Thomas Stephens explains how the Coalition are doing nothing to address poverty wages while hurting non-dependants hard
Tom Stephens, a Labour campaigner, explains how the Coalition are doing nothing to address poverty wages while hurting non-dependants hard
There’s been much uproar in the press this past week over the increasing proportion of our young workforce forced to work on poverty wages. It turns out that the Coalition, by refusing to increase the minimum wage or invest in young workers’ skills, has contributed to a situation in which almost one-third of 21-30 year-olds – up from one-in-ten in the 1975 – are now low-paid.
But more than just being indirectly complicit in depressing the wages of our workforce, I want to highlight how – through one single, drastically under-reported measure – the Tories and Lib Dems have directly and intentionally depressed the real earnings of one particular chunk of the British workforce, many of them young.
They have done this by enacting changes in the amount the Government withdraws in benefits from households which have a so-called “non-dependant” living with them.
Put simply, a non-dependant is a friend, child or other relative (not a spouse), over the age of 18, who lives in the same house as you do. Lodgers, tenants and co-resident carers don’t fall into this category.
The number of non-dependants who live in your house starts to matter if you happen to claim Housing Benefit. This is because, for every non-dependant living with you, the Government will reduce the benefit they give you to take account of the assumed contributions this person can make to your rent. Fortunately, these deductions are not applied if the non-dependant is aged under 25 and claiming JSA or IS (they do if they’re over 25 and claiming these), but they nevertheless levy a hefty penalty on households unlucky enough to fall victim to the policy.
Let’s be clear: households with non-dependants also had their benefit deducted under New Labour. The difference is that Labour – mindful of the burden these deductions imposed on families – froze them from 2001, meaning the real value of the deduction depreciated with inflation. However, when the Coalition came to power in 2010, they resolved to progressively increase these deductions, expressly endeavouring to make up the ground lost under Labour.
How much a household gets deducted depends on the non-dependant’s earnings and the hours they work (if they work less than 16 hours, they deduct the lowest rate). For 2014/15, most households can expect to be deducted any of the following six hefty lump sums, per non dependant, depending on the non-dependant’s gross weekly earnings:
These represent a remarkable (90%-plus) increase on the 2010/11 values under Labour – where the lowest deduction was £7.40 under Labour, now it’s £14.15; whilst highest-earners were deducted £47.75 under Labour, now they lose £91.15.
In most household situations, you would expect that every penny lost in benefits would have to be made-up by the non-dependant: they would be expected to make up the shortfall. Given this, I thus think it’s apposite to consider these deductions as an effective tax on the non-dependant’s earnings.
It’s only when seen from this perspective that the true effect of Coalition policy on these people becomes most apparent. In the graph below, making sure to adjust Labour’s bands (but not their rates) for inflation, I’ve plotted out these deductions as a percentage of the non-dependants’ gross weekly incomes (the green lines also mark out the proportion of non-dependants in four income scales):
The findings couldn’t be starker: under Labour, a non-dependant could expect to lose 5-15% of their income just making up for the benefits lost from their household. Under the Coalition, you can expect to lose 11%-30% of your income for the same purposes. To put this into perspective, that’s potentially more than the basic rate of tax of 20%, taxed on a non-dependant’s entire income.
To further flesh out the scale of this effective tax, it’s appropriate to consider it in tandem with a much-celebrated Coalition success: their policy of increasing the Personal Allowance – the amount you can take home in gross yearly earnings before you start paying tax – to £10,000. Again making sure to adjust Labour’s rates for inflation, I’ve modelled for this on the graph below, calculating a non-dependant’s net yearly income (minus tax and deductions) under both Labour and the Coalition:
Individuals can expect to take home as much as £500 a year extra in earnings under the Coalition’s Personal Allowance policy. But as the above graph shows, at no stage is that enough to make up for the money non-dependants lose just compensating for household benefits lost. All else held equal, whatever your income as a non-dependant, you’d have been better-off under Labour.
The Government place great emphasis on their policy of “lifting people out of tax”, which forms the central plank of a welfare policy which aims to incentivise people back into work by always making work pay.
Their policy towards non-dependants – which has seen them levy taxes of up to 30% on certain workers, all but eating up for the money these people have saved from the Personal Allowance policy – flies in the face of these aims, and deserves to be criticised just as vehemently as the Bedroom Tax and other Coalition measures.
As well as thanking the Coalition for doing nothing to address their poverty wages, non-dependants can also thank them for siphoning off an increasing amount of the paltry sum they do earn just making up for deductions in their household’s benefits.
A longer version of this article was published on the author’s blog on 27 August.
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