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Millions Of British Families Will Be Worse Off Despite New "Living Wage"

Influential think tank contradicts government claim that Britain is "getting a pay rise"

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Introducing the new "Living Wage" – a £9-an-hour minimum wage for all over-25s by 2020 – in his July Budget speech, chancellor George Osborne told parliament that "Britain deserves a pay rise and Britain is getting a pay rise".

But the Institute for Fiscal Studies, a respected and non-partisan think tank, has published research today which it says shows that even in the best case scenario, Osborne's proposals will leave millions of families – including those who work – hundreds or even thousands of pounds worse off.

In its detailed 15-page analysis, the IFS also concluded that low-earning households would be hit much harder than the well-off.

The reason for the hit is that Osborne also introduced a number of changes to tax and in-work benefits that more than offset the minimum wage rise for low earners.

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These included a four-year freeze to most working age benefits and tax credits, reducing the amount of money people can earn before their tax credits start getting taken away, and cuts to benefits for families with more than two children.

Such is the effect of these less well-publicised changes that the IFS predict that even if the Living Wage had no negative effect on employment or GDP, it would still only offset just 27% of the cuts to families.

The IFS estimates that around 21% of people in work will get a pay rise due to the Living Wage, but warn that some of this will immediately be taken off them through tax and through their tax credits or benefits being withdrawn.

The institute then took these numbers to show the overall effects of the tax and benefit changes and the new higher wage on different kinds of households. It found that overall, even using the "better case" numbers where no employer cuts jobs or hours due to paying higher wages, every group is hundreds or thousands of pounds worse off.

The IFS cautions that its figures are aggregates – for example some families, who receive no tax credits or benefits, and who currently earn the minimum wage, will be better off – but reflect the overall impact of the financial changes.

The author of the report, IFS research economist William Elming, said because the benefit buts and wage increases were not closely targeted at the same groups, many would be worse off.

"The new 'National Living Wage' will only offer partial compensation to working age households who will see their incomes fall as a result of tax and benefit changes announced for the current parliament," he said.

"The wage increases are not as large as the benefit cuts. And, it is not targeted at the same group who lose from the cuts."

In a statement sent on Thursday afternoon, the Treasury focused on the OBR's assessment of how many families would receive higher wages as a result of the July budget.

"At the Budget the chancellor announced a new settlement for Britain. One that moves us to a higher wage, lower tax and lower welfare economy backed by a new National Living Wage - ensuring work always pays and the majority of working households are better off," said a spokeswoman.

"The independent Office for Budget Responsibility expect the National Living Wage to give a direct boost in wages for 2.7 million low wage workers, with up to 6 million seeing their pay rise as the knock-on effects are felt higher up the earnings scale."

James Ball is a special correspondent for BuzzFeed News and is based in London. PGP: here

Contact James Ball at James.Ball@buzzfeed.com.

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