IEA report shows the shocking cost of tax on the poorest

October 14, 2013 1:13 PM

Households in the the poorest fifth of income distribution spend £1,165 a year on VAT and £1,286 on 'lifestyle taxes', according to new research from the Institute of Economic Affairs. The amount taken from the poorest fifth of households in lifestyle taxes represents 11 per cent of their disposable income.

But these averages mask the harsher reality for those who do gamble, drink, smoke and drive as they include those who do none of those things. Between 15 and 17 per cent of the average income of smoker in the bottom fifth is taken in tax on their tobacco. Between two and four per cent of average income is taken from drinkers in that same fifth of the population. And eight per cent of the income of a typical low-income driver is taken in motoring taxes.

That all adds up. People in the bottom fifth of the income distribution who drink moderately, smoke and drive a car will find the Chancellor confiscates almost 40 per cent of their disposable household income through VAT and lifestyle taxes.

The Coalition have taken some good steps towards taking less money from those who don't have enough to pay for the basics but as ever the story is mixed.

They have raised the tax free personal allowance for Income Tax very quickly so that it will be £10,000 next year. But it still too low and National Insurance still kicks in at around £7,500 a year. They have promised to freeze Beer Duty and Fuel Duty for the rest of the Parliament, but duty on other alcohol will carry on rising Fuel Duty is still too high. And they have cut Corporation Tax, which economic analysis shows is largely paid for by workers in lower wages, from 28 to 21 per cent. But it is still too high and they have not cut employer's National Insurance, the jobs tax, which remains at 13.8 per cent.

A wide variety of taxes are making life difficult for everyone, and especially for the poor. Whether it's taxes like Fuel Duty, VAT or alcohol taxes which impoverish people by making the things they need more expensive, or whether it's taxes like Income Tax, National Insurance or Corporation Tax which mean they end up taking home less of their own money, all of them play a destructive role in the lives of the people the Government is supposed to be helping.

We urgently need lower taxes both to relieve people's budgets and to encourage enterprise to get the economy back on track. That means cutting back the size of our still far too bloated public sector to a level we can afford.

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