Governments urged to close tax and Universial Credit ‘loophole’
Labour has called for the UK and Scottish governments to work together to close a loophole which sees Scots on Universal Credit lose out on the tax cut of the Scottish starter rate of tax.
The new Scottish starter rate aims to deliver a tax cut of £20 for low paid Scots.
But Scottish taxpayers who are also claiming Universal Credit or means-tested benefits are likely to see a significantly smaller reduction, in some cases as low as £7 for the year.
This is because a £20 increase in their net taxable income will reduce their Universal Credit entitlement by 63 per cent.
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 con- structively together to close this loophole.”
A Scottish Government spokesperson said: “This issue clearly highlights the complexities of our current devolution settlement.
“Those in receipt of Universal Credit who pay tax at the starter rate, benefit from Scottish income tax policy and because of the new band we have created will pay less income tax than anyone anywhere else in the UK.”
The spokesperson added: “This just shows why Scotland should have full powers over welfare so that we could ensure we were protecting people’s incomes and tackling inequality.”