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Post by Deleted on Apr 10, 2024 18:19:20 GMT
Low earners are being massively disincentivised from working longer and putting in more hours by a seriously disincentivising benefits trap. Universal Credit is cut by 55p for every £1 of take home pay.
I am paid £12 an hour which is typical of the retail sector. Below about £1000 per month I pay no tax or NI, but lose £6.60 from my UC for every £12 earned. In effect my nett gain for an hour's work is thus just £5.40 an hour. But above £1000 and I start paying 28% tax, then lose 55% of whats left. Effectively above £1000 my nett gain for every hour worked drops to about £3.90 an hour. Since my workplace is a 15 mile drive there and 15 miles back, plus bridge tolls, I would have to work two or more hours just to cover my travelling costs, not to mention wear and tear on my car. Any snack or drink I might buy would use up another hour's earnings. Clearly that is barely worth my while.
The situation has also been made worse because my UC entitlement which includes rent costs was £712 per month, but due to increases in both the basic allowance and my rental costs my UC entitlement is now rising to £770 or so. But the tax thresholds have been frozen. . So the level at which it ceases to be worth me earning any more remains at £1000 but the amount I need to take home to escape this trap has increased from about £1300 to £1400. Anyone with much experience in retail will know that apart from the run up to Christmas there is seldom enough overtime going to get your pay above the £1400 level take home.
I am actually one of the fortunate ones in social housing. Colleagues paying private rents are typically paying double what I am paying to their landlords and consequently are in situations where they would need to take home more than £2k a month to escape the benefits trap. No one in retail below management level can hope to do that most of the time. This may well be escapable for two earner households but single earner households have no chance.
Not unreasonably I have concluded that it really isnt worth the stress of working more hours than I need to get to the £1000 level. The difference the tax cuts make to me is mere pence. And my recent 9 percent pay rise only makes me about 30p an hour better off than I otherwise would have been, because between tax and UC clawback I lose about 70% of it above £1k.
How are people like me going to be incentivised to work harder in ways that do not make us even poorer? The obvious answer is for the rate of clawback to be a lot lower once you hit the tax brackets. That might cost more but less than might be thought if it encourages people like me to put in more hours by allowing us to keep more of what we earn
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Post by Zany on Apr 10, 2024 20:41:58 GMT
Low earners are being massively disincentivised from working longer and putting in more hours by a seriously disincentivising benefits trap. Universal Credit is cut by 55p for every £1 of take home pay. I am paid £12 an hour which is typical of the retail sector. Below about £1000 per month I pay no tax or NI, but lose £6.60 from my UC for every £12 earned. In effect my nett gain for an hour's work is thus just £5.40 an hour. But above £1000 and I start paying 28% tax, then lose 55% of whats left. Effectively above £1000 my nett gain for every hour worked drops to about £3.90 an hour. Since my workplace is a 15 mile drive there and 15 miles back, plus bridge tolls, I would have to work two or more hours just to cover my travelling costs, not to mention wear and tear on my car. Any snack or drink I might buy would use up another hour's earnings. Clearly that is barely worth my while. The situation has also been made worse because my UC entitlement which includes rent costs was £712 per month, but due to increases in both the basic allowance and my rental costs my UC entitlement is now rising to £770 or so. But the tax thresholds have been frozen. . So the level at which it ceases to be worth me earning any more remains at £1000 but the amount I need to take home to escape this trap has increased from about £1300 to £1400. Anyone with much experience in retail will know that apart from the run up to Christmas there is seldom enough overtime going to get your pay above the £1400 level take home. I am actually one of the fortunate ones in social housing. Colleagues paying private rents are typically paying double what I am paying to their landlords and consequently are in situations where they would need to take home more than £2k a month to escape the benefits trap. No one in retail below management level can hope to do that most of the time. This may well be escapable for two earner households but single earner households have no chance. Not unreasonably I have concluded that it really isnt worth the stress of working more hours than I need to get to the £1000 level. The difference the tax cuts make to me is mere pence. And my recent 9 percent pay rise only makes me about 30p an hour better off than I otherwise would have been, because between tax and UC clawback I lose about 70% of it above £1k. How are people like me going to be incentivised to work harder in ways that do not make us even poorer? The obvious answer is for the rate of clawback to be a lot lower once you hit the tax brackets. That might cost more but less than might be thought if it encourages people like me to put in more hours by allowing us to keep more of what we earn It does seem ridiculous that they take more than half of what you earn extra. Without taking this off topic, I still say the biggest thing a government could do for you is lower house and rental prices. |
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Post by walterpaisley on Apr 10, 2024 21:38:20 GMT
