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What are Enterprise Investment Schemes?

What are Enterprise Investment Schemes? post image

More and more people are asking me about Enterprise Investment Schemes (EIS) these days.

Maybe it’s because the well-off are weller-offer than ever before that these more obscure schemes are hitting their radar.

Perhaps it’s the squeezed middle resenting their tax bills.

In my personal life, I know it’s a consequence of an infuriating number of my friends joining the mid-seven-figures club on selling businesses.1

At the other end of the spectrum are the patrons of crowdfunding sites like Seedrs and Crowdcube. These platforms heavily promote the tax benefits of investing in start-ups that qualify for EIS status.

And crowdfunding is indeed – for good or ill – very accessible.

EIS funds can have high minimum investment hurdles. If you can’t slap down tens of thousands with some of them, your name’s not on the door.

In contrast, I’ve claimed 30% tax relief on a £10 EIS investment with Seedrs. I even got a pizza and beer thrown in.

So – free nosh aside – what’s all the fuss about?

What are Enterprise Investment Schemes?

Enterprise Investment Schemes (EIS) are tax efficient investment vehicles offering 30-50% income tax relief.

EIS enable venture capital-style investing, with downside protection and tax-free capital gains.

Downside protection is a way of saying your maximum losses are reduced. This is due to upfront tax relief – a bit like getting cashback from HMRC on your initial investment. There’s also the possibility of reducing your tax bills with loss relief. This offsets EIS losses against income or capital gains.

Taking into account these reliefs, an investment of £1,000 into an EIS qualifying start-up might only expose you to a maximum loss of £375, if you’re a 45% taxpayer, even if the investment went to zero.2

Of course, there’s an opportunity cost. You could have put your money into a global tracker instead. Then your £1,000 might have grown to £1,300 over three years, say, although this would be liable to tax.

You can invest into EIS-qualifying companies directly or via an EIS fund.

Further research might see you choose between:

  • Approved versus unapproved funds
  • Capital preservation versus capital growth
  • EIS versus Seed EIS (SEIS)

Whether investing directly into EIS-qualifying start-ups or via EIS funds, you need to be happy with the companies themselves. Or else have a lot of faith in the EIS fund manager choosing them for you!

EIS versus VCTs

There are two specific tax-favoured ways to invest in start-ups in the UK:

  • EIS offer tax benefits such as tax-free capital gains, income tax relief, and IHT and loss relief.
  • Venture Capital Trusts (VCTs) offer tax-free dividends and income tax relief. Again, any (rarely substantial) capital gains can be tax-free.

Investors who annually max out their ISA allowances and pension contributions might find VCTs the logical next step.

I’d stress though that high costs and mediocre returns mean this isn’t a no-brainer. The benefits of tax relief can be outpaced in the medium-term by a taxable investment that grows faster, helped along by lower fees.

If you decide to investigate VCTs, I’d look for funds with a track record of dividend payments from a maturing portfolio of companies. The most established VCTs are now decades old, with proven managers.

As for EIS, more sophisticated or high net worth investors looking for tax efficient investments are often steered in this direction – perhaps by an Independent Financial Advisor.

The ability to use EIS investments to defer big capital gains tax bills can be particularly attractive to these people. But a lot of research – and potential professional advice – is a must if this is your motivation.

The tax benefits of EIS

Most retail investors look no further than VCTs when considering the next rung of tax-efficient vehicles after ISAs and pensions.

