Low income households 'worse off until 2020'

Tax credit changes have caused the issues

Updated: 

Low income households 'worse off until 2020'

Low income households will be worse off every year until 2020 as wage rises will be "wiped out" by changes to tax credits, according to a new report.

A study by Unison found that many families face a loss of income next spring despite the launch of the Government's new national living wage of £7.20 an hour.

Changes to the tax credits threshold mean that families will be hundreds of pounds worse off, the union said in a report, How A Pay Rise Becomes An Income Cut.

A family with two children with both adults working 35 hours a week on the minimum wage will lose £1,615 a year, rather than being £850 better off if no changes were made to tax credits next April, it was estimated.

Unison added that a one-child family with one earner on the minimum wage will be worse off every year for the next five years.

General secretary Dave Prentis said: "The lowest paid have been led to believe they'll be better off next April when the minimum wage goes up and they get a pay rise. But as the Government gives with one hand, it snatches away with the other.

"At first glance low-paid workers might look quids in, but on closer inspection the Chancellor is really rewarding them with an income cut. Many workers on the minimum wage will lose out as a result of the plans. It is dishonest for ministers to claim that people will be better off. They won't.

"Any gain to families from the enhanced minimum wage and a higher personal tax allowance is going straight back to the Treasury through the changes to tax credits.

"The Chancellor's pay con-trick will create chaos to household finances and plunge more families into poverty."

A separate study by the TUC found that in some parts of the UK, more than three out of four part-time women workers earn less than the living wage.

General Secretary Frances O'Grady said: "Working part-time shouldn't mean poverty pay, but for millions of women that is the reality.

"The living wage was created to provide workers with a basic standard of living. However, many part-time women earn well below this each hour and now face being hit by the Chancellor's cuts to tax credits which will wipe out any gains from his new minimum wage premium.

"Our labour market is failing to deliver for women across the UK. Those looking to work part-time or on a flexible basis are too often restricted to low-level and low-paid positions that do not make the most of their skills."

A Government spokesperson said: "These figures take no account of the Government's higher wage, lower tax and lower welfare policy unveiled at the Summer Budget.

"The independent OBR (Office for Budget Responsibility) expects that the new national living wage will benefit up to 2.7 million people directly, with up to six million seeing their pay rise as the knock-on effects are felt higher up the earnings scale, and the further increases to the personal allowance next year will help make work pay by enabling people to keep more of the money they earn by paying less income tax.

"From next April, people will be able to earn £11,000 before they pay any tax, and by 2020 the Chancellor is committed to increasing that further to £12,500.

"This means that by 2017-18, 660,000 lower earners will pay no income tax."

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