“The government is accepting [the Low Pay Commission’s] recommendation to increase the National Living Wage next year by 6.6 per cent, to £9.50 an hour. For a full-time worker, that’s a pay rise worth over £1,000.”
That was the claim from the Chancellor Rishi Sunak at this week’s Budget.
It’s true that the National Living Wage – the minimum pay for workers aged 23 and over – is set to rise to £9.50 an hour from April. For a full-time worker that means gross annual earnings will go up by more than £1,000.
But Mr Sunak’s claim is missing important context, without which it’s difficult to say what this change is actually “worth”.
As Paul Johnson, head of the independent Institute for Fiscal Studies (IFS), points out, the £1,000 figure doesn’t account for tax and national insurance contributions.
Once we do that, someone working full-time on the National Living Wage (who’s not on Universal Credit) can expect a rather more modest pay rise next year as a result of this policy – about £700.
And it’s even smaller for full-time workers on Universal Credit, for whom the IFS calculates the change is worth about £330 a year.
Another policy will help some Universal Credit claimants in work
While we’re talking about people on Universal Credit, we should acknowledge that today’s Budget contained a separate announcement that will make a big difference to some people receiving the benefit.
Workers on Universal Credit are subject to a “taper” – where the amount you receive in benefits goes down if you’re earning more through your job. (That’s why the National Living Wage rise is less generous for these workers than for others).
At the moment, the taper is set at 63 per cent: for every extra pound you earn, your Universal Credit benefits will be cut by 63p.
But Mr Sunak said today he’ll slash the taper to 55p, meaning workers get to keep more of their benefits.
For a full-time worker on Universal Credit, this policy is worth “an additional £1,000 per year or more (depending on precise circumstances)”, according to the IFS.
But hang on, isn’t that almost exactly replacing the £20-a-week uplift?
Well, not quite. If you’ve been following the news this autumn, you’ll know that ministers faced criticism from MPs on all sides after they brought the £20 uplift to an end. (The government has always said this was only a temporary boost for the duration of the pandemic).
But the crucial difference is that while the now-ended £20 uplift was for all claimants, this week’s taper announcement only benefits Universal Credit recipients who are working.
And the £1,000 figure only applies to someone working full-time on the National Living Wage, or someone earning the same amount by working fewer hours at a higher rate. (If they’re earning more than that, the benefit could be even greater than £1,000.)
Of the 5.8 million people on Universal Credit, only 40 per cent are in work, and only some of those will meet that earnings threshold. So that £1,000 boost will only apply to a minority of claimants.
Asked about the National Living Wage, the Treasury told FactCheck: “It is factually correct to say that workers on the National Living Wage will get a pay rise. From April 2022, workers on the NLW will see a further 6.6% pay rise, an above inflation increase, representing an increase to a full-time NLW worker’s annual gross earnings of over £1,000.”
They added: “This is an above inflation increase, and is consistent with the government’s ambitious plan for the NLW to reach 2/3rds of median earnings by 2024.”
Rishi Sunak said in this week’s Budget that the increase in the National Living Wage will give a full-time worker a “pay rise worth over £1,000”.
That’s true in terms of gross annual earnings, but once we account for tax and national insurance, the change (for those not on benefits) is worth more like £700, according to the independent IFS think tank. And for workers on Universal Credit, they calculate it’s about £330 a year.
The Chancellor also announced a policy that will boost the income of full-time workers on Universal Credit by a further £1,000, according to the IFS. This is separate to the National Living Wage rise and will only apply to the minority of Universal Credit claimants who are working and working full-time on the National Living Wage (or earning that amount).