Politics & Policies

Welfare, Universal Credit and Wages in UK – Minimum wage not as effective as transfer payments at alleviating income poverty

Duncan Smith’s resignation letter (a former British Cabinet Minister) laid this divide bare:

 “There has been too much emphasis on money saving exercises and not enough awareness from the Treasury, in particular, that the government’s vision of a new welfare-to-work system could not be repeatedly salami-sliced.”

In typically dramatic fashion, last year Osborne jacked up the national minimum wage from £6.50 to £7.20 an hour, with built-in rises lifting the floor to £9 by 2020. Osborne’s vision is to move “from a low wage, high tax, high welfare economy; to a higher wage, lower tax, lower welfare country.

”Sounds good, doesn’t it? But it is wildly unrealistic to think that a higher minimum wage can be as effective as transfer payments at alleviating income poverty, not least because it is inevitably weakly targeted on the poorest. The combined effects of the higher minimum wage and changes to the UK tax and benefit system, analyzed by the Resolution Foundation, shows that for households in the bottom half of the distribution, the effects of cuts to benefits will far outweigh the uplift from higher wages and reduced tax rates.

Chosen excerpts by Job Market Monitor. Read the whole story at  Note to conservatives: The market alone cannot banish poverty | Brookings Institution

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