A report by the Employment Policy Institute on the minimum wage demonstrates that if set too low and without reform of the benefits system, its impact would be marginal on families caught in the poverty trap.
Low income families who qualify for in-work means tested benefit payments, such as family credit or housing benefit, will face cuts in their benefits if their earnings increase. A married couple with two children, where there is one earner on a wage rate of £2.80 per hour working 38 hours per week, would gain just £1.72 a week from a minimum wage of £4.30. Although families on low incomes would gain little, the government could save as much as £3,750 million a year from reduced benefit payments and increased tax and national insurance revenue.
If Labour is serious about helping low paid families, not only will the level of the minimum wage need to be substantial, but increases in child benefit and changes to family credit and housing benefit are essential.