The new Labour government must work to fix tax traps which are inherently unfair to families, a tax adviser has said.
Robert Salter, director with Blick Rothenberg, said there were still systemic flaws in the UK tax system which would continue to put pressure on families, unless the government tackles these.
He says: “The UK tax system has a number of anomalies, which can result in people having tax rates of 55 per cent or higher in some cases.
“For example, when Universal Credit recipients work extra hours, people claiming child benefit (or their partner) have an income over £60,000 and become liable to the child benefit clawback, or the write-down of the personal tax allowance which applies when someone earns over £100,000 per annum.”
According to Salter, if the new Labour government is "serious about unemployment, they will relax the effective 55 per cent tax which comes into play when a universal credit beneficiary works a few extra hours".
He added: “Given that Labour appears to have been promising that there won't be any increase to the official top rate of income tax (45 per cent or 47 cent with the NIC surcharge), it is disappointing that the systemic flaws which result in lower to medium-income households being caught by these traps have not been addressed.”
Recent research by charity Action for Children underscored how the cost of living crisis persists for millions of families.
The charity commissioned Savanta to survey 2,000 UK parents in July. It found:
- 8 per cent – an estimated 700,000 families - had never been on a family holiday.
- More than a third (36 per cent) of parents were concerned their child could experience an “unhealthy holiday” due to a lack of money
- This figure rose to nearly half (47 per cent) for those on Universal Credit.
Salter's comments echoed those made by Laith Khalaf, head of investment analysis at AJ Bell, who responded to the March 2024 Budget by calling for a "wider review" of fiscal policy-making to consider how it might be improved.
As reported by FT Adviser at the time, he commented: "The tax system is a patchwork of sticking plasters applied on top of one another over decades. It’s riddled with anomalies, anachronisms and cliff edges which make it a nightmare to navigate.
"The child benefit charge which the [former] chancellor is seeking to address is just one example. Next January could witness a HMRC meltdown as small savers and investors grapple with paying income tax on their savings interest and investment dividends, and capital gains tax on share sales.
"If you wanted to design a tax system from scratch, it would look nothing like this."
