a post by Adam Corlett for the Resolution Foundation blog
We all know that parts of the tax system are very progressive – and this should be very apparent in the Autumn Statement when the Chancellor unveils perhaps £10 billion of tax rises that will target the wealthy. But wait, some say, when you factor in taxes such as VAT it’s actually poorer households that pay more tax.
That claim is usually based on the annual “Effects of taxes and benefits on UK household income” release, which was updated today with results for 2016-17. This looks at different sources of household incomes, including employment income and benefits, as well as the amounts paid in direct taxes like income tax and indirect taxes like VAT or tobacco duty. The data also allocates the benefits associated with the consumption of some public services, such as subsidised rail travel or the NHS, across different households. As such, it’s a fairly unique and invaluable resource.
Taken at face value, today’s 2016-17 data seems to confirm that the poorest tenth of households do pay more of their income (49 per cent) in tax than the richest tenth do (34 per cent). But the bottom line is that this data for the poorest is incorrect.
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