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‘You’re better off in work than on benefits’ – think tank

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Written by: Paloma Kubiak
19/10/2017
You’re still better off in low paid work than on benefits, but the financial advantages have shrunk for some, according to analysis from a leading think tank.

Analysis from the Joseph Rowntree Foundation (JRF) suggests that the financial incentives in the non-universal credit system have worsened where a family goes from zero to one worker but they have improved for single childless adults.

It gives two examples to illustrate the point:

A single person without children

A 25-year old seeking work and renting a modest one-bedroom flat would receive the following each week (using the JRF minimum income calculator):

  • Jobseekers Allowance of £73.10
  • Housing Benefit of £86.11 (enough to cover most but not all the £89.70 rent on the flat)
  • Council Tax Support of £13.40 (enough to cover most but not all the £15.76 bill)
  • leaving a total disposable income of £67.15

This amount is £3 less in absolute terms than three years ago and the JRF said the gap between the housing costs and the benefits to cover them have grown, leaving the person “far short of a decent living standard”.

However, if this person were to get a full time job earning £7.50 an hour, they would see the following:

  • earn £281.25 gross a week
  • pay £12.14 in income tax and £14.91 in National Insurance
  • get nothing at all in Housing Benefit, tax credits or council tax support, as this level of earnings is too high to be eligible
  • have a total disposable income of £148.74 (after rent and council tax).

This is an extra £82 for 37.5 hours a week of work, but £20 more than in 2014, showing that in this scenario, the person is better off in work than three years ago.

A family of four

Parents of two primary school children would receive the following weekly benefits if they’re both out of work:

  • JSA £114.85
  • Child Benefit £34.40
  • Child Tax Credit £117.18
  • Housing Benefit £91.05 (covering all the rent on the three-bed council house, unless in some circumstances they’re subject to the bedroom tax)
  • Council Tax Support £20.83 (covering most of the £24.51 bill)
  • leaving a disposable income of £262.75.

If one parent gets a full-time job on the National Living Wage, the family would get the following:

  • gross earnings of £281.25 (the same as the single person)
  • pay income tax of £7.73 and NI of £14.91 (income tax is £230 a year lower because of the transferable Marriage Allowance)
  • Working Tax Credit of £26.87 and the same level of CB and CTC as when out of work
  • get a much-reduced HB of £8.46 (and no CTS)
  • leaving a disposable income of £330.06

The report’s author, Chris Goulden, explained: “That’s an additional £67 disposable income each week from one of them working full-time – about £6 less than three years ago and less in absolute terms than in the case above (gets £82). The incentive to work has got worse because of the tapering of in-work benefits with rising earnings, a small additional cut in Housing Benefit and an increase in NI paid.

“The rise in the minimum wage, less income tax paid and slight rises in child-related benefits are not enough to offset this. In contrast, the disposable income of this family when out of work is virtually the same as three years ago – but they would still be around £200 short each week of what the public think a family of four needs for a decent living standard.”

Goulden wrote that the system is still designed to make people better off when working, whether on universal credit or tax credits, but there are “additional complexities that could undermine this”.

He wrote: “That includes travel and other costs associated with working, expensive childcare and housing that might not be fully covered by benefits, or passported benefits that can be lost when people move into a job.

“Given how low the levels already are, it would be hard to argue that out of work benefits should be cut back further to increase the incentives to work. Action should be taken on reducing the cost of living (especially housing and childcare) and improving earnings, by ending the benefit freeze, restoring work allowances in UC, continuing to ramp up the NLW, reducing taxes on income and improving opportunities to progress in work.”

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