It is a worrying time for many UK households. Living costs are on the rise: food costs are soaring and energy bills are set to jump 12% from October. Meanwhile, many of those on particularly low incomes – five million families were on universal credit at the most recent count – are receiving text messages or emails that their support will be cut by up to £1,040 a year from next month. This is the largest overnight cut to social security since the second world war, affecting more than one in five households in some regions: the North East, London, Northern Ireland, West Midlands, and Yorkshire and the Humber.

The kicker to working people on low incomes – 37% of those on universal credit – is that the government has just voted to increase both employer and employee national insurance contributions (NICs) by 1.25% from April 2022 to pay for social care. This is effectively a 2.5% tax increase as the incidence of employer contributions are likely to be passed on to employees in the form of lower wages (or reduced wage increases) in the long run.

Our analysis finds that the combined effects of the universal credit/​working tax credit cut and social care tax increases will affect 2.5 million working households on low incomes. Those affected by both will lose out by £1,290 on average, even before the likely effects of employer NICs on take home pay. The combined effect of these policies impact the poorest households the most.

Figure 1: Universal credit cuts and NIC increases will hit low-income families hardest