The UK Government has been urged to reverse cuts to Universal Credit to allow working people to keep more of what they earn each month, or risk reneging on its promise to “make work pay”.
Chancellor Philip Hammond is expected to announce an increase to the minimum wage, now the so-called ‘National Living Wage’, in his budget statement later this month.
But Unison warns that low-income workers are unlikely to feel any benefits unless the Chancellor also increases Universal Credit work allowances, which is the monthly amount employees on universal credit get to keep before their benefits are reduced.
As Universal Credit currently stands, payments are cut by 63p for every £1 a person earns. This is once an employee’s monthly net income (after tax and national insurance) has reached the monthly work allowance (currently zero a month, £198 a month or £409 a month depending on circumstances).
Unison says that failure to take action would mean that a worker on the minimum wage getting a £100 a month rise from the minimum wage increase would see £20 rise in tax, a £12 increase in national insurance, and a £42.84 cut in universal credit.
In effect, they would receive just £25.16 of their £100 a month increase, with the remainder going into Treasury coffers.
According to Unison, couples with children and housing costs receiving Universal Credit have seen their minimum wage pay increase by £2,420.60 from April 2015, but have only received £705.60 of that rise. This is based on one earner on the national minimum wage working 35 hours a week.
Unison general secretary Dave Prentis said: “Philip Hammond needs to reinstate the previous chancellor’s cuts.
“Workers won’t actually see the benefit of any pay rise unless the work allowance goes up at the same time as the minimum wage.
“The Budget is the chancellor’s chance to make amends, otherwise the government cannot claim to be making work pay.
“Universal credit shouldn’t be causing poverty and hardship for families, but that’s exactly what’s happening everywhere the scheme has been rolled out.
“If the chancellor wants to help the poorest, he needs to prioritise increasing work allowances over tax cuts in his Budget.”
Universal Credit merges six benefits and tax credits, including Housing Benefit and Jobseeker’s Allowance, into one single monthly payment.