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March 19, 2006

Low Tax or High Tax?

Quick question. Is the UK a low tax or high tax country?


Calculations by Patrick Minford, of Cardiff Business School, show that — including Vat, excise duties, National Insurance and income tax — a basic rate taxpayer pays £48.50 in tax on every £100 earned. Among higher rate taxpayers the figure is £57.10.

You might recall that Richard Layard thinks that we’d all be happiest if we were paying 60%. That’s the number that would both pay for the externality of the pollution of relative economic status and also to stop us from striving too hard, that striving doing us no good.

So you might think that we are actually a low tax country, for we’re not at that level of optimal happiness.

Or you might look at Layard’s further point, which is that the 60 % should only kick in after the first 12,000 or so of income. For happiness does increase with income up to that point.

On that reading we’re a high tax country, being taxed more than the level which will provide the optimal happiness. Which would, of course, explain why we’re all so miserable.

Update. Right, here’s the paper. He is indeed talking about marginal tax rates, not average. But he’s not calculated in the personal allowances....so it is still possible that my above contention, that we are above Layard’s optimal level of taxation to be true. Largely, because we tax the poor too much.

It would certainly be true that a rise in the higher level income tax, to the mooted 50%, would take those tax payers over that number.

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March 19, 2006 in Your Tax Money at Work | Permalink


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I'd be sceptical about believing Minford's figures. How does it fit in with taxation being about 40% of GDP?

Tim adds: One of my things for later today is to try and track down that paper and see how he gets there.

Posted by: Matthew | Mar 19, 2006 10:15:14 AM

See The Business.

It's a marginal rate, and thus wholly unexceptional, and also probably about 10% lower than it was 20 years ago.

It's not clear how he calculated VAT and excise duty, but presumably it's a slightly more sophisticated version of the "Taxpayer's Alliance"'s absurd calculation. I'd be surprised if it was correct, most marginal income is saved, which attracts no VAT or excise duty.

Posted by: Matthew | Mar 19, 2006 10:55:47 AM