However the EIS tax breaks are undeniably attractive:

  • Income tax relief. 30% income tax relief (rising to 50% for SEIS, as explained below) on a maximum investment of up to £1 million per tax year (or £2 million if into knowledge-intensive companies).
    • The income tax relief can only reduce an individual’s income tax liability to zero.
  • Tax-free capital gains. The sale of EIS shares at a profit is free of capital gains tax provided you’ve held them for at least three years.
  • Capital gains deferral relief or exemption. A capital gain made on the disposal of any kind of asset can be ‘deferred’ by re-investment into EIS-compliant companies. The deferred gain is then due on the sale of the EIS shares, unless the sale is to a spouse or on the death of the shareholder.
  • Capital loss relief. Capital losses on EIS shares can be set against income in the year the loss arises, or the previous tax year. The benefit of this tax relief will depend on your marginal income tax rate.
  • Inheritance Tax (IHT) relief. Investments in EIS-compliant shares should generally benefit from 100% relief from inheritance tax. This is provided the investment is held for two years and at the time of death. (This arises because the majority of EIS investments should qualify for Business Relief. But take specialist advice on this if needed).

Approved versus unapproved funds

If you decide to go down the EIS investment fund route, you’ll find there’s a choice between two types of funds – ‘approved’ or ‘unapproved’.

Approved funds

An approved fund’s prospectus has been reviewed by HMRC. The rules recently changed to encourage investment into knowlege-intensive companies. As I understand the guidelines, an approved fund must invest at least 50% of its assets into EIS-compliant investments within a tax year, and 90% within two years. Further, 80% of those investments must be made into knowledge-intensive companies for the fund to be an approved knowledge-intensive fund. This enables higher maximum tax relief of £2 million, and tax relief at a pre-determined date.

Such funds are very new, but they have started to appear.

Because of the deadlines on investing capital, you should be confident your chosen fund has identified its deal flow in advance.

Unapproved funds

The vast majority of EIS funds are unapproved, and investments made benefit from income tax relief.

For example, a fund manager may take up to two years to invest the fund. If they manage the timing of investment so that the fund is split equally over the two years, income tax relief is available across two tax years at 30% (as currently legislated).

Unapproved funds therefore offer greater flexibility in regard to income tax relief.

There’s a huge range of EIS funds available, and not much comment about them. One place to see what’s on offer is the WealthClub website.

Direct EIS investment

Monevator readers are likeliest to make any EIS investments by dabbling in crowdfunding via Seedrs and Crowdcube.

The minimum investment here can be as little as £10. You often get fun rewards depending on how much you put into your chosen firms, too.

Other perks include meeting company management and a nice community feel to crowdfunding events. The whole scene can be educational.

You get the same tax reliefs as if you’d invested in an EIS fund.

Set against all that, crowdfunding into unlisted companies is the Wild West of investing. Arguably few startups would chose to crowdfund if they could get venture capital backing, which implies lower-quality opportunities. It’s still relatively early days, but there have been far more failures than notable exits. Valuations are often fanciful. It’s an easy way to lose money.

I’ve chosen to invest a small single digit percentage of my net worth across dozens of EIS-qualifying startups. But this is definitely not for everyone.

Directly investing a larger sum into a single EIS-qualifying firm could be attractive if you truly understand its sector and the nature of its business.

However, if you directly invest into only one or two companies, your portfolio will lack diversification. If you’re a chunky shareholder, you may even find yourself needing to put more cash and time in further down the road to keep the business going.

Investing with an EIS fund

With an EIS fund, you should benefit from a wider exposure compared to direct investment.

Your money will be spread across a number of businesses – perhaps in different sectors and at different stages of growth.

A fund will also have deeper pockets than all but the wealthiest individuals. This means it should have the firepower to provide any extra capital if needed to unlock the value of an investment.

For these reasons, I’d suggest that unless you personally know the EIS-qualifying company – perhaps because it was started by friends, family, or work peers – that funds may be the best way to invest larger sums into EIS.

Capital preservation or capital growth

EIS funds today are focused on capital growth, either via a generalist or specialist fund.

The government took a hard line against previous capital preservation vehicles that acted against the spirit of the EIS legislation. There are now tests is in place to determine whether or not the product qualifies for EIS relief. You (or your advisors) need to be sure that any EIS fund you select is truly compliant under the government’s rules.

