“It’s a good news story that low paid workers will see a decent pay increase, but it’s quite a separate question to a universal credit cut and in no way should be seen as a compensation for it”
Ahead of the chancellor delivering his budget this week, the Treasury has confirmed that workers on the minimum wage are set to get a pay boost from April.
The rate for those aged over 23 will be rising to £9.50 an hour from £8.91. The government says that the 6.6% increase in the minimum pay rate for those aged over 23 – known as the National Living Wage, means a full-time worker will get £1,074 extra a year before tax.
The government had earlier this month announced that it would withdraw the £20-a-week increase to universal credit, brought in to support those on low incomes during the pandemic, meaning that 4.4 million households, with 5.1m adults and 3.5m children, will see their incomes fall by £1,000 overnight.
Some had claimed that the boost to the National Living Wage would replace the cut to universal credit, yet we spoke to economist Nye Cominetti, at the Resolution Foundation to take a closer look at why this isn’t the case.
Nye said plans for an increase to wages was welcome news given that low-paid workers had been hardest hit during the pandemic but that ‘the problematic area is in drawing comparisons with the universal credit cut.”
One of the reasons why the rise in the National Living Wage won’t offset the cut to universal credit is because while the wage rise is happening in April, the universal credit cut is happening right now, meaning there is nothing to replace the immediate loss of income facing some of the lowest paid families.
Nye added: “Second of all, we’re talking about quite different groups. 6 million adults on universal credit, 4 million aren’t working, so you can’t raise the wages of people who aren’t working and then thirdly, the group of universal credit claimants who are working some of whom may be minimum wage earners or they could be earning more but working low hours, some of them are going to be min wage earners.
“If you’re on universal credit and your gross pay goes up by £1000 a year, which is roughly what will happen after this rise, your take home pay is going to go up by much less. It’s more like £265 and that is because you will pay some of that increase in tax and national insurance and the more importantly because of the taper in universal credit”. (The Taper Rate is the rate at which your maximum Universal Credit award is reduced as your earnings increase. A Taper Rate of 63% means losing 63p of your maximum Universal Credit award for every £1 you earn over your Work Allowance.)”
Inflation is also predicted to be over 4 per cent by April 2022, meaning the real rise in wages is likely to be yet smaller.
“It’s a good news story that low paid workers will see a decent pay increase, but it’s quite a separate question to a universal credit cut and in no way should be seen as a compensation for it”, said Nye.
Basit Mahmood is editor of Left Foot Forward
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