The Reform UK leader is vowing to increase income tax on overtime pay for anyone earning less than £75,000, a policy he says will reward graft, boost productivity and put more than £1,000 a year back into the pockets of nurses, police and factory hands.
Nigel Farage has fired the first shot in what is shaping up to be the most important domestic tax debate in parliament, promising to end overtime tax for the majority of British workers if Reform UK wins the next general election.
Under the proposal, revealed in a Telegraph column timed to coincide with the Makerfield by-election campaign, workers on less than £75,000 working more than a 40-hour week would keep every penny of their extra pay. The group is a “bonus for hard work” and puts the cost at around £5bn a year.
For Business Matters readers who use payroll, the policy sits somewhere between a productivity opportunity and an administrative headache. It also marks the initiative of Mr. Farage is most likely to recast the Reformation as the natural home of the working class voter – an area Labor has long taken for granted.
Direct strike at Burnham’s Labor
Time is not an accident. The Survation constituency poll on Saturday put Labor at 43 per cent in Makerfield against 40 per cent for Reform, a thin line in the seat Andy Burnham is fighting in the hope of using a Westminster perch to challenge Sir Keir Starmer for the Labor leadership.
Mr Burnham’s pitch, a £35bn land value tax paired with a £39bn social care tax, gave Reform a clean line of attack. Mr Farage, writing in The Telegraph, accused Labor of being “more on the welfare side” than Labor, and said ordinary families were being “dragged into the highest tax brackets without showing anything”.
The policy also bears the clear fingerprints of Donald Trump’s “no tax on tips” promise, a mass tax cut aimed at workers who they think will reflexively vote for it.
What it will mean at work
The examples used by Reform are deliberately granular. A nurse on a 40-hour contract at the Royal Albert Edward Infirmary who works six extra hours each week, the group says, will take home an extra £5 an hour and be £1,300 better off for the year. Line workers at a local Heinz factory will earn more than £1,000.
That’s a palpable sum in an area where the median wage has lagged the national figure for the better part of a decade, and it speaks to a broader frustration with the tax draw that has seen many professionals question the value of the extra income as the proposed limits drag them into the highest tax brackets.
For SME owners, the implications are twofold. A real “hard work bonus” can ease employment in sectors where overtime is the difference between closing a shift and throwing out a custom, hospitality, logistics, social care, construction. Office for National Statistics data on average hours worked by industry already shows health care and construction work above the national average in weekly hours, and tax-free increases could significantly change the labor supply figure.
The flipside is management. Reform admits that anti-avoidance laws will need to be written to stop employers rescheduling regular hours as overtime, a temptation that will be particularly difficult for small companies without payroll departments. Amendments to the Working Time Regulations, part of the EU acquis, will also be required.
Audit of financial credibility
This is the announcement of Mr. Farage’s first major tax hike since October, when he scrapped his £90bn austerity package aimed at hardening Reform’s financial picture, is a change Business Matters has already included in our analysis of the party’s revised manifesto which promises seven million workers will not pay tax.
The reform says the £5bn costs will come from £40bn in annual savings, end social security for foreigners, cut foreign aid to £1bn, axing net zero schemes, scrapping self-employment payments for serious concerns and slashing the Civil Service back-office.
Not everyone is convinced. Helen Miller, director of the Institute for Fiscal Studies, called the proposal a “legal and practical problem”, questioning why the tax break should be targeted at workers who already work 40 hours a week. Behavioral risk – that employees and employers simply reorganize existing pay schemes to qualify, one that HMRC will need to plan for from day one.
There is also context to be aware of for British employers. The UK has just seen the largest employer-side tax increase in the developed world on the back of the latest OECD labor cost data, a backdrop that sharpens the appetite for any policy that puts money back into the take-home column without clearly hitting business.
Political studies
Polling by More in Common suggests Burnham-led Labor will beat Reform by 30 per cent to 27 per cent in the general election, within limits, but stronger than the figures Sir Keir is currently posting. Wes Streeting’s level of wealth tax this week, which includes combining capital gains tax with income tax to raise £12bn, further muddies Labour’s message about ambition.
In that confusion, Mr Farage has abandoned a policy that is easy to explain, to call easily behind the payslip and which is aimed entirely at the type of voter that none of the legacy groups can now take for granted.
Whether the Treasury will ever sign off on it is another matter entirely. But with the piece of politics four weeks out from the Reform by-election already being tipped to win, it’s some of the cleanest politics Farage has produced this cycle.
