‘Interesting’ exchange between Therese Coffey and the chair of the Lords Select Committee on Economic Affairs last week on the UC taper rate and marginal rates of tax …
The Chair: Are you really comfortable with the Government’s policy that marginal rates of tax should not be higher than 45% because they disincentivise people from working and creating wealth, when the effective marginal rate of tax on the very poorest people is 63%? Surely that cannot be seen as fair, equitable or consistent with the view we take on taxation …
Therese Coffey: …. I am comfortable with that …
The Chair: … some of the highest-paid people in the country are not paying more than 45%, yet the poorest and most vulnerable people in the country are effectively paying 63%.
Therese Coffey: I am not sure they are on their overall income. I recognise what you say about the taper rate, which is 63%, but you combine that with things such as the tax allowance and tax rates that we have reduced.
The Chair: So what is it?
Therese Coffey: What is what?
The Chair: What is the marginal rate that they are paying?
Therese Coffey: When it comes to the universal credit elements, I fully accept that the taper rate is 63%, but every individual is different. One of the bonuses of universal credit is that we are not dictating what income they have from other aspects. The amount of support you will get on universal credit will vary substantially according to your situation, so it is a more dynamic benefit that reflects your real-time earnings, but without question you are better off working than not working.
The Chair: But you will be worse off than working people on very high incomes.
Therese Coffey: I am not sure I accept that.
The Chair: It is based on how much of what you earn you get to keep. You accept that.
Therese Coffey: I do not accept that, but I accept that you believe that.
The Chair: How much of an extra pound that people earn they can keep is a matter of fact, is it not?
Therese Coffey: I accept that the taper rate is 63%. What I am saying to you is that I cannot tell you the exact percentage of tax people pay on their income when they are eligible for universal credit …