Rishi Sunak has revealed a £2 billion tax cut to make Universal Credit ‘reward work’ and Help low-income families with the cost to live.
The Chancellor announced the reduction of the taper rate for UC by 8% ‘within a matter of weeks’, bringing it down to 63% to 55%.
The taper rate is the amount of benefit taken away from every £1 earned above the claimant’s work allowance – meaning claimants will now be able to keep an additional 8p per £1 of net income.
The Chancellor decried taper rates as a ‘hidden taxes on work’. He stated that the taper rate will be implemented no later than December 1. This will reduce the burden on claimants who are currently in work and provide more incentive to work longer hours.
The Treasury said that a single mother of two, aged over 25, working full-time and renting will save £100 a month and £1,200 a month.
Meanwhile, a couple with two children, renting their home with one partner working full time and the other works 16 hours a week, will be £1,800 per year better off.
However, campaigners say the change does not compensate for the removal of the £20-a-week UC – or do anything to help people who are not in work.
The taper applies only to nearly two million families that receive universal credit.
The Chancellor decried that the taper rate was a hidden tax on Work’ and said that it would be implemented no later then December 1. This will reduce the burden for claimants who are employed.
Under the Universal Credit cut, a single mother of two, renting in Darlington, working a full-time job on the National Living Wage, will see her take-home income increase by £1,200 on an annual basis
Katy Chakraborty, Oxfam’s Head of Advocacy, stated that the Budget was a missed chance to build back from the pandemic and to strengthen the social security system in order to provide a sufficient lifeline for millions of families struggling this winter.
“We are pleased that the Chancellor has decided to increase the National Living Wage, and to reduce the taper rate for Universal Credit. However, this will not support the working poor who will still be in a much worse position. The Government should reverse the reduction in Universal Credit and protect families from being forced into poverty and hardship.
Paul Johnson, Director of the Institute for Fiscal Studies, tweeted: “Big cut to Universal Credit taper. Increase in work allowance. Targeted at workers. UC claimants who are not employed get nothing.
“Trade-offs as never before.” This will improve work incentives for current recipients, but will also draw more people into the system.
Morgan Wild, head of policy at Citizens Advice, welcomed the change to the taper, but said it ‘doesn’t cushion the blow of the £20-a-week cut for those still looking for work or the 1.7 million unable to work because of disability, health issues or caring responsibilities’.
He stated that, “Given our current cost-of-living crisis,” the Government must ensure that every family can access the support they require this winter.
Mr Sunak stated that the current taper is a hidden tax on labor’ for many of society’s lowest-paid members, and a “high rate of tax at this time.”
He announced the change to cheers from The Commons.
“To ensure that work pays and to help the lowest income families in our country retain more of their hard earned money, I have decided to reduce this rate not only by 1% but also by 2%.
The amount that households with children or a household member with limited capability for work can earn before their Universal Credit (UC) payments are reduced will also be increased by £500 a year.
Mr Sunak added: ‘This is a £2 billion tax cut for the lowest paid workers in our country.
“It supports working families and helps with the cost-of-living. It rewards hard work.
The changes mean that nearly two million families will keep on average an extra £1,000 a year, he said.
This is less than a third of around six million households hit by the removal of the £20-a-week UC uplift which came into effect this month.
Also in the spending review, Mr Sunak said the national living wage will increase by 6.6% to £9.50 an hour from next April.
And he said the Government is investing an extra £170 million by 2024/25 into paying for childcare.
Rachel Reeves, Labour shadow chancellor and Labour’s shadow chancellor said that “never has a British Chancellor asked the British people so much for so few”.
She said: ‘After taking £6 billion out of the pockets of some of the poorest people in this country, he is expecting them to cheer today at being given £2 billion to compensate.’