Low Income Households 'Worse Off Until 2020'

2 September 2015, 07:15

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.''