I still say the biggest thing a government could do for you is lower house and rental prices. .. which would involve the introduction of rent controls. And seeing as how a significant minority of comfortably retired boomers have built "buy to let" into their financial plans (and there are, I'd guess, a pretty sizable percentage of tory voters among that particular group..) the likes of the Daily Mail would be shrieking blue bloody murder about what would doubtless be portrayed as an unconscionable attack on the Free Market. (I can't really contribute much on any discussion of either benefits or social housing - I'm a homeowner who hasn't claimed dole since the eighties, but I'm speaking as one from a town where house prices have more than quadrupled in the last couple of decades, and where rental properties are completely unaffordable to anyone on a low income.) |
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Post by equivocal on Apr 11, 2024 3:40:41 GMT
I still say the biggest thing a government could do for you is lower house and rental prices. .. which would involve the introduction of rent controls. And seeing as how a significant minority of comfortably retired boomers have built "buy to let" into their financial plans (and there are, I'd guess, a pretty sizable percentage of tory voters among that particular group..) the likes of the Daily Mail would be shrieking blue bloody murder about what would doubtless be portrayed as an unconscionable attack on the Free Market.(I can't really contribute much on any discussion of either benefits or social housing - I'm a homeowner who hasn't claimed dole since the eighties, but I'm speaking as one from a town where house prices have more than quadrupled in the last couple of decades, and where rental properties are completely unaffordable to anyone on a low income.) Absolutely! The reality, of course, is the rental market is anything but. The Government pumps around £25bn pa in housing benefit into the rental market pushing up both rents and property prices. I put some figures together on this around 15 years ago and came up with some quite large percentages.
The major problem is how to reduce the inflationary effects without hurting the people who rely on housing benefit. There are many other issues, not least the effect on the banks' ability to lend should property inflation materially slow and the possibility of negative equity for young families.
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Post by Zany on Apr 11, 2024 6:32:17 GMT
I still say the biggest thing a government could do for you is lower house and rental prices. .. which would involve the introduction of rent controls. And seeing as how a significant minority of comfortably retired boomers have built "buy to let" into their financial plans (and there are, I'd guess, a pretty sizable percentage of tory voters among that particular group..) the likes of the Daily Mail would be shrieking blue bloody murder about what would doubtless be portrayed as an unconscionable attack on the Free Market. (I can't really contribute much on any discussion of either benefits or social housing - I'm a homeowner who hasn't claimed dole since the eighties, but I'm speaking as one from a town where house prices have more than quadrupled in the last couple of decades, and where rental properties are completely unaffordable to anyone on a low income.) You can still have an opinion Walter. I too am pretty well of. Anyway, this doesn't have to happen overnight or be unplanned. a gradual increase in housing stock in the form of council houses. To further smooth out the effect on those like my brother who rely on his house (after he remarried) as part of his pension, part of the money saved from housing benefit and made from council house rents could go into the state pension. |
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Post by Deleted on Apr 11, 2024 8:57:34 GMT
Lowering private rents would make a massive difference, but I only pay a social rent of £91.17 a week. Unlike private renters, my rent is low already.
Yet I am still caught in a benefits trap. For every £1 I earn I lose 55p off my UC. Once I hit the tax brackets I lose 28 percent in tax and 55 percent of whats left.
In practice this means that I am losing 55 percent of all my earnings rom £0 up to about £1000, then about 69 percent on any earnings above that which is more than two thirds.
What my nett hourly rate is in terms of what I keep is about £5.40 for the first £1000, dropping to about £3.90 above that. When it costs the best part of a tenner in travelling costs just to get to and from work, clearly it is not worth my while trying to earn more than £1000.
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Post by Deleted on Apr 11, 2024 10:17:59 GMT
Rather than cutting the NI rates, if the threshold itself had been raised by about £1300 instead, I could have earned an extra £100 per pay packet before hitting what for me is a punitive tax rate.
Freezing the thresholds to pay for headline rate cuts is crucifying lower earners to finance bigger cuts for higher earners. Pay has to exceed about £25k before you start gaining more than you lose.
And disincentivising the poor from working more than they have to in this way is economically senseless. We have many people on 16 or more hour contracts in my workplace, and most of the single ones with only their own incomes plus universal credit, point blank refuse to work much if any overtime because it is not worth their while. For UC to work as intended to guarantee work pays without disincentivising people from working more hours, the rate of clawback needs to be much lower, especially when you hit the tax brackets. I would suggest reducing it from 55 percent to 40 percent, dropping to 12 percent of your basic pay when you hit the 28 percent tax brackets. This way low earners will never lose more than 40p of every £1 earned, the cost of which would partly be recouped by more of them choosing to work more hours.
Controlling excessive rents could also reduce part of the cost because for private tenants rent is by far the largest component of their UC claims. Even my low social rent makes up nearly half of my own claim.
