Tax and Benefit Reforms Threaten Inflation-Busting Minimum Wage Hike

Britain's business secretary Vince Cable's big reveal that the Low Pay Commission has suggested a rise in the national minimum wage by 19p from £6.31 to £6.50 is not to be sniffed at.

It's the first above-inflation increase in six years –albeit a considerable way off the £7.00 mooted by the Chancellor.

However, because of interactions with other tax and benefit changes, it's unlikely to make a serious dent in the levels of in-work poverty that have been on the up for several decades.

The rise follows a period of sustained deterioration in living standards, with the proportion of people living in households who do not reach a minimum standard of living (as defined by the public) increasing by a fifth between 2009 and 2012.

The shortfall among singles under 35 grew even faster, with over four in ten falling below this standard in 2012.

The apprentice rate of the NMW only rising by 2% rather than 3% is further indication of a continuation in the grim prospects for younger people's living standards.

In general, few families of any age can expect to reach an adequate living standard as a result of having just one person working full-time on the NMW.

Even though this year's suggestion would put it above the current inflation rate, the cost of living at the bottom has been going up even faster than general prices.

From 2012 to 2013, Consumer Price Inflation (CPI) rose by 2.4% but the total cost of a minimum living standard rose by 4.4%.

This is compounded by the interactions of pay with income tax and in-work benefits – two topics currently outside the formal remit of the LPC.

So, even though some workers may be paying less tax as the basic threshold rises, they are likely to be losing out in real terms from cuts and freezes in-work benefits such as Tax Credits, Child Benefit, Housing Benefit and Council Tax Support.

This is why we need a co-ordinated approach on wage and income-related policy, so that the left-hand knows what the right-hand is doing and preventing the even worse: government giving with one hand and taking away with the other.

Chris Goulden is head of poverty research at the thinktank the Joseph Rowntree Foundation