Want to slash the benefit bill? Paying the living wage and halving rent could save the government £12,742 for a working family on my street

George Osborne is expected to slash tax credits in his emergency budget next week as part of a new beefed-up, gloves-off, true-blue austerity programme.

There is no evidence yet that the Chancellor, having failed to be punished for the economically illiterate and damaging cuts he made in the last parliament, will replace the shortfall in income for millions of Britain’s poorest working families by raising the minimum wage.

Yet boosting pay packets – rather than presiding over the longest wage slump in 150 years as he did – is the logical way to cut the government’s benefit budget and restoring the government’s finances at the same time. It’s also hugely popular.

In a recent poll that shows how warped power is towards the interests of a wealthy few, 76% of the public think the minimum wage should be raised from £6.50 to match living wage, which is £9.15 in London and £7.85 in the rest of Britain.

Even Steve Hilton, the Prime Minister’s former strategy chief, has recently had a Road To Damascus-style conversion on the issue, stopped spouting the usual Tory “blood-curdling and, in retrospect, utterly spurious” mantra that it would cause mass unemployment and realised that paying the living wage is the best way for the Government to reduce its bloated in-work benefits bill, which is gifting billions of pounds in subsidies to poverty-paying bosses and slum landlords.

Yet cutting this bill – and ending the scandal of a million, mostly working, people relying on food banks – is best achieved by tackling the underlying cost of living at the same time.

Chief among the rising costs, although perversely excluded from the main inflation statistics, are soaring house prices and, consequently, private rents.

And the best way to cut the cost of housing, and help those on the lowest incomes to rent, is to dramatically boost the supply by allowing local authorities to once again borrow in order to build homes.

Private builders cannot and will not build enough homes to meet people’s needs and enable prices to be more stable because they would be sacrificing the enormous profits that a restrictive supply makes possible.

Indeed, the only time in the last century when the supply of houses has ever outstripped demand was in the 1960s and 1970s when councils had the powers I am suggesting.

Unlike in past times, local authorities could, if we let them, also build to sell and truly help first-time buyers get on the ladder.

So what difference could raising wages and being able to drastically cut rents make in reality?

I have worked out that if the national minimum wage were increased to the London living wage and rent was halved, it would be possible for a working family like mine, on the same street I live on, to raise their disposable income by 47%, and go from sucking a total of £7,916 a year from the state to contributing, via taxes, £4,826 more to the Treasury than they received.

It would make a vast different to their lives, both materially and mentally, and provide a huge boost to the wider economy and eliminate any rationale for public service cuts.

I worked these astonishing figures out, using the Turn2Us benefits calculator, by assuming my wife and I both worked 40 hours a week for the current national minimum wage rate of £6.50 per hour, paid £300 a week to privately rent a flat and £125 for childcare.

Due to these circumstances, we would be entitled to benefits totalling £199.88 a week, or £10,394 a year.

Of this sum, housing benefit of £98.22 a week would be handed directly to our landlord (regardless of how good or bad condition the property is in) to pay approximately a third of our rent, the going rate for a basic two-bed in the not-so-trendy part of east London where we live with our son).

We would personally receive £17.04 in working tax credit, £64.02 in child tax credit and £20.70 in child benefit.

After the already mentioned costs were paid, with a state handout of £199.88 added to our meagre £472 combined take-home pay, my wife, son and I would have £246.88 left to pay for food, household goods, energy, bus fares, council tax and other things.

And, before using any other public services, in-work benefits would mean we would have already sucked £152 a week – or £7,916 a year – more from the state than we paid in income tax and national insurance.

However, if my wife and I were paid the London living wage rate of £9.15 an hour for the same jobs, the Treasury – and you the taxpayer - would save 60% after our benefits were reduced to £77.90 a week, or £4,050 a year.

The weekly handout sum comprises £57.20 in housing benefit and £20.70 in child benefit, an amount paid for to every one-child couple earning up to a combined £99,999 a year.

After our primary bills were paid, we would be left with a combined disposable income of £270.90 – 10% more than we had under the basic minimum wage and a significant boost to the wider economy as most of that would be spent and not saved.

And, as living wage earners, our family, prior to using public services such as the NHS, would have gone from being net recipients of state funds to net contributors of £1,956 to Treasury coffers.

Yet taxpayers could save even more and the working families could be even better off if rents could be reduced or brought under control so that wages could rise at a faster rate than housing costs for the first time in almost four decades.

Imagine that our weekly rent was £200 rather than the £300 per week my wife and I are currently spending in this hypothetical experiment.

Then, we would not receive any tax credits or child tax credits. Our housing benefit would be halved to £27.62 and we would still receive £20.70 in child benefit.

It would bring our state handout total to £48.32 a week, or £2,512 a year – a quarter of the taxpayer funds we received before our pay was raised and rent cut.

And if our rent was halved to £150 a week, we would receive no housing or any other in-work benefits, have £363.7 a week disposable income and contribute £4,826 more to the Treasury than we received.

In total, the state would be £12,742 better off after if an individual family like mine was paid the living wage, not the current minimum wage, and rents were halved.

There are many other calculations that would need to be made to see what would happen if the scenarios I have described were applied to everyone earning the minimum wage and living in rented accommodation.

But millions of people and our economy would undoubtedly be better off for it.