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Post by Zany on Apr 11, 2024 15:35:46 GMT
Lowering private rents would make a massive difference, but I only pay a social rent of £91.17 a week. Unlike private renters, my rent is low already. Yet I am still caught in a benefits trap. For every £1 I earn I lose 55p off my UC. Once I hit the tax brackets I lose 28 percent in tax and 55 percent of whats left. In practice this means that I am losing 55 percent of all my earnings rom £0 up to about £1000, then about 69 percent on any earnings above that which is more than two thirds. What my nett hourly rate is in terms of what I keep is about £5.40 for the first £1000, dropping to about £3.90 above that. When it costs the best part of a tenner in travelling costs just to get to and from work, clearly it is not worth my while trying to earn more than £1000. Its ironic isn't it, that you are taxed higher than someone on 55k Are your rights to benefit affected by your social rent being lower? |
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Post by Zany on Apr 11, 2024 15:37:01 GMT
Rather than cutting the NI rates, if the threshold itself had been raised by about £1300 instead, I could have earned an extra £100 per pay packet before hitting what for me is a punitive tax rate. Freezing the thresholds to pay for headline rate cuts is crucifying lower earners to finance bigger cuts for higher earners. Pay has to exceed about £25k before you start gaining more than you lose. And disincentivising the poor from working more than they have to in this way is economically senseless. We have many people on 16 or more hour contracts in my workplace, and most of the single ones with only their own incomes plus universal credit, point blank refuse to work much if any overtime because it is not worth their while. For UC to work as intended to guarantee work pays without disincentivising people from working more hours, the rate of clawback needs to be much lower, especially when you hit the tax brackets. I would suggest reducing it from 55 percent to 40 percent, dropping to 12 percent of your basic pay when you hit the 28 percent tax brackets. This way low earners will never lose more than 40p of every £1 earned, the cost of which would partly be recouped by more of them choosing to work more hours. Controlling excessive rents could also reduce part of the cost because for private tenants rent is by far the largest component of their UC claims. Even my low social rent makes up nearly half of my own claim. What did you expect from a Tory government? Levelling up Lol. |
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Post by equivocal on Apr 11, 2024 20:19:34 GMT
Rather than cutting the NI rates, if the threshold itself had been raised by about £1300 instead, I could have earned an extra £100 per pay packet before hitting what for me is a punitive tax rate. Freezing the thresholds to pay for headline rate cuts is crucifying lower earners to finance bigger cuts for higher earners. Pay has to exceed about £25k before you start gaining more than you lose. And disincentivising the poor from working more than they have to in this way is economically senseless. We have many people on 16 or more hour contracts in my workplace, and most of the single ones with only their own incomes plus universal credit, point blank refuse to work much if any overtime because it is not worth their while. For UC to work as intended to guarantee work pays without disincentivising people from working more hours, the rate of clawback needs to be much lower, especially when you hit the tax brackets. I would suggest reducing it from 55 percent to 40 percent, dropping to 12 percent of your basic pay when you hit the 28 percent tax brackets. This way low earners will never lose more than 40p of every £1 earned, the cost of which would partly be recouped by more of them choosing to work more hours. Controlling excessive rents could also reduce part of the cost because for private tenants rent is by far the largest component of their UC claims. Even my low social rent makes up nearly half of my own claim. Is this because your employer (Tesco?) does not offer full time work? If that is the case, your employer appears to be utilising the benefits system to make some very substantial savings in employers' NIC. |
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Post by Deleted on Apr 11, 2024 20:56:12 GMT
Lowering private rents would make a massive difference, but I only pay a social rent of £91.17 a week. Unlike private renters, my rent is low already. Yet I am still caught in a benefits trap. For every £1 I earn I lose 55p off my UC. Once I hit the tax brackets I lose 28 percent in tax and 55 percent of whats left. In practice this means that I am losing 55 percent of all my earnings rom £0 up to about £1000, then about 69 percent on any earnings above that which is more than two thirds. What my nett hourly rate is in terms of what I keep is about £5.40 for the first £1000, dropping to about £3.90 above that. When it costs the best part of a tenner in travelling costs just to get to and from work, clearly it is not worth my while trying to earn more than £1000. Its ironic isn't it, that you are taxed higher than someone on 55k Are your rights to benefit affected by your social rent being lower? Universal credit includes rental costs, so the fact that my rent is so low means that my total UC is only about £770. But this still means I need to take home more than about £1400 a month to break free of UC entirely. Because my rent is so low I need "only" get my take home pay above £1400 to break free of the trap but thats a tough ask in retail. Colleagues paying £400 a month more than me in rent need to take home close to £2200 a month to break free of the trap, pretty much impossible in retail unless you are the store manager. And yes, it is rather ironic that the Tories thought high earners only being able to keep £500,000 out of every £1 million was punitively disincentivising, yet thinks people like me are going to work enthusiastically when we lose 69% out of our £12 per hour and only get to keep £3.90. |
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Post by Deleted on Apr 11, 2024 21:15:33 GMT
