On this day in 2015, the Chancellor of the Exchequer in a newly elected Conservative Government dramatically announced a National Living Wage designed to ‘make work pay’, while easing the burden on the Exchequer by cutting state support for working families.
It’s been a very long five years since this grand plan was launched by George Osborne. But it’s worth reflecting on how things have worked out – not least because this story remains particularly relevant today, in a much-changed Britain.
The Tories have made good on their pledge at that time to increase minimum wages for over-25s by about a third within five years (it has risen from £6.50 to £8.72 an hour). But the wider plan turned out to be flawed. As I pointed out the day after the announcement, higher hourly pay will never make up for cuts in targeted support for low-income working families, whose incomes tend to be constrained more by the number of working hours than by hourly pay. A major backbench Tory revolt in autumn 2015 caused Mr. Osborne to cancel some of the cuts, but not the freeze in benefits, tax credits and Universal Credit, which continued to undermine the value of working incomes.
But this year, not only has the freeze ended, but Working Tax Credit and Universal Credit rates have risen (temporarily) by £1000 a year more than inflation, in response to the coronavirus crisis. Coinciding with a 6% increase in the National Living Wage, this raises the net income for a family with parents working on low pay considerably, as long as they maintain their previous working hours (of which more later). Where does this leave the adequacy of working incomes, relative to family needs?
Coincidentally, today we are also launching the 2020 results of our Minimum Income Standard, with fresh research on what people require for an acceptable standard of living. While we have not yet been able to incorporate the new patterns of living seen since lockdown (which are in any case changing by the day), our research reflects how important it is for households to be able to afford to access to current technologies supporting their everyday lives, both for practical tasks and for social participation. The dawning of the age of Zoom, with remote working, remote schooling and remote socialising, has hugely reinforced these findings.
But another feature of our findings relates directly to the policy challenges of supporting working incomes in order to allow families to have decent lives. The Minimum Income Standard allows us to track whether people on minimum wages have enough to make ends meet. In 2008, when we started this research, tax credits got families almost to the MIS level, but by 2019, even helped by higher pay, they were falling well short. For example, a lone parent working full time to support two children had more than 20% less disposable income than they needed.
In 2020, for the first time in over a decade, state support for working families and minimum hourly pay are rising simultaneously. This has boosted working incomes so that it is now possible for the first time for a dual earner family, with a full-time and a part-time working parent, to have disposable income around the minimum level with the help of Universal Credit. Lone parents still fall short, but by only 8% if they work full time and get UC.
Of course, this does not mean that families are thriving: as mentioned earlier, the amount of work plays a greater role than pay rates, and many families are now out of work, or on shorter hours than six months ago. Nevertheless, Rishi Sunak has demonstrated something that George Osborne never accepted: that increases in state help can complement decent wages in raising the prospects of families with low earnings.
People like Marcus Rashford have helped shine a spotlight on the struggle faced by those on low incomes, and not just during the time of Covid. This highlighted the case for improved support for such families, on a permanent not just a temporary basis. In the months and years ahead, as Britain works to reduce its suddenly high rates of unemployment and underemployment, a renewed commitment to helping people whose incomes are falling short could become one of the benign legacies of 2020.