Swings and roundabouts? Does the increase in the minimum wage make up for the universal credit cut? | CPAG

Swings and roundabouts? Does the increase in the minimum wage make up for the universal credit cut?

Published on: 
26 October 2021
Written by: 

Hannah Aldridge

Senior policy and research officer

The government talks about increasing the minimum wage to ensure work pays. It also positions the increase to £9.50 an hour from April as making up for the cut to universal credit (UC). But to what extent will the increase help families reeling from the cut?

It certainly doesn’t help the 1.2 million people claiming UC who are not expected to work because of a health problem or disability, or because of their caring responsibilities. Nor does it help the additional 370,000 claimants who can’t currently work but are preparing for future employment. Making sure people gain more financially from work won’t help those who can’t feasibly accept a job offer in the first place.

Then there are the people already in work. How much would someone earning the minimum wage gain from this pay rise in April? If they’re on UC, the answer is not nearly as much as they lost from the £20 cut. A single parent working three days a week in a minimum wage job lost £86 a month in October when UC was cut. In April, her net pay will increase by £47.25 a month but the higher wages will trigger a fall in her UC by £29.77. The minimum wage increase only makes her £17.48 per week better off overall, so she’s still £69.19 worse off than before the cut. Even with the higher minimum wage, she needs to find nine more hours of work a week simply to reverse the UC cut, and that’s before accounting for the rising cost of living.

Increasing the minimum wage is a good thing for minimum wage workers. But not all low-income families are able to work, not all working families on UC are in minimum wage jobs, and those families who do fall into both camps lose 63 per cent of any wage increase as UC is tapered away. Simply put, the minimum wage increase doesn’t begin to make up for the losses families have faced because of the £20 cut to UC.