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Rishi Sunak has confirmed that he will cut the Universal Credit taper rate by 8% in time for the new year, meaning people receiving in-work benefits will be able to keep more of their earnings.
The Universal Credit taper rate is the amount of Universal Credit income deducted from a claimant as their earnings exceed a certain threshold.
Currently, the Universal Credit taper rate sits at 63%, meaning for every £1 a claimant earns above a set threshold, their Universal Credit payments are reduced by 63p.
During today’s Budget, Sunak announced that by December 1 the 63% figure will drop to 55%.
Announcing the new policy, the Chancellor described the taper as a “hidden tax on work” hitting the “lowest paid in society”.
The taper has been described by some critics as a punishment on low-income workers and has been denounced by the likes of the Trades Union Congress, the Joseph Rowntree Foundation, the Resolution Foundation and the Centre for Social Justice.
The Chancellor also confirmed that work allowances will be increased by £500.
According to the treasury, these measures mean nearly two million families will save an extra £1000 per year.
Sunak said the change would mean a single parent with two children, renting and working full time, will save £1,200 over the period of one year.
In the same time frame, a couple with two children, renting their home while one works full-time and the other part-time, will save £1,800.
“This is a £2bn tax cut for the lowest paid workers in the country,” Sunak told a packed Commons during his budget speech.
“It supports working families, it helps with the cost of living and it rewards work,” the Chancellor added.
Today’s taper rate announcement follows the government’s decision to withdraw the £20 universal credit uplift that was introduced to ease financial burdens on low-income families during the coronavirus crisis.
The uplift cut, which came into force earlier this month, saw nearly six million claimants lose a total of £1,040 a year.
Some Conservatives will now argue that lowering the taper rate has cancelled out the burden imposed by cutting overall Universal Credit.
“As we look towards the future, I want to say this simple thing to the House and the British people: My goal is to reduce taxes,” Sunak said.
“By the end of this Parliament, I want taxes to be going down not up. I want this to be a society that rewards energy, ingenuity and inventiveness. A society that rewards work.”
Particularly with the backdrop of government raising national insurance by 1.25% to fund health and social care, the Treasury has been keen to stress Sunak’s desire not to tax working people.
The treasury has not, however, ruled out further tax rises being imposed in the future.
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