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15 June 2018

Why the National Living Wage has made little difference to the poorest

A new IFS report shows that welfare cuts and higher taxes have suppressed living standards. 

By George Eaton

There are few policies that Conservatives enjoy lauding more than the National Living Wage. The rebranded minimum wage is cited as proof that the Tories, not Labour, are the “workers’ party”.

But today’s Institute for Fiscal Studies report shows that the gains have been more limited than such rhetoric suggests. Though the minimum wage for over-25s has risen from £6.70 an hour in 2016 to £7.83, the living standards of the lowest-paid fifth of employees rose by just 0.4 per cent from 2016-17 (owing to welfare cuts and higher taxes).The earnings of low-paid employees are, on average, only 32 per cent, of their total household income.

And though Theresa May broke with austerity in rhetoric, she did not in reality. The freeze in working age benefits, for instance, is due to be maintained until at least 2020. Once all welfare cuts are taken into account, family incomes are due to fall by as much as £3,000 a year. As egalitarians always warned, the increase in the minimum wage would never compensate for George Osborne’s tax credit cuts.

The findings will reinforce pressure for a higher minimum wage (Labour has promised a “real living wage” of £10 an hour for all over-16s by 2020). But they will also draw attention to ongoing austerity. To the disappointment of many, the last Labour manifesto pledged neither to abolish the household benefit cap of £20,000 (£23,000 in London), nor to end the benefits freeze. But in an era of stagnant wage growth, only a more progressive social security system will guarantee higher living standards.

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