Yet again, our tax and benefit system fails to make sense

Last year the average UK household paid over £13,000 in taxes, the ONS revealed yesterday.

The sheer scale of the Government’s tax and spend policies was highlighted by the fact that 51.5% of households received more in benefits than they paid in taxes, the equivalent of 13.7 million homes.

Net tax by income level(Larger Image)

The average home is now losing £7,298 to VAT and income tax every year, which is more than they spent on food, clothing and electricity last year. Moreover, since the coalition government came to power in 2010, the average annual expenditure going to VAT has risen at a compound rate of 10% a year, furthering the squeeze of workers challenged by stagnant real wages.

Cost of living crisis is taxes

(Larger Image)

The continuous roundabout of taxpayers paying taxes to be simply handed the money back in benefits is clearly illustrated in the lowest income decile, where households on average earn £3,738 a year, but contribute £4,290 in taxes. With the damaging impact of these taxes on the economy, the government can create a clear win-win by simplifying the tax system and helping to boost growth.

With disposable incomes still yet to reach the level seen before the financial crash, the budget next month offers the government an opportunity to help ease the burden on taxpayers who have seen falling real wages across the last decade, by cutting the size and scope of government.