The Tax Problem Families Face in 2024/25
The main problem is that income tax liabilities are unrelated to household incomes with the result families in poverty may be paying tax as well as receiving universal credit. The overlap of the tax and benefit systems traps families in poverty and results in many families having a high marginal tax rate – a higher rate than applies to taxpayers earning over £125,000.
National insurance contributions are also a tax on employee incomes. A year ago the rate most employees paid was 10%. It is now 8%. Not all employees have benefited equally from this tax cut. The cost to the Treasury is over £10 billion a year. Household disposable incomes have increased but families still bear an unfair share of the tax burden and have very high marginal rates. For them the reward from earning extra income is very low.
A long overdue change is the increase in the threshold at which High Income Child Benefit Charge (HICBC) applies.