9 Jul 2015

Minimum wage upgrade does not offset benefit cuts

The IFS has marked the chancellor’s homework and found it very wanting.

But it’s a complicated relationship: the IFS is like a powerless schools inspector and George Osborne remains the headmaster, whatever their report says.



Paul Johnson of the IFS said the tax changes were incoherent.

He described the living wage announcement (a term he refuses to grace the policy with himself because he believes it is a minimum wage plus policy and bears little relation to a living wage as it is understood) as a “gamble.”

He rubbished the Treasury claim that the lower paid would be better off as a result of the living wage change. He said it was undoubtedly the case that tax credit recipients in work will on average be worse off as a result of the budget changes.

The IFS says 13 million families will lose on average £260 a year; some 3 million will lose £1,000 a year.

The chancellor wanted you to come away with the impression that living wage changes would compensate for benefit changes. The IFS emphatically says they do not.

The IFS also drew attention to how yesterday’s changes reduce the work incentives which the government’s universal credit was supposed to be hard-wiring into the welfare system – something the Resolution Foundation also underlined today.

Elsewhere, as the think-tank glitterati sink their talons into the budget, Jonathan Portes at NIESR has said it was a budget for hard-working Poles who the evidence shows, he says, come here for wage rates, not benefit top-ups.

Not quite the government’s EU renegotiation line.

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2 reader comments

  1. Nick Stokes says:

    All smoke and mirrors. We should know by now that budgets always have a sting in their tail. It’s always the case that what we hear from a chancellor on budget day is never really what it seems once the budget changes have been analysed. All I can say is those who voted this lot in will I am sure regret doing so. I can foresee trouble on the streets before this Parliament ends. Those who are disadvantaged will continue to lose out, and may even be joined by those who work in the public sector who are set to receive just 1% pay increase for the next four years.

  2. Penny Sunaway says:

    The living wage of £9 by 2020 makes our village store business whilst at the moment profitable untenable due to wage cost increase of £14,000 a year so that’s us out of business and All staff out of a job, all labour intensive employers must be thinking the same, this will have a huge impact on the retail sector.

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