Thousands of low-income households will be worse off next April when the increase in the minimum wage is more than wiped out by changes to tax credits, according to a new report from UNISON published today (Wednesday 2nd Sept 2015).
The analysis shows that many families face an income loss next spring, when what they were expecting was the pay rise that the Chancellor promised them in the July Budget. The report also shows that low-income households are set to be worse off every year until 2020.
The report – How a pay rise becomes an income cut – shows that although families will gain from increases in the minimum wage (to £7.20) and in the personal tax allowance next April, changes to the tax credits threshold and taper mean they will be many hundreds of pounds worse off.
The analysis shows that a family with two children with both adults (over 25) working 35 hours a week on the national minimum (NMW) wage is set to lose £1,615 a year. This household would have been £850 better off had there been no changes to tax credits next April.
Those under 25 will be hit hard as they won't benefit from the increase in the minimum wage to £7.20 an hour. A family with one child with one earner under the age of 25 on the NMW working 35 hours a week is set to lose £1,460, while the same family with one earner over 25 will be £1,277 worse off.
A lone parent (over 25) with two children, working 16 hours a week on the NMW is set to lose £445. They would have been £580 better off without next April's changes to tax credit.
The analysis also reveals that – on the basis of known government policy – a family with one earner (over 25) earning the minimum wage, working 35 hours a week with one child is set to be worse off every year for the next five years. Their income will be less in 2020 than it is now. Over the lifetime of this parliament, instead of being £5,352 better off, they will lose £3,759.
UNISON 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."
The changes to the tax credits threshold and taper will be laid before parliament sometime between September and January. UNISON is calling on MPs to oppose them.
How a pay rise becomes an income cut is part of a new UNISON campaign aimed at exposing the impact of the changes to tax credits on families.