Firms should be allowed to offer hard-up workers one-off, cost-of-living payments of up to £650 without welfare payments being slashed, business chiefs demand tonight.
Industry leaders want to help staff battling high prices and the living standards crisis.
But they say they often cannot afford inflation-busting wage hikes - and do not want pay rises to be built in when inflation falls.
They also fear employees could lose some benefits because of the Universal Credit taper rate - with some workers even refusing pay increases as their welfare payments could be cut.
Speaking exclusively to the Mirror, the Confederation of British Industry urged Chancellor Jeremy Hunt to overhaul the system when he delivers his Budget next month.
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Director-general Tony Danker said: “Many bosses want to help people with the cost-of-living crisis but can’t afford the level of pay rise they would want to give.
Confederation of British Industry director-general Tony Danker (PA)“Hopefully, we’ll see inflation fall to single digits later in the year.
“But households on lower incomes especially will still be feeling the pinch and making tough choices each and every day on their own budgets.
“That’s why many firms have been trying to make one-off payments in addition to pay rises they can afford - problem is, people have to then pay tax on the payment and some have found themselves in the staggering situation of turning payments down as it will impact their Universal Credit.”
Currently, if a company offered a one-off, cost-of-living cash payment of £650 on top of regular monthly pay, in a worst-case scenario the employee could lose up to £358 of Universal Credit - with the payment itself potentially being subject to PAYE and National Insurance.
Universal Credit is paid in arrears based on the income received in the last calendar month.
Chancellor Jeremy Hunt delivers the Budget on March 15 (Tayfun Salci/ZUMA Press Wire/REX/Shutterstock)A taper rate reduces the amount by 55p for every £1 a claimant earns over the monthly work allowance - £573 a month or £344 if they receive housing support.
Some claimants are ineligible for a work allowance.
When Mr Hunt announces the financial statement on March 15, the CBI wants him to ring fence from one-off cost-of-living payments to workers earning below the £33,000 average salary from benefits assessments.
Mr Danker added: “We think the Chancellor should help here when the Budget comes around next month - make these one-off, cost-of-living payments tax free this year so all that money goes into people’s pockets and ensure that workers are not penalised by the Universal Credit system for accepting that payment.”
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The Mirror understands the recommendation has been submitted to the Treasury as part of the CBI’s Budget submission.
A Department of Work and Pensions spokesman said: “We recognise the pressures of the rising cost of living, which is why we delivered £1,200 of direct help to eight million households last year, including £400 towards energy costs, and will be providing £1,350 of support to the most vulnerable households in 2023-24.
Work and Pensions Secretary Mel Stride (Anadolu Agency via Getty Images)“Universal Credit is a means-tested benefit – additional income is treated as earnings and payments are gradually reduced as someone’s earnings increase.
“But this Government will always take steps to make sure work pays.
“We have already cut the Universal Credit taper rate and increased the work allowance, so claimants can keep more of their hard-earned money – a boost of £1,000 a year on average.”
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