When investing for capital growth, a fund manager or investor seeks capital gains on an investment, typically over a four to seven-year period. In the meantime you aim to benefit from income tax reliefs on your investment in the short-term and tax-free capital gains and IHT relief in the medium to long term. There’s also that substantial loss relief should an investment fail.

The clear risk is your fund doesn’t perform over the long-term. So you need to be confident your money is going into a balanced portfolio with a high probability of a capital gain.

EIS versus Seed EIS

A last option to consider is Seed EIS (SEIS). This is like EIS on steroids, with even higher tax reliefs for investing in even younger, riskier companies.

Under SEIS, you can invest up to £100,000 in a financial year to benefit from 50% income tax relief, irrespective of your tax bracket.

The definition of an SEIS business is different from that of an EIS-compliant business:

  • Seed EIS businesses are smaller (fewer than 25 employees and gross assets of less than £200,000).
  • The businesses are younger (less than two years old).

A company can only raise a maximum of £150,000 from SEIS in its lifetime.

Clearly 50% upfront tax relief substantially protects the downside of a Seed EIS investment. Especially as you can claim loss relief, too, if need be.

VCTs, EIS, SEIS, or as you were?

I understand the growing interest in all these vehicles. Very high earners squeezed by the tapered annual allowances on pension contributions can’t be blamed for looking elsewhere.

My honest opinion though is most readers don’t need to get involved with any of them.

For most people, filling their ISAs and using their pension allowances every year is enough. They don’t need anything more exotic.

Upfront income tax relief is superifically very attractive. But remember the returns are likely to be low (VCTs and EIS funds) or non-existent (most direct investments you make via crowdfunding).

I’ve had a few of my crowdfunded investments go up more than tenfold, on paper. Which sounds great! But the reality is any investor in unlisted companies needs to see a few enormous winners to make up for all the duds.

If you invest via an EIS fund, you outsource this to a manager. That at least gives you a diversified portfolio, but performance seems to have been hit and miss so far. And with both EIS funds and VCTs, high fees are nailed-on.

I say ‘seems’ incidentally because good luck finding an easily decipherable comparison of EIS fund returns. This isn’t surprising, given the nature of the beast, but it’s still a big drawback. You’ll find much more trumpeting of the amount of money the funds pull in, as opposed to what they’ve paid out.

VCT returns are more widely available. They have been mediocre, but when you take into account the initial tax relief the best have not disappointed their holders.

VCTs are pretty illiquid, however, so ideally you’d be happy to bank those tax-free dividends indefinitely.

Do your research

Nobody will come a cropper punting fun money into EIS startups on Seedrs. If that’s a hobby for you, then best of luck.

As a major portion of your wealth planning though, these vehicles require a lot of thought and research. You may also benefit from financial advice. (Not to be mistaken with a sales pitch from the sector.)

Further reading:

Note: I am an investor in Seedrs. We’ll both get a £50 investment credit if you follow my link to sign-up and invest £500 within 30 days.

  1. I’m happy for them. Really! Look at my face. No no, that smirk is genetic. []
  2. You’d get £300 income tax relief on investing. Loss relief of £315 if it lasted three years. So as a 45% taxpayer you’d get £615 back of your £1,000 investment. []
{ 21 comments… add one }
  • 1 Matthew April 8, 2021, 4:54 pm

    The mediocre returns are a product of the tax relief already being priced in – i.e. I’ll sell you a tube of Pringles at 50% off a ticket price of £5.

    So your relief just goes straight into the share price.
    At least the Help to buy scheme, by inflating the cost of houses, would have encouraged building at those higher prices – likewise this government support for EIS/Venture uses public money to sweeten the deal for start ups, but not so much for investors.

    Maybe thats good, maybe it’s not, but I imagine its not the worst way to use gov money.

    I looked through some of the pitches on Seeders out of curiousity but wasn’t particularly inspired – but then again I’m someone who sees no need for most of the high street/shopping center shops.

