POLITICS
03/09/2015 16:25 BST | Updated 03/09/2015 17:59 BST

George Osborne's 'Con Trick': 'Living Wage' Will Fail To Offset Welfare Cuts, Report Reveals

George Osborne's welfare crackdown will leave the poorest families thousands of pounds worse off even after introducing the "national living wage", a study has found.

The Resolution Foundation think tank raises questions over the central tenet of the Chancellor's Summer Budget, where he argued a new minimum wage for over-25s would mean a "typical" working family is "better off”.

Mr Osborne argued cuts to benefits, including tax credits offered to low-paid workers, should be seen as part of a package alongside a national living wage (NLW) pegged at £7.20 an hour from April and rising to £9.35 by 2020.

But the Resolution Foundation says the move will only "partially" softens the impact of the cuts to the poorest households. The SNP said the Chancellor had pulled a "con trick".

It has produced a graph - using official data - to argue the half of the country's households on the lowest incomes will only see their loss reduced by 13%. The very poorest households wills still lose more than £800 a year, or more than 8% in total.

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Resolution says only around a quarter of households gaining from the NLW will see the pay boost outstrip the loss suffered by a cut to benefits.

It points out the NLW was expected to increase the country's wage bill by £4.5 billion in 2020, and only around 60 per cent of that would be felt in workers' pockets, which falls short of mitigating the £13 billion cuts to welfare.

Report author Conor D’Arcy said: “The new National Living Wage will give a welcome boost to the wages of millions of low-paid workers.

"But it’s no substitute for the vital support that households receive through tax credits and other in-work benefits.

"Indeed, many low-income families will find that the welcome extra pay they receive will be dwarfed by reductions to in-work support, which could leave them thousands of pounds worse off.

“The National Living Wage is a game changer in terms of tackling low pay, but it can’t solve Britain’s living standards challenge.”

Conor D'Arcy: The National Living Wage Is a Bold Step Forward on Low Pay - But It Won't Make the Living Standards Challenge Disappear

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SNP MSP Gordon MacDonald said: “This report again confirms that the Tories new National Living Wage is nothing more than a con-trick – designed to mask massive cuts to social security.

"We already know that under 18s will now be entitled to thousands less than colleagues doing the same job. Now we know that less than half the gains from this enhanced Minimum Wage rate will go to the bottom half of the income distribution.

“While we welcome the increase in the Minimum Wage for over 25s, this report finds that it will do little to offset the impact of the budget – particularly for the poorest households. Shamefully, by 2020 those in the poorest households will be more than £800 worse off every single year due to the Tories heartless budget cuts."

The report found women would stand to benefit most, with more than three and a half million women set to receive a pay rise as a result of the NLW. Since women tend to be in low-wage jobs, they will receive 61% of the benefits.

The estimate includes both women who currently earn less than the minimum and those whose income is likely to be lifted by a “ripple effect” further up the pay scale, and will slightly narrow the gender pay gap.

Mr Osborne said: "In the Budget I announced a new settlement for the British people, one that will create a higher wage, lower tax and lower welfare economy backed by a new National Living Wage.

"And today's report by the Resolution Foundation provides a new vote of confidence in the National Living Wage, confirming 6 million people will benefit with an average pay rise of over £1,200.

"Britain deserves a pay rise - and this government is making sure it gets one."