Most low paid workers better off because of the budget

So how did the budget affect someone who, say, is 30 years old, working full time at the minimum wage, but is a single adult with no kids? Everyone's criticising Gordon Brown for raising taxes on people in low paid work, so they'd be worse off, right?

Wrong.

If you take the income tax, national insurance and working tax credit changes into account, they'll be £7.12/week better off.

The overall effect of the changes in the Budget, including the abolition of the 10p tax rate, the change in the threshold for paying national insurance and the increase in working tax credits, are that most low paid workers will be better off, not worse off.

The substantial increase in Working Tax Credit means that all those who earn from £8,612 (30 hours a week on the minimum wage) up to £13,000 (or up to £17,200 joint income if they are in a couple) are better off. Even if you don't have kids, you can claim working tax credit.

A large group of single childless people earning £225 to £245 a week are able to claim tax credits for the first time. This includes, for example, thousands of retail workers in Tesco, Sainsburys and M&S working a standard week for around £228 a week.

Some people have lost out. People who cannot claim Working Tax Credit because they work less than 30 hours a week or are under 25 years old and who do not have dependent children will be worse off from the abolition of the 10p band. A small group of single childless people who earn between £13,000 and £15,000 a year will lose out by a small amount – less than £1 a week.

The maximum loss for someone who works is £152.40 a year (£2.93 a week). This would be the case for someone working 26 hours a week on the minimum wage, earning £143 a week. But if they could work an extra 4 hours a week, they could (if eligible) claim tax credits of £32.31 a week on top of the extra wages.

Those on average earnings of £29,000 a year are £5 a week better off.

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The above stats aren't about trying to make excuses for the scrapping of the 10p tax rate - younger low paid workers and the others living on low incomes who lose out shouldn't be having their tax bills increased, and there's no reason why the working tax credit increases had to be combined with removing the 10p starting rate. A tax system in which people on low incomes paid less and people on high incomes paid a lot more would be a lot fairer.

But the figures do highlight the amount of misinformation that there has been in the coverage of this issue, with claims that all low paid workers will be losing out when that is manifestly not the case.

It also shows how effective tax credits are in boosting the pay of low paid workers. Someone working 30 hours a week on the minimum wage will be paying an extra £2.43/week in tax, but receiving an extra £9.62/week in working tax credit. Abolishing tax credits, as the Tories seem to be considering, would hammer low paid workers far more than the abolition of the 10p starting rate of tax ever did.

If people working 30 hours/week on the minimum wage had to pay no income tax or national insurance at all, they would be £18.94/week better off. Working tax credit alone is worth £32.31/week, even without considering child tax credits which help families. So scrapping tax credits and just raise the threshold at which people start paying tax would leave most workers on the minimum wage worse off.

Of course, these are theoretical figures, and rely on people claiming working tax credit. You can check if you are eligible by looking here or there is lots of good advice at USDAW's website here

Whatever you think about the budget, please do pass the message on to anyone you know who might be eligible for tax credits and who has found that they are paying more income tax this month that maybe they could be getting a bit more money than they thought they would.