  • 2 Mr John Boggiano April 8, 2021, 6:25 pm

    Typo alert.
    Three paragraphs above Do Your Own Research…

    I say ‘seems’ incidentally because good luck funding a clearly decipherable comparison of EIS fund returns.

  • 3 The Investor April 8, 2021, 8:59 pm

    @Mr B — Thanks! Fixed now.

  • 4 mr_jetlag April 8, 2021, 11:12 pm

    Couple more typos, sorry TI.

    “Such funds a very new…”
    “This is like EIS on sterioids”

    I think the deal breaker for me is the quality of the businesses on offer. If the myriad PEs/VCs, angel investors and direct lenders have not seen fit to finance your venture, it must be really bad (as in early episode of Dragon’s Den bad). Perhaps any multi baggers are down to chance (which again points one to EIS funds and then back to VCTs).

  • 5 Andrew April 8, 2021, 11:19 pm

    The best performers on Seedrs seem to be those that were never EIS eligible to begin with.
    Revolut is up 10x since its first listing there, for instance.

  • 6 The Investor April 9, 2021, 8:57 am

    @Andrew — Definitely EIS isn’t everything. One of my best unlisted investments is (was?) Monzo, which again was not EIS eligible. It’s worth noting that was because banks weren’t allowed to be EIS eligible for some reason, not because not-EIS-eligible is a useful screen IMHO.

    @mr_jetlag — No need to apologise, thank you! @TA gets subbed by me. I rely on the Wisdom of the Crowds, and not being as sleepy as I clearly was yesterday. Re: selecting EIS companies being down to chance, Seedrs has an automation tool that enables you to automatically make lots of (small if you like) investments across multiple companies according to criteria you set. It also offered access to London VC fund Passion Capital for about eight hours before it was over-subscribed last week, which was a welcome development I felt.

  • 7 Amit April 9, 2021, 9:03 am

    “VCTs are pretty illiquid, however, so ideally you’d be happy to bank those tax-free dividends indefinitely.”

    Is this correct? I have been ploughing money into VCTs versus EIS, on the basis of the buy back promises at 5% less NAV. And then hoping to take a second dip at the 30% tax relief on reharvesting the proceeds.

  • 8 The Investor April 9, 2021, 10:47 am

    @Amit — Well having to take a haircut of 5% to sell your assets would fit most people’s definition of illiquid! 🙂

    They do have liquidity versus, say, an annuity with no liquidity, which is why they can be attractive for wealthy retirees who want income but don’t want to surrender their money forever. And they can be sold in the open market, too – I sold a bunch at the onset of the financial crisis, when they weirdly held up in value for a few months (before crashing later into that saga).

    But they’ve nothing like easy liquidity of most mainstream investment trusts, in my experience and understanding.

    Your plan may well be sound, for you, I can’t comment on that, but might be worth doing a few test trades or similar to make sure you’re comfortable, though I guess if you’re planning to sell back to the fund this isn’t feasible until the day comes.

  • 9 Andrew April 9, 2021, 11:50 am

    I really don’t understand why anyone would want to ‘invest’ in something like a hipster new juice brand on Seedrs. Imho, you either have to be willing to be invested in one of the rare genuinely interesting companies on there, for at least 10 years, or get in on a unicorn (Revolut, Monzo, etc) and wait for it to go public. Either way it’s a huge punt.

    On the Seedrs secondary market you will find shares going for 20%+ discount, effectively cancelling out any EIS tax benefit if none of your shares have appreciated over the minimum 3 year investment period.

    Claiming back your 30% tax rebate on EIS investments can also be a long process. I filed my self assessment return for FY 2019/20 at the end of last year and still haven’t been paid by HMRC, so it can be going on 2 years before you get that cash back for reinvestment.

