Is the Living wage enough to offset the latest welfare reforms?

Experian Economic’s latest income tracker update shows a significant widening in the gap between the discretionary income gains of the upmarket group and the price sensitive group beyond 2015.  Although in 2016 the price sensitive group will gain most from the introduction of the National Living Wage announced in the Summer Budget, this will be more than offset by the introduction of the benefits cap.

In 2017 discretionary income growth in the low affluence group will be suppressed yet further by the removal of the child element in child tax credits, and the tax credit/universal credit entitlement for third and subsequent children. The low income group will receive a boost from increases in the personal allowance in 2016 and 2017, though not enough to close the gap in discretionary income growth to the upmarket group who will also gain.

In addition to being insulated from stalling benefit income growth, the upmarket group will gain the most from growth in wages and salaries, self employment income, and investment income throughout the forecast period. The latest data shows that self employment income and investment income grew by 3.9% and 2.2% q-on-q respectively in 2015q1 and growth is expected to remain robust.

Discretionary incomes are forecast to moderate in all segments in 2016 and 2017 as essential spending growth picks up alongside CPI inflation. Spending on food and transport fuel is expected to recover in 2016, growth in housing rent should remain on a strong upward trajectory, and mortgage interest payments will rise.

Sunita Bali: Our latest income tracker shows a significant widening in the gap between the discretionary income gains of the upmarket group and the price sensitive group beyond 2015.