Scrap tax on overtime hours, says Reform UK

Scrap tax on overtime hours says – Reform UK has called for the removal of income tax on overtime pay for workers earning less than £75,000 annually. The party argues that this change, which it terms a “hard work bonus,” would incentivize productivity and align the tax system with the rewards of labor. According to their calculations, a full-time nurse who works an additional six hours weekly could save over £1,300 each year under the proposed policy. This measure, they claim, would cost the government approximately £5 billion annually, which they aim to offset through planned reductions in welfare benefits.

The policy would apply to 90% of workers, based on the £75,000 income threshold. Reform estimates that around 3.2 million employees receive overtime pay, suggesting the tax cut could benefit a significant portion of the workforce. However, the party’s own figures indicate that the savings would depend on how overtime hours are structured. For example, warehouse workers and prison officers could see notable reductions in their annual tax liabilities. Reform has previously proposed ending Personal Independence Payments (Pips) for individuals with anxiety disorders and removing EU citizens’ eligibility for certain benefits, which they say would generate additional revenue to fund the overtime tax cut.

Reform UK leader Nigel Farage emphasized that the plan would “finally make work pay” and “drive up productivity.” He criticized the current system, stating that hardworking people “look around and see that work simply doesn’t pay, that benefits often match or beat what they earn, and that ordinary families are being dragged into higher tax bands with nothing to show for it.” Farage argued that the policy would restore the appeal of a strong work ethic and encourage individuals to contribute more to the economy. Yet, opponents have questioned the feasibility of the proposal, particularly its ability to balance the projected costs with the expected savings.

Labour, the Conservative Party, and the Liberal Democrats have all expressed skepticism about Reform’s funding strategy. Treasury Chief Secretary Lucy Rigby challenged the party’s claims, stating:

“If Reform want people to take their unfunded, back-of-a-fag packet plans seriously, they should come clean about where their £40bn of cuts would fall and which public services would pay the price.”

Similarly, Shadow Chancellor Sir Mel Stride argued that the proposal “sets out no new savings” and criticized its lack of concrete financial backing. “Hard work should be rewarded,” he said, “which means getting taxes down in a fair and responsible way. Reform’s plan doesn’t address the broader savings needed to justify the change.”

The Liberal Democrats, meanwhile, highlighted their own record on tax reform. Deputy leader Daisy Cooper claimed that “Farage’s fantasy economics is a gamble our country cannot afford to take.” She pointed to the party’s previous success in raising the income tax threshold during its time in power, which took millions out of the tax system altogether. This contrasted with Reform’s approach, which focuses on reducing the tax burden on overtime rather than broadening the threshold for all workers.

Experts have also raised concerns about the policy’s practical implications. Helen Miller from the Institute of Fiscal Studies noted that the proposal is “problematic in principle and practice.” She questioned the rationale for targeting overtime hours specifically, suggesting it might not effectively encourage more labor supply. “If the intention is to increase productivity,” Miller added, “it is not clear why an incentive should be focused on employees already working at least 40 hours a week.” She also warned that the policy could lead to creative accounting, where employers classify more work as overtime to reduce tax payments. “Evidence from a similar French policy is not encouraging,” she said, citing potential unintended consequences.

Reform UK has defended its approach, stating that the policy would address the imbalance between work and benefits. The party plans to modify EU laws, such as the Working Time Regulations, to ensure the tax cut is accessible to those who qualify. This would involve adjusting rules around overtime classification to maximize the impact of the reform. However, critics argue that such changes might not be enough to cover the full cost, especially if the policy leads to disputes over how overtime hours are defined.

Recent data from the Trade Unions Congress provides context for the debate. Their analysis revealed that in 2024, 3.8 million people worked an average of 7.2 unpaid hours weekly, resulting in annual earnings losses of £8,000. These unpaid hours were most common among workers in education, healthcare, and care sectors, where job demands often exceed standard working hours. Reform’s proposal aims to address this by reducing the tax on overtime, potentially encouraging employees to work additional hours without financial penalty. But some argue that the policy could inadvertently shift the burden onto workers who are already overcommitted, rather than simplifying the system for everyone.

Supporters of the plan claim it would create a fairer incentive structure, rewarding those who put in extra effort. They argue that the current tax system penalizes hard work, especially for individuals in lower and middle-income brackets. By abolishing the tax on overtime, Reform believes it can foster a culture of dedication and efficiency. However, opponents warn that the policy might not achieve its intended goals if the savings from welfare cuts are insufficient or if the overtime classification becomes a loophole for tax avoidance.

Reform UK’s stance reflects a broader ideological shift toward reducing government expenditure while maintaining or increasing employment rates. The party’s proposals align with its commitment to fiscal conservatism and a more merit-based approach to taxation. By linking the overtime tax cut to its welfare reforms, Reform aims to present a unified case for improving public finances through labor market incentives. Yet, the effectiveness of this strategy hinges on the success of its cuts to benefits, which have yet to be fully proven in practice.

As the debate continues, the policy highlights the tension between rewarding labor and balancing budgets. While Reform argues that the changes will make work more appealing and drive economic growth, critics remain unconvinced. They point to the complexity of the tax system and the potential for unintended consequences, such as reducing the incentive to work fewer hours or creating disputes over how overtime is calculated. The challenge for Reform is to demonstrate that its proposals are both practical and sustainable, ensuring that the benefits of the overtime tax cut outweigh the costs to public services.

With the policy now under scrutiny, the next step will be to assess its potential impact on workers, employers, and the national economy. Reform UK’s ability to secure support for its plans will depend on how effectively it addresses concerns about funding, fairness, and long-term viability. As discussions progress, the question remains: will scrapping the overtime tax provide the much-needed boost to work ethic, or will it create new challenges in the tax system?

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