    Liquidity is definitely an important and often under-appreciated aspect of these more obscure investments. Some facets of liquidity that I’ve noticed over the last year:

    – After moving to London, and in with my partner, realizing I will likely never buy a home under £450K, and that my Lifetime ISA is now effectively a ‘pension ISA’. Faced with taking a 6.25% haircut come April 2021 if I wanted out, I sold out before the deadline and rolled the proceeds back in to my regular ISA – this used up my entire allowance for FY 2021. Fortunately, this only took a couple of days.

    – In March 2020 I found myself reading emails from various P2P loan investment platforms saying that they had, some combination of: paused reinvestment, disabled withdrawals/loan sales, introduced new fees, and/or were cutting their return rate. There was no option here but to ride it out. Luckily the biggest allocation I have is now liquid again.

    – In general, with P2P investments, you can assume that 10% of your capital will be tied up in underperforming/defaulted loans at any given time, and is therefore illiquid. This locked-up capital significantly reduces the effective return rate on these kinds of investments if you *must* sell at some point. (Sacrificing 10% is like going from 5%/year to 3%/year after a 5 year investment period).

    Sufficed to say, over the last year I’ve channeled all new money in to standard publicly traded assets.

  • 10 The Investor April 9, 2021, 12:31 pm

    @Andrew — Yep, it’s clearly not for you. 🙂 As I said in the piece, nobody needs exposure to this asset class.

    I am an active investing junkie and come at it from entirely the other angle.

    A big part of me would love to invest 75% of my assets in EIS-qualifiable startups! I love meeting management. I love reading the pitch decks. I love going to the meetings. I love looking for winners. I love it when one of them works. I am very happy with a lower tax bill as a result of backing these companies, haha.

    Now of course, I am many dubious things but not a financial idiot. That is why not 75% but only about 3% of my assets are in unlisted equities right now, on the back of a similar wodge of initially invested capital, after tax relief. (Roughly twice that 3% of net portfolio assets if you go on market-to-last-valuation. But I apply a 50% discount in my tracking to all my unlisted equities’ last valuation. Cynics could justifiably argue it should be a 100% discount until a sale).

    The nice thing is that when your snowball is big enough, you can still have fun with 3% of your assets and it can be meaningful versus, say, my income. But if you don’t enjoy this process like I do there’s very little justification, as I say in the piece.

    On the tax relief / cash back front, what you say is in principle true but it doesn’t really feel so bad to me. You just get into a rolling sequence of claims, that lag by a few months to a year depending on where you are in the tax year. As a long-time freelancer/contractor, being owed money is very normal to me. Given the lags possible in meeting self-assessment tax payments due, I feel it all washes around in swings and roundabouts on a 12-18 month view.

    The actual process of claiming the relief is trivial. You supply 4-5 figures to your accountant, transcribed from a certificate, per investment. Some accountants will probably even read the certificate for you!

    But I’m definitely not here to persuade anyone to invest in unlisted EIS stuff. This article is something to point people towards when they ask about it, because most seem to see “30% off my tax bill” and think “it’s a no brainer” in my experience.

  • 11 Matthew April 9, 2021, 1:51 pm

    @TI – you could join Dragons den! I can see the fun of having that sort of armchair power, and it’s like working in private equity without going the career route in. Maybe Seedrs, EIS, VCTs etc are best used as a way for hopeful future fund managers to ‘prove’ their edge, to get a job – or as some kind of hobby that comes from being rich.

    I would say too that with indexing the good that your money does in the secondary market supporting companies’ abilities to issue stock to grow is real despite being spread extremely, imperceptably thin.

  • 12 ZXSpectrum48k April 9, 2021, 6:21 pm

    I haven’t invested in any EIS since 2015. I tend to only want to invest in the first half of the business cycle to give time for these investments to mature for a possible exit before the next crash!

    Looking back at MY historical returns from those EIS, I can break them into two groups. The first group is the ‘asset rich’ EIS investments into things like renewables or crematoriums. These are really like unlisted secured bonds in terms of their risk profile. Ok capital uplift, nice big tax-free divis and 30% tax credit. Zero failures. Overall good returns but not earth shaking. Frankly, they are just an exploitation of a tax loophole and at some point get closed down for not being risky enough.

