Earnings top-up plan for low-paid workers

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Public Policy Editor

Potentially the most dramatic changes to social security in more than twenty years were revealed yesterday with a Government Green Paper proposing an earnings top-up to single and childless people in low-paid work.

From October next year a pilot scheme costing pounds 75m over three years will offer an average top-up of pounds 23 a week to an eventual 20,000 people to assess its effects on unemployment, the labour market and wages - including whether employers attempt to cut wages to take advantage of the state subsidy.

The scheme will operate on very similar lines to Family Credit - one of the fastest growing social security benefits - which now improves the earnings of more than 600,000 couples with children by an average pounds 45 a week.

The new benefit will go to single people and couples without children, with single people under 25 receiving a lower rate. The effects will be researched over three years in eight different areas made up of large and small cities, rural areas and two seaside towns, with two different rates of benefit used to assess their impact on labour markets. The areas have high jobless rates and a large proportion of vacancies in low paid jobs.

Similar ideas are under study by Labour - with the party likely to argue that a minimum wage will be needed to ensure that employers do not exploit the system.

Yesterday's Green Paper, however, does not rule out that possibility, while saying firmly that it "rejects a statutory minimum wage as a means of increasing in-work income.

"It considers a minimum wage would destroy jobs by forcing employers to pay unrealistic rates about what the job is worth to them." It would force people to rely on out-of-work benefits.

The proposal is the first to pay an in-work benefit since FIS, the precursor of Family Credit, was introduced in the early 1970s. It would mark a significant shift towards paying benefits to encourage people to work, rather than paying benefit on condition they do not work.