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Effects of High Marginal Deduction Rates

Volume 714: debated on Tuesday 17 May 2022

5. What assessment he has made of the effects of high marginal deduction rates on work incentives for people who are (a) key workers, (b) on below average incomes and (c) on above average incomes. (900054)

The Government are committed to helping people keep more of what they own and I give credit to my hon. Friend for his work, which was instrumental in our lowering of the universal credit taper rate from 63% to 55%. That is a tax cut for low-paid workers on universal credit. He will know that from July we will raise the national insurance contributions threshold so that the amount that working people will be able to earn tax-free will increase by £2,690, helping to ensure that work pays.

I thank my right hon. and learned Friend for her kind comments. The changes that she has just re-announced are extremely welcome. With energy and food prices continuing to spiral, does the Treasury team accept that they will soon have to go even further? Do they agree that compared with increasing benefits, further cuts in these combined tax and benefits withdrawal rates will be a better way to put money in the pockets of many lower-paid families and that in future, the combined rates paid by less well-off families should never be higher than the top rates paid by the rich?

My hon. Friend has a keen interest in this area and I read his report, “Poverty Trapped”, with some interest. He makes a valuable point and will know that the Government have made progress in this area. The old system applied an effective tax rate of more than 90% to lower earners in some cases and, as a result of the changes we have recently made, an adult working 35 hours at the national living wage with two children over five will, for example, benefit from an additional £1,610 a year.

May I invite the Minister to come to Wakefield with me? I was there on Saturday morning. The people there have not read the Bloomberg report, but they can feel the impact of rising taxes and the cost of living. They know that they will be in desperate trouble in the coming months. Will she get real and bring the Chancellor to an area of good hard-working people who face the future with great fear?

I thank the hon. Gentleman and am sure that I will soon make a visit to Wakefield. The Government understand the issue with the rise in the cost of living but over this year we have committed £22 billion to support people in their time of need. The people in Wakefield that the hon. Gentleman talks about will also benefit from the cuts we have made to taxes, such as the universal taper rate, a tax cut for 1.2 million people and an extra £1,000 in their pockets. We have increased the threshold to the NICs rate, a £6 billion tax cut for £30 million working people. As I said—[Interruption.]