    The other category is the genuine risky EIS investments, mainly into tech start-ups. There have been some isolated big successes but also far too many failures. The end result is not any better than listed equities but with far less liquidity and far more effort. I also find it utterly tedious. The most dull part of finance had to be micro-analysis of companies. Looking at accounts, reading pitch books etc. Meeting those grinning, massively overly optimistic founders, who spout constant streams of BS and lies. I just want to slap most of them really hard. The only time EIS into start-ups has worked consistently has been when I’ve had a genuine connection with the founders.

    Personally, I wouldn’t touch Crowdcube or Seedrs will a 10-foot pole. I see them as the equity equivalent of P2P platforms, just as badly run, and mostly pushing toxic waste. There is an argument that more investments are going private but just I don’t think EIS/VCTs are really the way to access that. Any value in them has been eroded by lowering the bar to entry. My feeling is if you want private equity, just pay up and invest in US private equity fund.

  • 13 xeny April 9, 2021, 8:57 pm

    I thought normal practice with VCTs was to plan to sell them every 5 years and reinvest to get another instance of 30% tax relief?

  • 14 Matthew April 9, 2021, 10:09 pm

    @xeny – problem is they will probably go at a discount in the illiquid 2nd hand market, perhaps it’s value further discounted by the loss of tax advantages for buyers in the secondhand market, so you might lose that tax relief bonus trying to switch. Probably best to hold things until they get big enough to be more liquid.

    But in a world where most people strategically have a risk level somewhere beneath 100% standard equities, I can’t think why (if they’re rational) that they’d want to make up their risk in other ways.

  • 15 FIRE v London April 9, 2021, 11:20 pm

    EIS is an extraordinary thing, really, and it is easy to get distracted by the funds, VCTs, SEIS, etc. I have done 50+ EIS investments over 20 years and the scheme has been very good for me.

    One clear bit of advice (ahem) I would add to this (generally great) article:

    IF a talented somebody you know, who has excellent integrity, and who you have a good relationship with / respect / would back with your own money is raising money for their business….

    …. AND IF you can get access to that investment, on terms that are reasonably ‘market priced’ – i.e. set by somebody who has experience of these things (the ‘lead investor’, somebody with experience / track record)….

    … THEN make sure you consider (S)EIS before making your decision. Your effective investment is (almost) immediately reduced by EIS. Any loss you make is reduced. And any gain you make is tax free. Assuming you are a higher rate (or additional rate) tax payer, this means that when you are asked to invest £10k, actually you are really risking more like £5k. So seriously consider whether in fact you should stump up £20k, rather than £10k. The paperwork required is remarkably simple – you will be sent a form, which you should then send straight on unchanged to the HMRC (or give to your accountant, or similar). Job done. The HMRC will then send you a cheque.

    Sadly Seedrs/Crowdcube do not offer the circumstances described above. But many of us will get at least 1 opportunity of this sort in our career and it is worth quickly googling EIS when the situation arises!

  • 16 Gentleman's+Family+Finances April 10, 2021, 9:20 am

    I’ve had a few EIS investments that have done very well, both from the tax relief point if view and their performance to date.
    These were specially in Renewable energy projects and funding is no longer available for these. They pay a nice 9% return on gross cost and paid back 30% in tax relief which was easy to get.

    I wrote a series on VCTs for Financial Independence, maybe worth a read.
    https://gentlemansfamilyfinances.wordpress.com/2020/07/13/vcts-for-fi-part-1-intro/
    They have served me well and the risks talked about are less of an issue than less than stellar performance.
    For EIS, the prospect is different but in some ways more attractive. If you get lucky you can made it big and if it goes wrong you are protected.

  • 17 Neverland April 10, 2021, 11:13 am

    ‘In my personal life, I know it’s a consequence of an infuriating number of my friends joining the mid-seven-figures club on selling businesses.’

