From April the Conservative Party are to end the freeze on benefits and state pensions will see a rise of 3.9%.
The Department for Work and Pensions (DWP) said by ending the freeze and rise in pensions for pensioners, this will cost £5bn per year.
As part of a £5bn windfall families who are struggling will be given a major boost as the national insurance threshold could be raised and workers tax could be cut by up to £460. The prime minister, Boris Johnson is currently considering these plans.
State pensions will increase to £175.20 per week, meaning pensioners will receive an extra £344 per year.
Work and Pensions secretary, Therese Coffey said, “We’re clear the best way for people to improve their lives is through work but we know some people require additional support.
“Our balanced fiscal approach has built a strong economy, with 3.6m more people in work since 2010.
Professor Arindrajit Dube, from the University of Massachusetts Amherst backed the chancellor’s move.
Professor Dube said, “Based on the overall evidence, with a special emphasis on the recent, high quality, evaluations of the National Living Wage and other more ambitious policies internationally, my report concludes that that there is room for exploring a higher NLW in the UK up to two-thirds of the median wage.”
However, the Federation of Small Businesses (FSB) National Chairman Mike Cherry said, “The Dube Review is clear in its concern about a hard and fast time frame for increasing the National Living Wage to two-thirds of median pay. It’s emphasis on the need for Low Pay Commission independence is the right one. As manifestos are compiled, this expert advice should be heeded. We need a cautious, analytical approach to wage policy, not a politically-motivated bidding war.
“The Low Pay Commission is right to highlight that higher wage rates are not a silver bullet. Wider policy interventions – particularly around the cost of living and social security – are key.
“That’s why we’re calling on all parties to be ambitious about their plans for the Employment Allowance as they compile manifestos. This vital discount on employers’ national insurance contributions – which essentially serve as a jobs tax – is critical for a healthy labour market.
“The Employment Allowance was introduced by the previous Chancellor to help cover the costs of employing up to four members of staff. Under current proposals for wage increases, that cover would fall to just two employees. Of the £4,000 pay increase that each person currently receiving the NLW would receive over the coming years under existing plans, £1,800 will go straight to the Treasury. Small employers need a share of that funding if they’re to keep taking on staff.
“Employment intentions have tumbled among small businesses as confidence levels remain in the doldrums. With signs that the labour market is already cooling, we need all parties to spell-out exactly how they plan to keep small employers hiring.
“They should start with commitments to significantly uprate the Employment Allowance.”