Tax credits and benefits play a crucial role in lifting low-paid workers out of poverty, according to new research published by the TUC.
An analysis by economist Howard Reed for the TUC, based on a range of fictional households, shows that low-paid workers need both decent pay rises and help from tax credits and benefits if they are to make ends meet.
- More than five million workers across the UK earn less than the 'living wage' (£8.80 an hour in London and £7.65 in the rest of the UK).
- The research considers six case studies where working adults see their pay increase from below the living wage to the living wage rate. The research is based on the system as it is now, with reductions in tax credits up to financial year 2014-15 and increases in the personal allowance (currently £9,440 a year) taken into account.
- Although reducing income tax and raising wages are important changes that can help boost the incomes of those on low pay, working families with children who are living on low wages still need substantial support from the benefits system to make ends meet, even when they are paid at living wage rates.
- Those who see their disposable incomes rise the most from pay rises tend to be adults without children, or higher-income households with children where one adult is a low earner. This is because low-paid households with children will be receiving additional in-work tax credits, which taper off as their earnings rise.
TUC General Secretary Frances O’Grady said: 'The economic crash has led to the longest decline in living standards since the 1870s. Britain needs a pay rise but we must also defend and extend the in-work benefits that lift families – particularly those with children – out of poverty. The best way to make work pay is not only to spread the living wage, but also to reverse cuts in tax credits and make universal credit more generous for the working poor'.
Source: Raising Incomes for Low Paid Families: A TUC Analysis, Trades Union Congress
Links: Report | TUC press release