To think my pay rise will be pointless?

[IamScarfaceClaw]

I work 30hpw and take home salary is around £1100, I have been in a trainee role for 12 months and have been led to believe that I will be given a pay rise at the end of this month.

Lovely!

However I currently receive tax credits , this takes my monthly income to around £1600-

I did a tax credits calculation with various prospective pay rises (lots of wishful thinking) and it seems that unless I get an astronomical pay rise (1k+, which isn't happening) I will be worse off!

AIBU to think that tax credits should continue to bring income into NLW levels?

The system is broken. No one should receive more money than they can earn.

Reducing the free handouts is clearly the only thing to do.

Hmmm...that is the polar opposite of what I think. I don't think the JAMs should become NAAMs!
I think that since we have a 'living wage' benefits should run in line with that.

That's why the system is broken. No one needs to be incentivised for increasing their earning potential when they are earning £1600 a month whilst working a £1100 a month job.

You're a trainee right now. Assume there'll be a time sometime soon when you will earn a lot, so relying on tax credits or making employment decisions because of them is a false economy. You will always be better off working eventually.

But there seems to be a middle rate of earnings- where I will find myself, where people are worse off-

but jump a few steps higher on the pay scale and I would be better off again- and if it's not always possible for people to cope in that middle period they will miss out on potential career/earnings.

Sorry I know that probably doesn't make complete sense- just musing at the skewed logic.

On the other hand, when UC comes in- I will be better off even with pay rise, but the people earning less than me will be worse off!

@nutty- I am not making any decision based on it, in my mind the pay rise isn't optional, so I will take it, and be grateful that my work has been recognised- and we will manage.

It still doesn't make it right/fair.

The benefits system should not be used to supplement to crappy wages.

That's the top and bottom of it.

And that's not a dig at anyone in receipt of these.

This country is broken.

What should be done?
In an ideal world?
Higher NMW whilst keeping living costs down?

I wish something would change but how would the gov implement the changes?

yes employers should pay a wage people can live off rents should be capped at affordable rates not increased year on year to increase profits of landlords (the main expese people have these days).

Rent is one of the few things that always raises while wages are frozen etc.

The introductiin of tax credits gave employers (in their mind) the green to not worry about increasing wages as much/at all.

It was obvious this would happen.

People finding hard to accept better jobs or pay increases.

I would double check your figures. The tax and benefit system is normally designed so that a rise in gross pay does not result in a drop in take-home income including benefits. Our government might be a bit stupid but it's not that stupid.

I just got a pay raise, not giant but enough to stop my working tax credits, I'm happy for that, only I am slightly worse off each month under £100 so I figure it's a wash.
Now I dread next year I have a horrible feeling they will say Oops sorry you now owe us money. My worst nightmare.

You are mad to turn down the opportunity of a pay rise! Some people have not had a pay rise for years or only 1%. Why don't you put your pay rise into a pension and your employer should also pay some contributions into your pension

I'm not turning it down change, but I am moaning about being worse off because of it- and considering the bigger picture re: the benefits system in the U.K.

You shouldn't be worse off, the extra pay should cause your tax credits to taper away, ie you lose some of it, but not all of it.

Can you increase pension contributions to reduce the impact of the pay rise? If you salary sacrifice into a pension it reduces your taxable pay, so you could put yourself back into the financial position you were in before but save for your retirement so you have to rely less on the welfare system in th long term

Will be the same for me when i get my pay rise. Won't be any better off. Possibly worse off. Silly really.

I'm just focusing on the fact that tax credits will stop when ds isn't in full time nursery so I will benefit in the long run. Shite in the short term though isn't it

I can't advise you on what to do op , I feel your pain though.

I took a higher paid role with more hours a few years ago , it was a great compliment to be offered the role as I'd worked hard to gain such a job. I ended up about £300 pm worse off though because my wtc entitlement was slashed.

I'm not saying it's not worthwhile longterm , as the experience is invaluable and my CV is much more substantial but I was shocked how one can go to a higher salary and work longer hours to discover they are struggling financially where they were okay before.

It's not right.

£1600 a month is a lot of money we manage on £1200 a month with no tax credits

Depends where you live Leia.

How much worse off will you be? You can increase your pension contributions to decrease your taxable income for tax credits purposes.
Also isn't there a £2500 disregard for in-year increase in income which might give you a few months grace? Depends how much of a pay rise!

We will probably only be worse off by around £100, and we will manage- it just means restricting the food shop slightly.

It's more the ridiculous fact of it. There must be some sort of tapering tax credits scale (like the benefit cap) but if that's set at £1500 for a family of 3, and the 'average' individual income is meant to be £25 K then something is not right!

It was explained to me as something to do with pay brackets. Because I'd only just crept into the next bracket with my pay rise , it meant I felt the full effect of a wtc entitlement slash.

While I do understand the comments of posters such as babybig, another, and others, I can also understand your confusion.

However, I think it's rather a case that your calculations are incorrect. You will not be worse off.

I see you mention that your "take home salary is around £1100" and it may be that using that figure in your calculations is where the errors started. Tax credits are calculated on gross figures.

(With a take home salary is around £1100 per month) your gross salary is going to be somewhere around £13200 per annum.

[and, incidentally, you refer to the National Living Wage ... but don't acknowledge that you are already being paid that, without tax credits entering the equation ... whether the NLW levels are anywhere near high enough is another matter entirely]

Re-do your calculations with the gross figure and, to test the unknown salary increase, re-do again with a 1% increase, then a 2%, then 3%, and so on ...

You will see that you are not worse off overall, albeit that the margins do get narrower as you get closer to the cut off point (because happily, you are earning more and more of your own income).