    … and you bristle when people call this blog elitist every once in a while?

    You wrote this:
    https://monevator.com/start-you-own-business-risks/

    They took the risks, they got the rewards. (Admittedly, they probably should have paid more tax.)

  • 18 Matthew April 10, 2021, 11:30 am

    @neverland – I’m not sure they should’ve paid more tax – usually they made the money by supplying something society needed/wanted, so taxing them more would’ve impaired their ability to supply this thing – and if it made them multimillionaires it was clearly something that was in demand – can we say that the taxman would’ve been more efficient?

  • 19 tom_grlla April 10, 2021, 11:52 am

    Thanks for this. Your most salient point for me was about the lack of transparency about ‘past performance’ of EIS funds. Of course we know the caveats of past performance, but it’s still a chunky part of due diligence. This has kept me away from them.

    I don’t do individual EIS stuff as I don’t feel I have the skill to identify the next Bezos/Chesky etc. from a quick meeting and a pitch deck.

    Personally I’ve found Baillie Gifford the best exposure for me to unlisted stuff. There are still a bunch that I query (e.g. Allbirds) but tapping into TikTok, Stripe etc. without having to pay Silicon Valley VC charges sounds good to me.

    I would like to find other stuff like this (I haven’t done deep dives yet into e.g. Augmentum or the Jupiter/Old Mutual whoever they are now Chrysalis fund), but nothing’s stood out yet. I remain fascinated by Syncona because of my huge respect for Wellcome, but can’t justify the Premium when it is currently mostly listed stuff and cash. I expect it will do well over the long-term though.

    Cheers again and good luck with your unquoteds – Monzo and Seedrs should come good, I’d imagine.

  • 20 Neverland April 10, 2021, 12:06 pm

    @Matthew

    Someone employed can ‘usually they made the money by supplying something society needed/wanted’ e.g. topically, ask an essential worker?

    At the top end (say, doctors) they pay 45% income tax, at the bottom end the taper between universal credit and additional wages is about 70%.

    But if you are a business owner who sells your CGT rate is magically just 10%

    Please, justify to me how that is fair? I’m all ears…

  • 21 Matthew April 10, 2021, 1:11 pm

    @neverland – sadly they pay even more than that, universal credit taper of 63% + 20% paye + 12% ni = about 95%, in fact they make a loss for working when you also deduct council tax (even then, that’s net of tax) – so to help these people I fully encourage them to make sipp contributions if they can, since they will get a lot of it back – and they might as well go high risk because their pension income would probably also be underwritten by UC.

    As to is it fair, no, but why are these people working when the market is only giving them pence above UC for all their struggles? As hard as they might labour, there is relatively more supply of workers for relitively less demand for the sort of work they do – they are worth more as people than their job itself is worth. The value of the work they do is totally undermined by the welfare system, but yet they choose to do it.

    If they en masse went to UC, that would create wage pressure which would test which of the jobs are actually needed (ie facing up supermarket shelves? picking fruit that we are fickle about buying? washing cars we could wash ourselves?) – and likewise businesses that barely serve a definite need would fold (some hotels, some shops, etc), on the other hand jobs that really are needed, like carers, would see wage rises – and I think some of this thinking was present in the brexit decision – i.e. if labour shortages forced wage rises, would my employer fold? sort of decisions.

    Basically for example you could hire someone to clean your house, car, etc, but you don’t really -need- to and can live without it, the market is brutally telling you that it doesn’t value them much above universal credit claimants.

    And if you want to help these people you need to make the professional services they buy/use cheaper – i.e. housebuilding, conveyancing, healthcare, dentistry, etc – things that they cannot do for themselves, and you make those things cheaper for them by increasing the supply of people doing the pricy jobs, and you can do that by lowering taxes for them. – This is far easier than trying to uprate these people by training them when they might not have the opportunity or careers guidence to retrain.

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