Tax credits and benefits play a crucial role in preventing in-work poverty

New research published by the Trades Union Congress (TUC) today (14 February)) shows that tax credits and benefits play a crucial role in lifting low-paid workers out of poverty.

More than five million workers across the UK earn less than the living wage (£8.80 in London and £7.65 in the rest of the UK). The TUC says that their pay needs to increase as growth returns, and that every employer who can afford it should adopt the living wage as a minimum.

But analysis by economist Howard Reed for the TUC shows that low-paid workers need both decent pay rises and help from tax credits and benefits if they are to make ends meet.

Low-paid families with children are in particular need of tax credit and benefit help as their extra outgoings are unlikely to be met by the living wage alone. With most welfare cuts hitting people in work, the TUC is warning that the fight against in-work poverty needs both better pay and decent benefits to succeed. Even with pay rises, low earning households need benefits to survive.

The TUC research features a range of fictional households to show the importance of wages, in-work benefits and tax credits. It also shows that further increases in the personal income tax allowance will have limited impact for many low-wage households (as they only pay income tax on a small proportion of their earnings, if at all) and that in-work benefits are a far more important was to increase the incomes of low earning families than tax cuts:


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