Written evidence submitted by Fran Bennett, Associate Fellow, Department of Social Policy and Intervention, University of Oxford)


3 changes to tax and benefit system to remove cliff edges

Calculation formula for Universal Credit (UC)

UC has a monthly assessment period for the calculation of the benefit paid a week or so later. But to automate the calculation, the formula was made simple. Income is dealt with on a cash flow accounting basis, i.e. any income received in the assessment period is included, no matter what period it relates to; and changes of circumstances (e.g. a child’s birth, or lower housing costs) are treated via a ‘whole month approach’, i.e. applied to the whole month’s assessment period, whenever they occur. CPAG described this as a ‘rigid system creating ‘rough justice’, leaving people ‘struggling to budget with unpredictable and arbitrary awards (

This outcome could be seen as a repeated ‘cliff edge’, or peaks and troughs, as income goes down (and up) repeatedly in relation to needs. This creates huge problems. Instead of helping (or teaching) people to budget their income, as the government argued, UC has made this significantly harder for many. There has been criticism of the monthly UC payment, but in terms of cliff edges the problem is the monthly calculation; a shorter period could create fewer problems, but the rigid calculation formula is key. Saving administration costs through automation overrides the interests of claimants (

In our ESRC-funded research on couples and UC (, we found plenty of evidence of the disruption to budgeting, and lives, caused by the UC assessment formula. Claimants found it very hard to plan for this by putting money aside, as suggested by the government, especially since they did not know the amount of UC much in advance and it was difficult to know if it was correct (, pp135 and 137); in dual earning couples, mismatches of pay frequency and assessment periods could be multiplied: ‘we have nothing [from UC] … when you aren’t expecting it’ (p136). A change of assessment period by claimants is not allowed. If someone loses UC altogether for a month as a result of the workings of the calculation formula, the work allowance is lost and cannot be reclaimed.

The only adjustment made to date, as the result of a court case, is for those monthly paid workers sometimes paid twice within a month, meaning that these can be allocated to two different assessment periods.  More fundamentally, Gareth Morgan (of Ferret) has suggested a way of changing the design of UC to deal with different pay frequencies more generally (

As we said in our first report on UC and couples (p17): ‘In relation to the increased volatility of incomes for some, policy should be guided by the principle that Universal Credit claimants should be able to predict and manage their household income, and make decisions about work and working hours, with greater confidence’. This would mean re-designing the system to produce greater stability in income, as for example proposed in the House of Lords Economic Affairs Committee’s report on UC ( This involved a longer fixed period for the award, with later adjustment if necessary, and interim arrangements for additional income for changing needs.

Passported benefits

The usual understanding of a ‘cliff edge’ is of a drop in income, or perhaps a minimal increase in income, when reaching a certain income level. The Committee’s original interest arose due to its report on cost of living payments, as these are ‘passported benefits’ in effect, in that other benefits act as a route to entitlement. So minimal additional income at the assessment point can mean missing out not only on those other benefits but also on such payments ( ‘those earning £1 above the qualifying threshold lose out on hundreds of pounds).

It was unclear how passported benefits depending on receipt of either in or out of work benefits would be handled on the introduction of UC, given that it integrated these. Key passported benefits included free school meals and free prescriptions on low income grounds. A Social Security Advisory Committee report (2012) included guiding principles and policy proposals. The government response ( emphasised incentives to work; it acknowledged that ‘currently, at the point some passported benefits are withdrawn, recipients often receive an increase in working tax credits that helps compensate for the loss of the value of the passported benefit’ (p5). The DWP suggested it was up to others to solve issues to which UC had given rise, pending longer-term reform: ‘it is important that Government Departments and the Devolved Administrations focus on setting the new eligibility criteria for passported benefits that will need to be in place from 2013’ (p3).

For free school meals, instead of taking up the suggested ‘run-on’ of entitlement, or tapering of support, the government made an earnings cut-off, creating a ‘cliff edge’ for entitlement; given that earnings do not vary with family size, this is especially challenging for those with several children. The earnings limit of £7400/year has not increased in recent years (though there are transitional arrangements for those moving on to UC). For free prescriptions, earnings must also be below a set sum (£435 or less in a month in some circumstances, £935 or less in others, which do not seem to have been increased recently -; but, because of UC’s monthly assessment period, entitlement can vary from month to month. This creates uncertainty and the potential for mistakes and accusations of fraud. For other health costs exemptions, the instructions state: ‘not all help with health costs claim forms have a tick box for UC … tick the box for income-based Jobseeker's Allowance instead. This is, to say the least, confusing for claimants.

In our first report on UC and couples (, we found that fluctuating payments and loss of entitlement to UC could also have knock-on effects for eligibility for passported benefits, which some claimants used to receive on ‘legacy’ benefits such as Child Tax Credit (pp 141, 200, 202).

In response to SSAC the government suggested a longer-term approach to passported benefits, with payment for services, and tapered away: ‘the key benefit of this generic approach is that it could eliminate any adverse effect of passported benefits on incentives to work. This is because the cliff edge issue would be removed’ (p7). This approach has not materialised to date; and to implement it could mean even more benefits being integrated into one (UC), with the accompanying problems this would cause. Alternatively, all those on UC could be allowed to claim; but this would create a ‘cliff edge’ at a different point of the income scale. Providing universal services would be the simplest option. This has been done with free school meals for infants, and more widely in primary schools in Scotland (and planned in Wales); Scotland also provides universal free prescriptions.

