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Tuesday, June 30, 2015

How a supposedly progressive tax system hits the poorest hardest

The Independent reports on official statistics that show that the poorest families in the UK are losing more of their income in tax than any other income group.

They say that while the richest fifth of society paid 34.8 per cent of their overall income in tax last year, those at the bottom of the income scale lost 37.8 per cent of their income to the taxman. This is a wider gap than last year, when the difference was 2.3 per cent.

The paper adds that this means that the richest fifth of the population paid £29,200 in all taxes last year, while the poorest fifth paid £4,900. Although in absolute terms that seems to make sense, in terms of disposable income it leaves the poorest in our society struggling to make ends meet.

The papers says that the reason why those on the lowest incomes are paying the biggest proportion of their income in tax is because indirect taxes, such as VAT and tax on tobacco, alcohol and fuel are charged at the same rate to all income groups. So although direct taxes such as income tax and national insurance contributions, both of which are calculated as a proportion of how much we earn, hit the richest the hardest, taken together, the poorest fifth of households lose the largest proportion of their income in overall taxation.

When we have a situation that over half of all households, the equivalent to 13.7 million families, received more from the state in welfare payments and pensions than they pay in tax last year then it is time for a rethink.
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