Madness of Higher Rate Taxpayers Receiving Welfare Payments

Guido’s been reading the Institute for Fiscal Studies’ new analysis of the Universal Credit (UC) reforms, which breaks down the long-term impact of the taper rate changes. In short, the number of eligible working families will shoot up by around 600,000 – to a total of over 7 million – with certain claimants now entitled to some form of benefit on significantly higher incomes than before:

“Before the Budget, a lone parent in this situation could earn up to £20,700 per year before losing all entitlement to Universal Credit. After the Budget reforms that figure will rise to £23,900.

Of course, the fact that more working claimants are now entitled to Universal Credit in some form isn’t a surprise on face value; that was the point of the taper rate adjustment in the first place. It does however allow the likes of Owen Jones to disingenuously repeatedly claim that the working poor are the 3 out of 7 families receiving Universal Credit. What is surprising is:

“UC entitlement extends to even higher levels of earnings for families in other situations. A lone parent with two children and monthly rent of £750 can now earn up to £51,900 before losing all UC entitlement (£44,500 prior to Budget). A one earner couple in otherwise the same situation can earn up to £58,900.”

In other words, the Chancellor oversees a system in which it’s possible for someone to be paying the higher rate of income tax – which kicks in at £50,000 – while still claiming Universal Credit. Obviously this isn’t representative of most cases, and not all those who are entitled will actually make a claim, yet the fact Universal Credit is being paid to higher rate taxpayers is ludicrous.

How after over a decade of a nominally Conservative government, first elected with a mandate to shrink the state, have we got a society in which 3 out 7 families are receiving top-up benefits to their income, whilst some are simultaneously losing 40% of their income to higher rate tax? This will only get worse before it gets better: the tax thresholds have been frozen until at least 2026, so more people will find themselves in this situation as inflation pushes them over the 40% tax rate threshold over the next five years. Just this afternoon, US inflation rates hit 6.2%, which should send alarm bells ringing this side of the Atlantic…

mdi-tag-outline Institute for Fiscal Studies
mdi-account-multiple-outline Rishi Sunak
mdi-timer November 10 2021 @ 16:17 mdi-share-variant mdi-twitter mdi-facebook mdi-whatsapp mdi-telegram mdi-linkedin mdi-email mdi-printer
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