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Poorest hit hardest by tax

Think tank calls for cuts to taxes – and tax credits
Duncan Milligan, Wednesday, July 1st, 2015

The poorest pay a greater percentage of their income in tax than the richest people in the UK according to new figures from the Office for National Statistics. And by far the biggest drain on the gross income of the poorest is indirect taxation like VAT, fuel and car tax.

The poorest fifth of the population spend a greater percentage of their gross income on tax than any other grouping. 37.8 per cent of their income goes in tax, with indirect taxation taking 28.1 per cent of their income and direct tax, like income tax, national insurance and council tax, taking 9.7 per cent of their income.

The richest fifth of the earners pay 34.8 per cent of their income on all taxes, a lower figure than the poorest. While 23.5 per cent of the income of the richest goes in direct tax, only 11.3 per cent of their income goes to indirect taxes.

This explains one reason why the Tories like to cut income tax – it benefits the richest. And why they like to raise indirect taxes like VAT – it hits the poorest hardest.

Drain on poorest

The latest figures, which cover the year to April 2014, show the biggest direct tax drain on the poorest is council tax, which accounts for 5.8 per cent of their income. In contrast, the richest only see 1.8 per cent of their income going on council tax.

It is another perverse impact of the banking crisis and the recession it caused is that mortgage payers found their housing costs falling along with interest rates. The poorest, who are much more likely to rent, have seen significant rises in their housing costs due to rent rises.

The figures are stark and simple, but Thatcherite think tank the Centre for Policy Studies (CPS) have twisted the figures to call for cuts to tax and cuts to tax credits which give supports to families in low pay households. They also called for more welfare cuts.

Their claim that over half of all households get more from the state than they pay in taxes was attacked by the TUC. Frances O’Grady, TUC general secretary said the claim “is extremely misleading and a blatant attempt to give the government political cover to slash public services and in-work benefits.

“The report’s claim that over half of UK households receive more from the state than they pay in taxes is only true if you include retired households – who no longer pay income tax but have contributed to the system all their working lives.

“The number of working-age people who receive more in support is around one in three and the vast majority of these are low-paid families. But why let facts get in the way of spin?”

The right-wing CPS is adding to the growing Tory chorus for more tax cuts, especially those which benefit the biggest earners most. Those joining that chorus would not think of raising taxation for the biggest earners to bring them into line with the poorest.

No surprise

Liane Groves, Unite head of Community said, “It should come as no surprise that after years of growing inequality in society, stagnating wages for the majority and tax cuts for the richest that those earning less pay a greater portion of their earnings in tax. Next week we will see the details of where the axe will fall in the Tories latest round of austerity.

“We already know they want to cut at least £12bn from social security. On top of that, they want to make the deepest cuts yet seen to our public services.

“After five years of austerity, the Tories want to make it a permanent state of affairs – slashing public spending, depressing wages, and creating a more insecure, precarious labour market and further attacks on trade union and human rights and our civil liberties. Punishing the majority and defending the interests of the wealthiest top one per cent of our society alone.

“It is the latest reason why, a week after over 250,000 people took to the streets to demand an End to Austerity, building the People’s Assembly against austerity and a coalition of all those affected by austerity, is absolutely crucial if we are to win better living standards and decent jobs for all.”


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