High Income Child Benefit Charge (HICBC)[1]

The HICBC was introduced in 2013. The thresholds for withdrawal through the tax system (between £50,000 and £60,000 per year of individual adjusted net income) have not been increased since then ( and This means that growing numbers of people with children have been affected – either by having child benefit withdrawn or by giving up Child Benefit: the IFS estimates that freezing the threshold at which withdrawal begins has led to 26% of families with children (2 million) now losing some or all of their Child Benefit – double the proportion when the policy was introduced ( Those with several children have a higher marginal tax rate, as the charge is 1% for every £100 of Child Benefit.

The then government introduced the HICBC as part of its cuts package in 2010 (modified in 2012), ostensibly to ensure that those on higher incomes also did their part; but it only ever affected those who had children, rather than other higher income taxpayers. Child Benefit is our only fiscal instrument to bring about horizontal and life-course redistribution related to having children i.e. it recognizes that those with children incur additional costs whatever their income, and that bringing up children is a time in the life-course when income is likely to be lower in relation to needs. To compromise these aims by imposing vertical redistribution on only those who have children is mistaken, as well as being the root cause of the high withdrawal rates represented by the HICBC. The Resolution Foundation (2022) has pointed out the high marginal deduction rates caused, in particular for families with several children (55% for one child, 63% for 2 and 71% for 3), and especially when families are also affected by the Universal Credit taper: (Policy in Practice also add in withdrawal of the personal tax allowance at a higher income level:

The HICBC means some half a million more people have to fill in a tax return, solely for this purpose ( It also compromises individual taxation, in that those receiving Child Benefit with a partner earning £50,000 or more may lose it, as well as those earning this themselves. In addition, if people (likely to be women) give up entitlement to Child Benefit to avoid the clawback (almost half a million since 2013:, they can lose out on their state pension, as they will get no credits for any time not paying contributions. (The government has now announced that it will look into how to tackle this: The HICBC is also operated via self-assessment rather than PAYE, making it more complex for taxpayers.

If it is thought that people with higher incomes should pay more income tax, the answer is to increase income tax for all those with higher incomes, rather than targeting only those with children. Child Benefit should be returned to being a universal benefit to fulfil its original functions fully and to end the high deduction rates for some individuals if they increase their income.

Abolition of the Office of Tax Simplification

The Office of Tax Simplification (OTS) was set up in 2010 and made a permanent independent Office of HM Treasury in 2015, to ‘offer recommendations and advice to the Chancellor about how to make the UK tax system simpler (see,Treasury%20on%2021%20July%202015). But it is due to be abolished when the Finance (No. 2) Bill gets Royal Assent. (There was also a Benefit Simplification Unit, which now no longer exists either.)

The Chancellor’s letter to the Committee (20 March) suggests that the reason for abolishing the OTS is that it could not consider the trade-offs involved in Ministers’ decisions about the tax system. But this is because it is an independent body focused on tax simplification, not a government. It could provide some counter-weight to the Treasury’s tight ownership of tax policy; but the Institute for Government (,before%20its%20abolition%20in%202022) notes that it was never given the kind of wider remit that the National Audit Office has

The IfG argues thatperiodic independent reviews of specific areas of the tax system could help to increase public knowledge, improve public debate and open up space for change. This is the role that will be most lacking by abolishing the OTS. It cannot be replaced by the kind of ‘existing strategic function’ across the Treasury and HMRC described by the Chancellor. It is precisely the complexity due to governments’ policy choices ( that often provides the most challenging areas of potential simplification to tackle. This is where reformers within a government may find an independent advisory body’s report useful (although, as PWC notes, governments may often ignore such reports, or only adopt them in part). Neither is the OTS’s engagement with stakeholders replaced by the government doing this.

For example, governments have a duty to carry out equality impact assessments of policy proposals; but this can be conducted with more or less enthusiasm and/or skill, and in any case does not replace the functions of the Equality and Human Rights Commission as an independent statutory body. Moreover, the ‘increased scrutiny of the customer journey’ the Chancellor mentions is only part of simplifying tax. The Treasury Select Committee may argue that its role is to hold government to account; but scrutiny by MPs of a wide variety of Treasury related matters is also different in kind from independent advice from those who have developed expertise in a particular subject.

The Financial Secretary to the Treasury gave a statement on tax administration and maintenance measures on 27 April, building on the Budget announcements. However, none of these tackles the ‘cliff edges’ in the tax system identified in oral evidence to the Committee on 25 April, such as the Higher Income Child Benefit Charge (HICBC), that also make the tax system more complex (solving missing out on National Insurance credits towards a state pension was included, but not the difficulty for children of getting a NINO when a parent has not claimed Child Benefit, both suggested by the OTS).

Reports from the Office of Tax Simplification particularly relevant to this note have included its Life Events report (, for which I was consulted, and which included consideration of the HICBC (see above), followed up by a more recent report updating its work on the HICBC ( These alone prove the value of its role.


May 2023



[1] Note that Carl Emmerson of the Institute for Fiscal Studies applied a strict test to the idea of a cliff edge in evidence in 2012 (, p8), referring to a situation in which an income rise would make someone worse off. The current Treasury Select Committee’s interest, as we understand it, is broader than this, and includes high disincentives.