The minimum hourly wage for people over the age of 23 will increase by 6.6% to £9.50 ($13), the government said on Wednesday ahead of its budget announcement.
Low-income households also spend a large portion of their income on energy bills, and they may come under further pressure as energy prices rise.
The UK regulator for the gas and electricity sector announced in August that natural gas prices would increase the price cap by up to 13% this month, protecting 15 million homes from spiking bills, after setting a new record. Another increase in cap is expected in April.
Higher wages meet rising inflation
Nye Cominetti, a senior economist at economic policy think tank The Resolution Foundation, said an increase in the minimum wage “would be very welcome,” especially because “low earners have been hardest hit” by the coronavirus pandemic.
Cominetti said the government recently increased the minimum wage to more than double inflation. But he cautioned that the April hike “will actually be a smaller real increase than in some recent years, given that inflation is likely to exceed 4% by April 2022.”
Higher wages also won’t fully compensate for government deductions for benefits claimed by low-income earners called Universal Credit. The benefit was increased during the pandemic, but is now being reduced by £20 ($27.50) per week.
Some 4.4 million households receive universal credit, while only 2 million workers earn the national living wage.
Tom Waters, senior research economist at the Institute for Fiscal Studies’ research organisation, said the income of full-time workers on the minimum wage would increase by more than £1,000 ($1,378) per year. But the disposable income of those on Universal Credit will increase by only a quarter – £250 ($344.50) – “as their taxes rise and benefit receipts fall as their earnings increase,” he said.
By the time spring comes, the hike may be very little visible.
“Rising inflation … will blunt the real price value of this minimum wage increase – and of course with prices rising right now, the minimum wage increase won’t happen until April,” Waters said.
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