Increasing the minimum wage saves billions in ‘welfare!’

The higher the minimum wage level the greater the welfare bill falls!

Yes you read that correctly and the lower the minimum wage the more the UK tax payer pays out in welfare to subsidise low paid jobs.  If you increase the minimum wage the country spends far lesson working tax credit and housing benefit.

WTC and HB are in reality subsidies to low wage paying employers as earn enough in wages and you don’t qualify for WTC or HB; both of these ‘benefits’ have risen sharply with for example the amount of housing benefit paid to those in work has more than tripled from £1.6 billion in November 2008 to £5.3 billion in November 2016 and we spend out £3 on working tax credit for every £1 spent on JSA, i.e. dole!

Housing Benefit like Working Tax Credit enables UK employers to peg wage levels at or near national minimum wage levels in full knowledge that the government will subsidise workers income with welfare and particularly HB and WTC.

It follows – and again the (pesky) facts prove the point – that if the minimum wage increases which the Tories have pledged at £9 per hour and Corbyn at £10 per hour, both by 2020, then the amount paid out in HB and WTC falls dramatically.  In short the higher the wage the less the welfare cost!

I’ve just crunched some numbers as is my want and the couple with 3 or 4 children moving from today’s minimum wage to a £10 minimum wage would receive £1000 per year less in Housing Benefit and £1400 per year less in Working Tax Credit – so there’s a £2,400 reduction in the welfare bill alone and in the lowest cost social housing, it is much more if the low paid household lives in the private rented sector.

This is based on the minimum 24 hours per week to claim WTC and to avoid the overall benefit cap.

They would even be paying income tax and national insurance when now they don’t on today’s minimum wage so the exchequer would also get around £12 per week more in revenue and a further £9 or so per week in employers NI that they don’t get now.    That’s another £1000 per year win for the exchequer and so moving to a £10 per hour minimum wage and just at 24 hours per week is a net benefit to the government welfare bill of £3,400 – £3,500 per household per year.

With over 1.1 million in-work households getting housing benefit the yearly savings to the HB bill alone could easily reach £2 billion per year (plus the added tax take!)

Yet, surprise, surprise, within an hour of Corbyn pledging the £10 per hour minimum wage, the right wing think tank the IEA say this will paralyse the country blah, blah, blah and the usual scaremongering of what this will do for employers … which surprise, surprise, did not spew forth when Osborne announced the £9 per hour minimum wage a few years ago or at any time since then!

This deliberate political sophistry is just one of the truly perverse and overtly political aspects of the UK welfare system and there is blatant hypocrisy in how the British people view ‘welfare’ and an article in the Observer  on Sunday epitomises this as it stupidly focused on the symptom and not the cause of the latest craze, the just about managing or JAM households and the problems they face.

Valerie Wolfkamp knows all too well how the government’s austerity drive threatens her ability to keep a roof over her head.
The holder of three degrees, she lives in a three-bedroom house with her five-year-old son and 18-month-old twin boys and works part time in Bristol University library, earning around £600 a month after tax. Along with around 500,000 working people in Britain, and 1.2 million people in total, she relies on benefits to help her meet her rent, paid to a private landlord.
“My housing benefit is roughly £700 a month and my rent is £925 a month, so to make up the shortfall I have to rely on tax credits or my salary, which after paying for essentials doesn’t come to much,” she explains.

Here we have the lone parent who works part-time yet receives over £24,000 per year in ‘welfare’ in addition to her wages but is not vilified and is a deserving case according to the Observer because she works at least 16 hours per week.

I’ll say that again this (deserving?) household gets £24,000 per year in welfare in addition to her wages and far more than the out-of-work household gets in welfare!

If she did not work the public would be outraged that she gets £20,000 per year in welfare and she would be vilified and told to get off her lazy backside and work.

Vox populi do not realise that in work she would get significantly more in welfare – tax credits, child benefit and social security benefits including housing benefit – and pay nothing in Income Tax or National Insurance.

If out of work she would ALSO be told to go and live somewhere cheaper and especially if she dared moan that her housing benefit had been cut by nearly £90 per week or close to £400 pcm which would be the case if she was not working due to the overall benefit cap.  Even if she was a social housing tenant with a cut of around £30 per week of £130 or so per month she would attract little sympathy and the general public would perceive the benefit cap policy as being fair!

Yet because she works part-time on a very low income (and pays no tax or nat. ins.) the lone parent is portrayed as worthy and deserving of the £24,000 or so per year she gets in welfare!

