The new Government must address the 55% effective tax rate on Universal Credit recipients if it aims to reduce unemployment.

That’s according to Robert Salter, Technical Director at audit, tax, and business advisory firm Blick Rothenberg, who highlighted the issue in light of the recent King’s Speech, where the Government committed to focusing on employment. He stated, “While the Government’s commitment to getting the unemployed and under-employed back into the workforce is commendable, the practical implementation of this policy remains to be seen.”

Salter questioned whether the Government would relax the 55% tax rate on Universal Credit, which reduces benefits when recipients work extra hours. “Given that the top rate of income tax in the UK is 45%, it is inequitable that Universal Credit recipients, who typically have lower incomes, face an effective tax rate of 55%.”

He added that this high clawback rate, combined with PAYE and National Insurance contributions, discourages claimants from increasing their working hours, thus counteracting efforts to combat underemployment.