Tax injustice in the UK

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The Office for National Statistics has issued a new report entitled “The effects of taxes and benefits on household income, 2007/08”. Not the most gripping title you might say, but the data is fascinating so I’m reproducing a whole series of tables from the report here, but would add there is a lot more still within the original.

Start here:

 

A quintile is 20% of households. Look at the massive disparities in well being this basic data reveals. Note too that whilst income tax is progressive that the impact of indirect taxes are very, very different in scale. It’s a theme to which I return, below.

Expressed as percentages the message is stark:

 

20% enjoy 44% of post tax income: 20% just 6%. That is more than a sevenfold difference, and using quintile data mutes the extremes. The decile data disparity is 14 fold. The Gini coefficient is a measure of inequality: 0 is total equality, 1 is all income goes to one person inequality. Again, I return to this below.

Looking at how tax breaks down is important:

Council tax is blatantly regressive. So is VAT, as overall are indirect taxes as a whole. Is it any surprise that the Big 4 firms, the Institute for Fiscal Studies and other big business lobbying groups are so keen on them? They shift the burden of tax from the wealthiest in society to the poorest. Note that the effect is near enough the same on expenditure too: the richest spend less on consumption as a proportion because they, unlike the poorest, can save. The effect is that their saving gets a tax subsidy the rest do not enjoy. And so the wealth divide increases.

Looking at household characteristics is also telling:

The wealthiest have the lowest number of children per household. It’s an issue I will return to later. Note too how the trend of those in full time education falls as one rises through the quintiles: this partly explains the move in the opposite direction of those who are economically active. Pensioners explain a lot of the rest. The combined figure for both in the lowest quintile is 1.3, in the highest it is 0.5. The difference in economically active is 1.0,  but its clear when looked at this way lack of availability of work is not the major issue.

As noted above, the Gini coefficient measures inequality in a society. This is how it has moved:

Tax and redistribution massively enhances equality in the UK, but not by nearly as much now as it did 25 years ago, and Labour has not done enough to reverse the travesty of the Thatcher years.

I was pleased to note that the ONS did exclude pensioners from some parts of the survey: they will always be worse off than those in employment. That’s a reality which is not going to be challenged for a very long time. This table refers to non-retired households.

 

The disparity in children per household is now even more marked: 2.5:1 over the bottom to top quintile range.  Disposable incomes are though, of course, on average higher. The regressive nature of indirect taxes remains just as marked though, as this table makes clear:

 

Here we have the real picture of UK taxes: overall a regressive system where middle and poorest pay most and the best off least. The argument for a more progressive tax system is extraordinarily compelling, if only to counter act these horrible imbalances in indirect taxes:

 

It’s also worth noting just what “benefits in kind” mean, because they form part of income noted, and therefore contribute to income redistribution. This is what they mean for non-retired households:

 

But before anyone shouts that the highest earning households take less education because they pay private fees, think again. It’s also because they only have 40% of comparable children per household compared to the poorest quintile. that is by far the biggest factor. As does population per household explain the NHS disparity where the subsidy per head in the poorest households is £1,025 whereas in the highest quintile it is £1,093. It’s a fact that the wealthiest know how to use the system to their advantage. As a result this subsidy goes most to the best off.

Conclusions

This data is powerful and gives a lie to much of what the Right say.

Tax in this country is regressive.

The best off have the best tax deal.

They also willingly use the system.

Inequality has risen in the UK. The tax system has encouraged that as it has shifted to indirect taxes.

UK indirect taxes are horribly regressive.

Those forms and lobby groups who argue for more indirect taxes and fewer direct ones are asking to increase poverty in the UK to benefit the wealthiest in our society.

The reality is that now is the time for progressive taxation reform – to make sure that the richest in the UK pay a fair share for the society we live in, because they do not right now. And that has to change.