People on low incomes will be significantly worse off after changes to the minimum wage and tax credit and benefits system in George Osborne’s budget, it has been calculated.
The respected Institute for Fiscal Studies said the Chancellor’s higher minimum wage would come nowhere near to compensating for simultaneous cuts to tax credits, leaving people on low incomes worse off.
Mr Osborne renamed the National Minimum Wage the “National Living Wage” and raised it to £7.20, a figure actually below the independently calculated Living Wage rate.
But the higher minimum wage would only cover about a quarter of the cash cut from in-work tax credits, leaving low income households worse off in work.
“Among the 8.4 million working age households who are currently eligible for benefits or tax credits who do contain someone in paid work the average loss from the cuts to benefits and tax credits is £750 per year,” the IFS said in a research publication.
“Among this same group the average gain from the new NLW, is estimated at £200 per year (in a “better case” scenario). This suggests that those in paid work and eligible for benefits or tax credits are, on average, being compensated for 26 per cent of their losses from changes to taxes, tax credits and benefits through the new NLW.”
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In a rare qualitative assessment, the IFS warned that the higher wage could not replace tax credits and benefits as a way of alleviating poverty.
“There may be strong arguments for introducing the new NLW, but it should not be considered a direct substitute for benefits and tax credits aimed at lower income households,” it explained.
Mr Osborne said at the time of the wage’s announcement that it would provide people with “financial security”.
The cuts to tax credits and other benefits are part of a drive to make £12bn welfare cuts.
