Introduction
The cost of living has become a major concern for taxpayers, with 56 per cent of the least well off voters naming it as their top issue in polling carried out by the TaxPayers’ Alliance.[1] This has only hastened with recent increases in inflation, which rose to 4.2 per cent in October 2021.[2]
One of the biggest demand-side burdens is tax, which is likely to be exacerbated by the planned introduction of the national insurance health and social care levy. Yet the tax burden – total taxes as a proportion of the economy – will shortly be at a 70 year high, and the poorest households already lose over 50 per cent of their income to taxes.[3],[4] Constant tax increases make it more difficult for people to purchase the essentials that they need.
This paper provides an estimate of the total amount of tax paid by households over a lifetime, breaking it down by quintiles. It also compares the amount of tax paid now with the amount paid in previous years dating back to 1977, to show how the situation has changed over this period.
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Key findings
- Over a lifetime – 40 years working and 15 years retired – an average household will pay £1,101,255 (in 2019-20 prices) in direct and indirect taxes. While household incomes have increased, the lifetime tax has almost doubled in real terms from the amount of tax the average household paid in 1977.
- In 2019-20, an average household received income of £60,194. With this level of income it would take more than 18 years just to pay their lifetime tax bill.
- Households in the bottom 20 per cent by income will pay £449,860 in direct and indirect taxes over a lifetime.
- Households in the bottom 20 per cent received income of £19,171 in 2019-20. This means it would take them almost 24 years just to pay their lifetime tax bill.
- Over a lifetime, households in the top 20 per cent by income will pay £2,573,815 in direct and indirect taxes.
- The top 20 per cent of households received income of £137,669 in 2019-20. It would take them almost 19 years to pay their lifetime tax bill alone.
- The total lifetime tax has fallen on only four occasions from the previous year since 1977. These were: 2002-03; 2008-09; 2012-13; and 2015-16.
- Over a lifetime, an average household will pay £479,430 of income tax; £187,570 of VAT; £140,745 of employee’s national insurance contributions; £79,415 of council tax; and £37,435 of employers’ national insurance contributions.
- It would take more than 33,500 average households total lifetime taxes to pay for the £37 billion cost of test and trace and almost 4,100 to cover the costs of benefit overpayments in 2019-20 alone.
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[1] TaxPayers’ Alliance, Working class voters turning on the Tories over tax and the cost of living, 3 October 2021, www.taxpayersalliance.com/working_class_voters_turning_on_the_tories_over_tax_and_the_cost_of_living, (accessed 6 December 2021).
[2] Office for National Statistics, Consumer price inflation, UK: October 2021, 17 November 2021, www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/october2021, (accessed 1 December 2021).
[3] TaxPayers’ Alliance, Briefing: the tax burden following the October 2021 budget, 27 October 2021.
[4] TaxPayers’ Alliance, Analysis: poorest households now lose majority of their income to tax, 28 May 2021, www.taxpayersalliance.com/analysis_poorest_households_now_lose_majority_of_their_income_to_tax, (accessed 18 November 2021).