Economist claims Reform’s overtime tax abolition fundamentally flawed but well-intentioned

An economist has described Reform UK’s plan to scrap income tax on overtime pay as “fundamentally flawed”, warning that the proposal would fail to reach the very workers it is intended to help while carrying a potentially far higher price tag than the party admits.

Julian Jessop, a senior fellow at the Institute of Economic Affairs, told GB News that he could not find a single economics or tax expert who thought the policy would work in practice. “It’s well-intentioned, and it’s good to be talking about a potential tax cut for a change rather than a tax increase,” he said. “But I think this idea just wouldn’t work.”

Reform UK’s so-called “hard work bonus” would exempt overtime compensation from income tax for individuals earning less than £75,000 a year, provided they work more than 40 hours a week. The party claims the policy would benefit around 3.2 million workers — roughly 90% of those who receive overtime — and estimates it would cost about £5 billion annually, which it intends to fund through cuts to welfare spending.

Jessop argued that the policy’s flaws are most apparent when examining who would not benefit. “Suppose you’re a hard-working single mum working 20 hours a week and you take an extra shift in order to make ends meet, precisely the sort of people Reform says they want to help. You wouldn’t benefit from this scheme,” he said.

Part-time workers who take on additional hours but remain under the 40-hour threshold gain nothing, even if their extra work is essential to their income. Similarly, the self-employed are entirely excluded from the tax break. “I don’t think it’s necessarily fair,” Jessop said, highlighting what economists call a horizontal equity problem: people in similar financial circumstances being treated differently by the tax system.

Fairness concerns

The plan also creates a sharp “cliff edge” at the £75,000 income threshold, meaning a small pay rise could suddenly wipe out the tax advantage. Critics say this could discourage workers from seeking higher earnings or promotions, directly undermining the policy’s stated aim of rewarding hard work.

Lessons from abroad reinforce these concerns. France experimented with a similar policy in 2007 — the “loi TEPA” — which exempted overtime compensation from income tax and social security contributions. Research suggests it had no meaningful impact on total hours actually worked. Instead, it led to a surge in declared overtime, particularly among highly qualified earners who simply reclassified their existing hours. “All that really happened is that a lot of relatively well-off people reclassified their time as overtime rather than normal working and pocketed the difference,” Jessop said. “There was no benefit to poorer people or to the economy as a whole.”

In the United States, the Trump administration introduced a similar scheme, which has been described as “a nightmare to administer” and prompted some firms to offer more hours at lower pre-tax rates rather than boosting overall pay.

Avoidance and reclassification are major risks in Britain too. Employers and employees could relabel ordinary working hours as overtime, driving the cost of the policy “far above Reform’s £5bn estimate”. Anti-avoidance rules would be complex and difficult to enforce. The Institute for Fiscal Studies has also questioned the party’s proposed funding mechanism, noting that the savings from welfare cuts would likely be smaller than claimed while the tax cut would cost more, potentially reaching £14 billion a year.

Jessop raised the same cost concerns. “I think the bigger picture is that this is potentially going to cost £5 billion at least,” he said, though other analyses suggest a far higher figure. “I think there are many better ways to spend £5 billion to help make work pay and to make general tax cuts. This could be lowering employers’ national insurance. Those are the sorts of things I think that people should be looking at instead.”

Reform UK’s broader fiscal agenda has also drawn scrutiny. The party’s 2024 manifesto promised approximately £90 billion in annual tax cuts, including raising the income tax threshold to £20,000, cutting corporation tax to 15%, and increasing the inheritance tax threshold to £2 million. Deputy leader Richard Tice has since admitted that not all of those cuts may be deliverable given the state of the economy, shifting the focus instead to public spending reductions. The IFS has repeatedly described the costing of Reform’s manifesto pledges as implausible, arguing that tax cuts would cost more than stated and the savings would be less.

Reform UK has also made scrapping “net zero” policies a central commitment, claiming it would generate significant savings. However, analyses suggest such a move could lead to substantial economic losses and job destruction in the renewables sector.

Despite the criticisms, the party’s leadership has defended the overtime plan. Leader Nigel Farage has championed the “hard work bonus”, and Treasury spokesperson Robert Jenrick has highlighted potential savings for workers. But Jessop remained unconvinced. “I’ve yet to find a single economist or tax expert who thinks it would actually be a good idea in practice,” he said. “There are a number of problems with it.”