Make Work Pay
Keep more ofyour next hour.
Work should always pay. For some people it barely does, because the tax and benefit systems take back most of each extra pound earned, and at one line they take back more than the pound. Pick a situation and see how much of the next £100 is kept.
Figures checked 27 Sep 20262026/27 rates · rest of the UK outside ScotlandSources
See it
Understand it
Universal Credit is withdrawn at 55p for every extra pound of take-home pay above any work allowance. Take income tax and National Insurance off first and a working claimant keeps about 32p of each extra pound: an effective rate of 68%, higher than anyone pays at the top rate of income tax. Between £100,000 and £125,140 the personal allowance is withdrawn, so that band carries 60% income tax plus National Insurance, and a parent who crosses £100,000 loses childcare support outright.
These rates are a design choice: how steeply support is withdrawn, and how badly the tax and benefit systems are joined up. Governments of both parties built that design, and it can be rebuilt so that work always pays.
The lines that matter
- 55pUniversal Credit taper on each extra £1 of take-home pay.
- 28pBasic-rate income tax plus National Insurance.
- £100kAllowance taper starts; childcare support ends. Not uprated since 2010.
- £2,000Tax-Free Childcare per child a year, lost above the line.
Fix it
Lower the taper
Reduce the rate at which Universal Credit is withdrawn, so each extra hour of work leaves a claimant clearly better off.
The trade-off
More benefit is paid to people further up the earnings scale, and that has to be funded.
Raise the work allowance
Let people earn more before any withdrawal starts, so part-time work and the first steps back into a job are rewarded in full.
The trade-off
A direct cost, best targeted at the groups where it changes behaviour most.
End the cliff edges
Taper childcare support gradually instead of cutting it at £100,000, and uprate that line, which has not moved since 2010.
The trade-off
Smoothing a cliff spreads its cost over a wider band of earners.
Sources and method
- GOV.UK · Universal Credit: how your earnings affect your payments: payments fall by 55p for every £1 of take-home pay above any work allowance.
- GOV.UK · Income Tax rates, income over £100,000 and National Insurance rates: 20% basic rate, 40% higher rate, allowance withdrawn by £1 for every £2 over £100,000; employee National Insurance 8%, and 2% above £50,270.
- GOV.UK · Tax-Free Childcare: up to £2,000 a year per child (£4,000 if disabled), not available if either parent's adjusted net income is over £100,000. GOV.UK · Childcare hours for working parents: the same £100,000 limit.
- Institute for Fiscal Studies · effective marginal tax rates.
Each figure is what is kept from £100 of extra gross pay for an employee, on 2026/27 rates, rounded to the nearest pound. On Universal Credit with tax: £100 minus £20 tax and £8 National Insurance leaves £72; the taper takes 55% of that (£39.60), leaving £32.40. Between £100,000 and £125,140: £40 tax, £20 from the lost allowance and £2 National Insurance leaves £38. Pension contributions, student loan repayments and other benefits change these figures; Scotland has different income tax bands. The childcare cliff depends on what a family uses, so it is shown as the most that can be lost.