Note well that this tenant is NOT caught by any of the recent welfare changes to benefits or tax credits and the Observer use her case to illustrate that LHA has not kept pace with rising private rent levels.

The in most part ignorance of how the welfare benefit system works will continue to see the general public (and journalists) continue with this hypocrisy over the deserving / undeserving stance as illustrated by the self-defeating human interest story strategy they use.  Judging any policy or the entire welfare system with this human interest story approach that the media loves is crass stupidity.  As much as the Observer wish to portray Valerie above as a deserving case and thus any policy is unfair, the rest of the media will find the public-perceived undeserving case such as the BBC Panorama programme did this week over the benefit cap!

As I said here all of the examples in the BBC Panorama programme would get huge amounts MORE in welfare if they did take up 16 hours work at minimum wage as a lone parent (24 if a couple) and as much as £17,000 per year MORE in welfare.

Would the vilified cases that the Panorama programme chose to display as scroungers getting £20,000 per year in ‘welfare’ suddenly become deserving if they did work and then get £37,000 per year in welfare and on top of their wage income?

Clearly not!

The typical vox populi view of ‘welfare” is that it is the sole preserve of the scrounger, the layabout, the Benefit Street and BBC Panorama poverty porn stereotype, which while salving the predetermined ire of the workforce does so in huge error of who actually gets welfare (those in work) and why they get it (to subsidise low paying UK employers).

The dole (JSA) costs £3 billion per year yet working tax credits cost more than triple that amount at around £9 billion per year of the total tax credits of £28 billion per year (child tax credits paid to those in and out of work while WTC only paid to those in employment.)

For every £1 paid out in dole the government gives those in work £3 in benefit through Working Tax Credits.

Yet the benefit recipient is always the scrounger, always out of work, always sitting at home watching Jeremy Kyle with the curtain closed blah blah blah when the reality and the fact is that huge amounts of welfare goes to those in work to subsidise low wage paying UK employers.

I repeat where I began – the higher the minimum wage level the greater the welfare bill falls.

Facts as I keep repeating are downright pesky!

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10 thoughts on “Increasing the minimum wage saves billions in ‘welfare!’

  1. What hasn’t been mentioned here us how increasing the “living” wage makes no difference to the disposable income of those families who have to claim Housing Benefit/Council Tax Reduction to keep a roof over their head! For those unaware of this, it works thus: Anyone receiving benefits – and HB is of course a benefit – is subject to the constraints of “the amount the Govt says you need to live on”. In other words if they earn more than this set amount (£73.10pw for a single person) then a corresponding sum is taken from the benefit. In the case of HB, for every £1 earned over the threshold 65p is deducted, and 20p per £1 for CTR. So the result is that every £1 earned ends up as a mere 15p in the pocket of the worker. All the fanfare of increasing the lot of the low waged rings hollow in reality. The only way to escape from this vicious circle is if by some miracle one’s earnings increased to such a degree that the full rent and council tax plus living expenses can be covered in full. Highly unlikely. And so the worker is kept at subsistence level regardless of the increase to the minimum wage.

    1. No.

      A few have said this believing it to be correct but it is not as the figures reveal for the couple with 3 children example I use to illustrate above:

      (a) they will get £27 pw less in WTC but £17 pw more in HB for a net loss of £10, and pay £10 more pw in tax and NI to be £20 pw worse off
      (b) they will get£55 pw more in wage income per week
      Thus be £35 per week better off overall.

  2. It is one of the quirks of the benefit system that applies with a couple working the minimum 24 hours at minimum wage to qualify for working tax credit – and run any independent benefit checker to see the figure.

    If one member of a couple was working say 37 hours per week at the now minimum wage which then increased to £10 per hour then both the WTC and HB would reduce giving the overall welfare saving yet the increase in wages would more than offset this and make that household better off overall.

  3. We’re going to have to agree to disagree on this one! My experience is that if all circumstances remain the same except for an increase in hourly rate, then the amount the family needs to live on (sic) wouldn’t change, would it? So the extra income over and above the earnings threshold would be “taxed”, as it were, by the reduction in HB/CTR at a combined
    rate of 85p in the £. A saving to the welfare bill but a very small (15p per hr) increase in disposable income for the worker/claimant. I have been stuck in this system myself for the past 20+ years!

    1. Use any online calculator and it will confirm what I say as being fact however absurd it may read.
      Essentially what explains the above is as less is paid in WTC the less is deducted from HB

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