GEORGE Osborne’s changes to taxes and benefits will leave millions of families worse off, despite the new so-called National Living Wage. And it is the poorest who will be hit the hardest.
The analysis of Osborne’s Budget by the Institute for Fiscal Studies (ISF) says changes to taxes, tax credits and benefits will reduce household incomes “significantly”. Those who will be hurt the most, the IFS claims, are those “towards the bottom of the income distribution”.
Osborne’s National Living Wage (NLW), which sees the minimum an over-25 can be paid increased to £7.20, will only benefit one-quarter of those who lose out because of the tax and benefit changes.
Yesterday, the SNP said the research proved Osborne’s Budget in June was a “con-trick”.
The IFS says its research shows that in households where one person is in paid work, those eligible for benefits and tax credits will lose “an average of £750 per year”. The gain to these households of the NLW will be just £200 per year. They will, in effect, be £550 worse off per year.
Only around 13 per cent of money lost because of tax and benefit changes to all working-age households will be offset by the NLW.
The IFS also points to research by the Office for Budget Responsibility suggesting new the NLW could depress GDP and employment.
William Elming, a research economist at the IFS and co-author of the briefing note, said: “The new ‘National Living Wage’ will only offer partial compensation to working-age households who will see their incomes fall as a result of tax and benefit changes announced for the current Parliament. There may be strong arguments for introducing the new NLW, such as increasing earnings and the incentives to work for the low paid.
“However, the new NLW cannot be considered a direct substitute for benefits and tax credits aimed at lower-income households.
“The wage increases are not as large as the benefit cuts. And it is not targeted at the same group who lose from the cuts.”
Earlier in the week a report by the Joseph Rowntree Foundation claimed low-income families and lone parents will fall even further into poverty by 2020 because of Osborne’s changes.
Commenting for the SNP MSP Gordon MacDonald said: “The new analysis is yet more evidence that the Tories' ‘Living Wage’ con-trick is just cover for a further attack on social security. We now know that the increase to the minimum wage will make up less than one-third of the income lost to people in work from cuts to benefits.
“Unlike the Tory Government, the Scottish Government is promoting the real Living Wage – independently assessed to ensure that people can maintain a decent standard of living. More than 300 Scottish-based employers are now accredited Living Wage employers, including the Scottish Government themselves.
“It is clear that this heartless UK Government has little concern for the incomes of the lowest paid and that we need further powers over social security, the economy and employment policy devolved to the Scottish Parliament so we can better use them to tackle poverty and inequality."
The NLW also came under attack from businesses yesterday.
Retailer Next said it may have to increases prices to compensate for paying its staff more.
Lord Wolfson, chief executive, claimed prices would rise one per cent between 2016 and 2020. The comments came as Next revealed half-year pre-tax profits of £347 million.
Earlier this week, Whitbread, which owns a number of high street chains, including Costa, said it too would have to increase prices.
Speaking at an event at King’s College London to mark the CBI’s 50th anniversary, director-general John Cridland criticised the wage: “A £7.20 national living wage in 2016 and a £9 national living wage by 2020 are laudable objectives, but they are a gamble.
But wages can only grow as businesses grow. A £7.20 National Living Wage in 2016 and a £9 National Living Wage by 2020 are laudable objectives, but they are a gamble.
“They depend on organic productivity improvements. And we should be careful what we wish for.
“Our jobs-rich recovery is a success which depends on entry-level jobs and progression routes on our high streets and in our leisure sector.”
Brian Strutton, GMB national secretary, said the CBI was “crying wolf". He said: “This troupe of private-sector companies bleating about having to pay a fairer wage to their staff is reminiscent of their predictions of Armageddon when the national minimum wage was first introduced 1999.
“They predicted there would be very substantial job losses. The number of jobs has actually grown by 3.9 million jobs since then.
“The CBI has a track record of exaggeration and they are exaggerating now on a living wage.”
The National View: Scepticism over the Chancellor’s Living Wage proves to be well founded
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