New Income Tax Loophole Discriminates Against People On Universal Credit

Universal Credit has received a fresh blow to its already flimsy credibility today, as it was revealed that the new Scottish starter rate of income tax would provide less money to Universal Credit recipients.

Scottish Labour analysis identified this loophole, which could see some recipients receiving £13 less in savings from the lower rate of income tax than their peers on similar levels of income. Universal credit affects 26,000 people in Scotland, and the rollout is due to be finished by the end of this year - though constant delays and failures make some observers doubtful.

Nevertheless, the Scottish and UK government knew about this loophole and did nothing to stop it. Given the wider picture, a tax cut of £20 is risible anyway, compared with the loss of real income and services people have suffered over the last eight years. But given the consistently poor growth in pay for low earners, this should have been considered in the run up to the tax changes. It’s true that the Scottish government needs to increase tax revenues significantly, but as we reported on last week, income tax changes will never be sufficient for this. Wealth is far more unevenly distributed, and a wealth tax would not hammer universal credit recipients.

Scottish Labour’s social security spokesperson Mark Griffin said:

“The Scottish and UK governments need to be working together to fix this. The tax and benefit system should be maximising the amount of money going to workers on low incomes.

“Instead this loophole is denying people on Universal Credit what SNP ministers promised would be a tax cut.

“There are already significant problems with Universal Credit, that’s why Labour wants it paused and fixed.  In the short term we need to see both governments work constructively together to close this loophole.”

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