Poorer families ‘facing f ive years of hardship’

SINGLE-EARNER families on the minimum wage will be out of pocket for at least five years because of tax credit cuts, an independent report is warning.

Ministers insist the introduction of the new national living wage will offset reductions in tax credits for most low-income families.

But a study by the House of Commons Library suggests many f amilies on modest incomes will take years to claw back the money they lose.

Researchers for the Commons library, which has a duty to be impartial, looked at the finances of a single- earner couple with two children living on the minimum wage.

Assuming the family breadwinner works 35 hours a week, the f amily has a net i ncome of £21,699 a year. This includes net earnings of £11,402, tax credits totalling £8,504 and child benefit of £1,794. From April next year, the family’s tax credits will fall by £2,078, but net earnings will rise by just £700, leaving them almost £1,400 worse off.

Total family income does not recover to £21,700 until 2020, when the current minimum wage of £6.70 an hour reaches £9 an hour.

But the figures make no allowance for inflation, suggesting it could take even longer for real family incomes to recover if prices start to rise again.

The Treasury insists that most families will be better off once increases in the personal tax allowances and plans to double the amount of free childcare are factored in. But the Commons library report highlights the fact that some groups of people are likely to be left significantly worse off, particularly if they gain no benefit from the additional childcare provision.

It follows a major report by the Institute for Fiscal Studies, which warned it was ‘arithmetically impossible’ that all those hit by cuts to tax credits would be compensated by the new living wage and other changes.

Critics claim many of the worst-affected families are on incomes just above the minimum wage so will not necessarily gain from pay increases.

It will add to pressure on ministers to come forward with additional measures to help those worst affected.

Andrew Tyrie, Tory chairman of the Commons Treasury committee, last night wrote to Chancellor George Osborne asking him to publish detailed figures showing the impact of the reforms.