PRESS RELEASE 7 March 2001

Another step in the right direction for low paid workers

The Low Pay Unit today welcomed Chancellor of the Exchequer Gordon Brown’s fifth budget as another step in the right direction for low paid workers. The Unit is concerned, however, that low paid workers with children will not benefit as much from fiscal changes affecting them as higher income families.

Coupled with Monday’s announcement of an increase in the minimum wage to £4.10 per hour, today’s announcement of an extension to the 10 pence tax band to £1880 is good news for workers on the minimum wage.

As a result of these two changes a full timer without children who works average hours on the minimum wage will see her or his take home pay increase from £124.72 to £137.58 from October - a gain of £12.84.

While welcoming the £360 increase in the 10 pence band, the Low Pay Unit’s view is that no one working average hours on the minimum wage should be paying income tax at 22%. Achieving this outcome would have required an extension of the 10 pence band to £3540.

Working families with children have been clear winners from this budget. For those on low wages, increases to Working Families Tax Credit allowances will increase household incomes substantially and make childcare more affordable.

The long wait for the much heralded replacement to Married Couple’s Allowance is finally over and Children’s Tax Credit will be worth £10 per week to most working families. Unfortunately, households claiming WFTC or Housing Benefit will not see the full benefit of this change, or of the extension of the 10 pence tax band. This is because tax deductions are calculated on gross incomes, whereas levels of in work support are calculated on net incomes. As a result, many of the gains from lower tax bills will be lost through reductions in in-work support.

Despite this, a household with two children and one person in work full time on the minimum wage should see their household income increase from £247.02 to £259.95 and to £265.80 from October.

Bharti Patel, Director of the Low Pay Unit, said:
"This is progress, but it is slow progress. I welcome in particular the extension of the 10 pence tax band, the introduction of the Children’s Tax Credit and the increase in both the length of maternity leave and level of maternity pay which will ensure that low paid mothers can take more of their entitlement. The next challenge will be to reduce further the high marginal taxation rates faced by the lowest paid and ensure that they too gain all the benefits from fiscal changes."

For further information, contact Bharti Patel on 020 7435 4268 or 07887 567 494