds from the Household Support Fund (HSF) to deliver holiday FSMs. The HSF should be a crisis fund, used to help households facing financial emergencies, not cover essential costs like FSMs. And because the HSF only has short-term funding, families also can’t rely on holiday FSM support being provided through the fund in future.

At the moment, the low FSM threshold creates backwards choices for parents, where “getting on in work” can mean children missing out on FSMs. Unfreezing the eligibility threshold is the least the government should do to address this problem. To make real progress in supporting low-income families, the government should be more ambitious — returning to the original approach where all families on Universal Credit were eligible for FSMs.

If the government is serious about tackling child poverty, breaking down barriers to opportunity, and getting Britain working, reforming FSMs has to be on the menu.

* All names have been changed