west*wales*news*review

West Wales News Review — analysis with a sustainability slant

Pay Rise Triggers Poverty Trap

What a shock! The poverty trap is alive and well.

West Wales has many people on modest wages, and this is the sort of trap they face.

Take the simple case of a single person, childless, over 25, working 30 hours a week for £7.20 an hour. That amounts to £216 a week, £11,232 a year. Let’s call the worker Dan. In 2015-16 Dan pays £46.40 income tax, £380.64 national insurance, and £112.32 in pension contributions, deductions of £539.36. Dan receives a top-up of £797 in working tax credit, and so his net income for the year is £11,489.64.

For 2016-17, Dan’s employer offers him a pay rise of £468 to £11,700 a year. Dan is pleased at first, then works out how much extra cash he would get.

The answer is £121.76 – for a whole year.

Tax, national insurance and pension contributions go UP, to £140, £436.80 and £117 respectively, and working tax credit goes DOWN to £605.20.

Almost three-quarters of the pay rise, 74%, is consumed by extra deductions and reduced benefit.

Not exactly a great incentive!

PDR

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One thought on “Pay Rise Triggers Poverty Trap

  1. Emlyn Uwch Cuch on said:

    It gets even worse at the cliff edge of £16,190. Not only does a parent face the marginal deductions you outlined, but also every penny of free school meals (and attendant benefits), and the free optical and dental entitlements they would otherwise get.

    Just imagine bringing up 3 children, each on free school meals, and losing 3 x 190 @ £2.30 = £1311 to bring in an extra pound of income. A massive set back in the family finances.

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