The new government must address the 55% effective tax rate on Universal Credit recipients if it aims to reduce unemployment.
This is what Robert Salter, technical director at tax and audit consultancy Blake Rothenberg, pointed out, highlighting the issue in light of the recent King’s Speech, in which the government pledged to focus on employment. “While the government’s commitment to getting the unemployed and underemployed back into the workforce is commendable, the practical implementation of this policy remains unclear,” he said.
Salter questioned whether the government would ease the 55% tax rate on universal credit, which reduces benefits when recipients work extra hours. “Given that the highest income tax rate in the UK is 45%, it is unfair that universal credit recipients, who typically have lower incomes, should face an effective tax rate of 55%.”
He added that this high rate of recovery, along with PAYE and National Insurance contributions, discourages those claiming more hours of work, thus frustrating efforts to combat partial unemployment.
