Minimum wage increase will not offset end of universal credit uplift for struggling families, experts warn

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The inflation-busting increase of the minimum wage to £9.50 an hour does not offset cuts to welfare relied on by low-income earners, experts have warned.

Full-time workers will get a £1000-a-year pay rise from April through the introduction of a 6.6 per cent increase to the National Living Wage (NLW), the Treasury said.

The National Minimum Wage (NMW), which applies to 22-year-olds and younger, will increase at different rates – with 21 and 22-years-olds’ salaries rising from £8.36 to £9.18 and apprentices enjoying an almost 12 per cent increase from £4.30 to £4.81.

Younger workers who are not apprentices will see a smaller wage hike of 4.1 per cent.

Chancellor Rishi Sunak, who is due to confirm the increase in his Budget and Spending Review on Wednesday, said the decision ties in with the Government’s commitment to “make work pay”.

Economists said the 6.6 per cent figure, which is more than double the current rise in the cost of living, boosts plans for a high-wage economy.

Minimum wage increase will not offset end of universal credit uplift for struggling families, experts warn
© Provided by The i How will wages change after April 2022? (Source: HMTreasury)

There was concern that hiking wages further would be unaffordable for businesses already facing higher National Insurance Contributions and force up inflation.

Experts argued, however, that the increase will be swallowed up by higher taxes, cuts to Universal Credit and rising living costs among the lowest earners.

The Institute of Fiscal Studies (IFS) estimated minimum wage workers relying on welfare support will see their disposable income go up by just £250 a year when both the National Insurance hike and end of the £20 universal credit uplift are taken into account.

Most NLW earners who also receive universal credit will lose over 60 per cent of any rise in wages due to the way the benefit tapers out as earnings increase.

This is before cost of living increases this winter are factored in – or the issue that the wage increase will not come in for another five months.

Minimum wage increase will not offset end of universal credit uplift for struggling families, experts warn
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IFS economist Tom Waters said the additional £1000-a-year does not offset the £1000 lost by those no longer in receipt of the universal credit uplift because NLW workers are often living in middle-income households.

In addition, the number of families estimated to have lost out from the benefit cut (4.4m) is more than double the 2m workers on the NLW.

Nye Cominetti, economist at the progressive Resolution Foundation think tank said: “A rise in the National Living Wage to £9.50 would be very welcome – especially given that low earners have been the hardest hit by the crisis, both by job loss and reduced hours, and through the direct health consequences of Covid-19.

“However, the high headline increase would in fact be a smaller real rise than some recent years, given that inflation is likely to be over 4 per cent by April 2022.

“Importantly, a NLW rise will not remotely compensate for the £20 a week cut to universal credit,” she added. “With the UC cut having already hit incomes hard, and the NLW rise over five months’ away, there will be little protection for low income families from the cost of living crisis facing them this winter.”

The Bright Blue think tank said it was “right to want to build a high-wage economy” but warned increasing wages “should be cautious and gradual as the economy recovers to avoid a negative impact on jobs and prices”.

“Taking the lead from the Low Pay Commission will help to maintain a political consensus on the wage floor,” a spokesperson said.

“For those on Universal Credit, however, the increase will not offset the removal of the uplift. For them, this is one step forward, but two steps back.”

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