Posted: 08 July 2015

Summer budget: Condemning low-income working families to poverty?

Today the Government will announce measures to cut £12bn from the welfare budget. Rumoured to be amongst them is a cut to child tax credits, a vital form of support that helps families in the transition to work and lifts them out of poverty.

The Government will say we are moving into a ‘higher wage, lower tax and lower welfare’ society, yet this masks the growing number of children living in poverty in low-income working families -families that were all but forgotten in last week’s decision to abolish an income related measurement of child poverty.

The previous Government strongly supported dealing with low incomes for working families by increasing the minimum wage and raised the personal allowance for income tax (the amount before which you pay no income tax at all).  Yet what many low-income families find is that – even under the current system - any gain in pay or a rise in the personal tax allowance is taken away from them through deductions in their benefits and tax credits.

This condemns millions of children to living in in-work poverty.

4p for every £1 earned in work

A single mum working 30 hours a week moving from the current minimum wage to £8 per hour (the projected higher minimum wage by 2020) will see her weekly household income increase by just £1.83 a week. That means she will keep just 4p for every extra £1 earned. Increases to her salary mean that the family have lost support with their council tax, housing benefit and tax credits and will have to pay a higher amount of income tax.

Our graph illustrates household income at different hourly wage levels for a single mum with two children working 30 hours a week.

Moving on to the higher national minimum wage of £8 per hour means the family would lose over £40 a week in benefit entitlements that alongside paying more income tax means moving onto the higher national minimum wage will not move the family out of poverty. This is despite an increase of £45 in her gross pay.

Here's how weekly family income for a single mum with two children would change by moving from the current minimum wage (£6.50) to the projected minimum wage in 2020 (£8.00).

What can be done?

Ensuring that children living in working families are supported out of poverty should be a key priority for this new government in today’s Summer Budget. 

We’re calling on the Government to put in place a ‘triple lock’ to protect children living in poverty – guaranteeing that the uprating of child benefit and child tax credit in line with inflation, earnings or by 2.5% - whichever is the highest. This change would lead to an estimated 280,000 fewer children living in relative income poverty and 310,000 fewer in absolute poverty than under the Government’s current policy.

Alongside a ‘triple lock’ to protect children the introduction of Universal Credit provides an opportunity to lift children out of poverty. To do this the work allowance within Universal Credit – the amount that a family can earn before additional earnings start to affect their benefit entitlement - needs to rise in line with whichever is the higher of: earnings, inflation or with increases in personal tax allowance. 

More information

Download our briefing document.

By Lucy Capron - Policy team