Rather than cutting the NI rates, if the threshold itself had been raised by about £1300 instead, I could have earned an extra £100 per pay packet before hitting what for me is a punitive tax rate. Freezing the thresholds to pay for headline rate cuts is crucifying lower earners to finance bigger cuts for higher earners. Pay has to exceed about £25k before you start gaining more than you lose. And disincentivising the poor from working more than they have to in this way is economically senseless. We have many people on 16 or more hour contracts in my workplace, and most of the single ones with only their own incomes plus universal credit, point blank refuse to work much if any overtime because it is not worth their while. For UC to work as intended to guarantee work pays without disincentivising people from working more hours, the rate of clawback needs to be much lower, especially when you hit the tax brackets. I would suggest reducing it from 55 percent to 40 percent, dropping to 12 percent of your basic pay when you hit the 28 percent tax brackets. This way low earners will never lose more than 40p of every £1 earned, the cost of which would partly be recouped by more of them choosing to work more hours. Controlling excessive rents could also reduce part of the cost because for private tenants rent is by far the largest component of their UC claims. Even my low social rent makes up nearly half of my own claim. Is this because your employer (Tesco?) does not offer full time work? If that is the case, your employer appears to be utilising the benefits system to make some very substantial savings in employers' NIC. It is like that throughout the retail sector and has been for the whole 12 years I have worked in it. Almost no one below management level gets a full time job in retail anymore.. And yes, taxpayers are subsidising low pay via the benefits system. It has long been this way.. Several Tesco managers have explained to me that they prefer to employ people on part time contracts because they are more readily available for any overtime that needs filling, and their shifts are easier to cover when they are on paid leave because they are shorter. A classic example of managers prioritising their own interests above the financial needs of their staff. And they are quite brazenly open about it. I think it would not be unreasonable for such large companies to have a legal obligation to provide full time hours for anyone that wants them before taking on new part timers for the same roles |
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Post by equivocal on Apr 12, 2024 4:39:52 GMT
Is this because your employer (Tesco?) does not offer full time work? If that is the case, your employer appears to be utilising the benefits system to make some very substantial savings in employers' NIC. It is like that throughout the retail sector and has been for the whole 12 years I have worked in it. Almost no one below management level gets a full time job in retail anymore.. And yes, taxpayers are subsidising low pay via the benefits system. It has long been this way.. Several Tesco managers have explained to me that they prefer to employ people on part time contracts because they are more readily available for any overtime that needs filling, and their shifts are easier to cover when they are on paid leave because they are shorter. A classic example of managers prioritising their own interests above the financial needs of their staff. And they are quite brazenly open about it. I think it would not be unreasonable for such large companies to have a legal obligation to provide full time hours for anyone that wants them before taking on new part timers for the same roles The managers' explanation sounds to me like pre-pack corporate speak.
The solution might be to introduce an employers' NIC surcharge based on a gross up to full of part time pay for organisations with more than, say, 50 full time equivalent employees. I think full time vacancies might then magically appear.
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Post by Zany on Apr 19, 2024 6:41:37 GMT
I still say the biggest thing a government could do for you is lower house and rental prices. .. which would involve the introduction of rent controls. And seeing as how a significant minority of comfortably retired boomers have built "buy to let" into their financial plans (and there are, I'd guess, a pretty sizable percentage of tory voters among that particular group..) the likes of the Daily Mail would be shrieking blue bloody murder about what would doubtless be portrayed as an unconscionable attack on the Free Market. (I can't really contribute much on any discussion of either benefits or social housing - I'm a homeowner who hasn't claimed dole since the eighties, but I'm speaking as one from a town where house prices have more than quadrupled in the last couple of decades, and where rental properties are completely unaffordable to anyone on a low income.) I was thinking of more competition rather than rent control. Renting out a house is just another business and anyone relying on a business to fund their retirement knows it can face competition in the future. |
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Post by walterpaisley on Apr 19, 2024 7:16:59 GMT
To have "competition" in which prices are lowered, there first has to be an excess of product - create a Buyer's Market.
In housing, the opposite is true.
(I've been in Cardiff and Swansea this week - the rental markets for young people and low earners are brutal there, too. My recent guest was over from Barcelona, where she lives in a spacious flat in the centre, affordable only because of mandated and enforced rent controls..)
One of the contributory factors in our woeful housing issues has to be that so much stock has been taken out of the low rent/social rental market by boomers looking to build their retirement portfolio.
I'm a fan of the Free Market in many respects, but when it comes to the necessities of life, it can't really be trusted to do the right thing, and it's time for the legislators to step up.
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