Budget 2021: Putting up wages is not enough to solve the cost of living crisis alone

Asia's Tech News Daily

Off the back of 18 months of economic hardship, and with bills and taxes on the up, the decision to increase the minimum wage by 6.6 per cent was welcomed by many.

In typical Johnson style, the announcement was peppered with “making work pay” buzzwords and phrases.

And, conveniently, the increase will equal the exact amount lost by recipients of the universal credit uplift: £1000 a year.

The Government may as well have just screamed from the rooftops of Whitehall that it wanted to be seen to have offset the impact of the end of the £20 a week payment through increasing wages for the lowest earners.

Very on-brand for the “plan for jobs”. But it is not quite that simple.

Budget 2021: Putting up wages is not enough to solve the cost of living crisis alone
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Many economists swiftly pointed out that replacing benefits for the most vulnerable with national wage increases is a very clumsy and inefficient strategy.

Not least because the majority of any pay rise for welfare recipients will be swallowed up by the oft-criticised universal credit taper system – which reduces payments as wages increase – combined with the increase to National Insurance Contributions around the corner.

The 6.6 per cent wage increase for those over 23-years-old is above inflation, but with cost of living increases expected to reach four per cent by the end of the year – before the pay rise is introduced – the effects will be waning before it’s even begun.

The Government is navigating a very narrow territory between wanting to keep wages rising and needing to avoid causing an economic disturbance by pushing up wages – and therefore inflation – too quickly.

It cannot allow incomes to stagnate as the price of bills and fuel soar but it must be honest about the fact that putting up wages alone is not enough to solve the cost of living crisis.

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