PRESS RELEASE February 2000

Fairness and equality - not a pay freeze for the low paid

The Low Pay Unit today called on the Chancellor to use the 2000 Budget to step up his fight against poverty, now that the public finances are in such good health.

The Unit's pre-budget submission recognises that the government's first three budgets have made a good start in making work pay and tackling poverty, but says that there is a long way still to go.

The key measures needed in the 2000 Budget are:

• Widen the 10p income tax band to at least £2,800, improving work incentives for the lowest paid. This would mean a full-time worker on the national minimum wage of £3.60 per hour (£7,135 per year) would only pay tax at the 10 pence rate. Currently they would have to pay 22 per cent on extra earnings, the same rate as someone earning four and a half times as much.
• Reform National Insurance contributions to reflect modern working patterns:
  • Credit people earning below the Lower Earnings Limit into contributory benefits - extending the 'zero-rate' band
  • Strengthen the existing system by significantly raising the level of contributory related benefits, especially sick pay, maternity pay, and pension
  • Raise the Upper Earnings Limit to the higher rate tax threshold (raising £600m) or abolish it altogether (raising £4.8bn).
• Introduce annual uprating for the National Minimum Wage. Regular, predictable rises with average earnings are the only way to maintain its value and prevent uncertainty. Uprating needs to begin from a higher base for it to successfully tackle discrimination and poverty pay.

The future of taxes and benefits - The possibility of an 'Employment Tax Credit':

The Unit welcomes recent measures to make work pay, especially targeting resources at parents and disabled people. However, if tax credits are extended to cover all employees, there is a risk of:
i) subsidising low paying employers at tax payers' expense and suppressing wages
ii) undermining independent taxation
iii) increasing reliance on benefits

Director, Bharti Patel said
"Wage inequality is still growing, and this could quickly wipe out the recent gains in disposable income for low income households. Tax and benefits changes must be directed to the poorest- both in and out of work- just to prevent inequality growing. Nothing short of radical action on top of existing reforms will address the problem."

For further information, contact Bharti Patel, Director, on: 020 7713 7616.