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May 18, 2007

Inequality in the UK

There's a repeat here of a long standing complaint (of mine at least) about the tax system:

Overall, the ONS said, poor families paid a bigger slice of their incomes in tax than rich families.

Clearly, the poor are paying too much tax in relation to the rich (OK; maybe not clearly, but from my viewpoint it is clear).

Some will say that therefore taxes should be raised upon the rich. Well, yes, maybe so, but there are limits to what you can try and raise from people before they head for the boats and flee the country. And as is well known, the rich are more mobile than the poor.

So the solution is to lower the taxation on the poor. Given that we have a large system of indirect taxation which we cannot undo (we can't get rid of VAT without leaving the EU for example, something which even I admit is a long term, not short term goal) that would mean reducing the direct taxation upon the poor. It still rather stuns me, for example, that those on less than median income pay any income tax at all.

Median income is somewhere around £21,000 I believe, which would be a useful number to use as the personal allowance. This would mean a few cuts in expenditure, of course, but then anyone who doesn't think we can cut 10% off the current sum just isn't concentrating.

However, this I think is a little unfair:

Labour's decade in power has failed to reverse the surge in inequality under Margaret Thatcher and Gordon Brown's policies to support the less well-off are failing to prevent the gap between rich and poor widening again, official figures showed yesterday.

Inequality has been rising in almost all of the rich nations recently.

But the study by Francis Jones of the ONS showed that Labour has been running to stand still for the past 10 years.

Yes, indeed, if there is a wider trend to greater inequality (something I would argue is a result of globalization) then even holding it static is an achievement. (If, that is, inequality is one of those things you worry about, which I don't particularly. I'm rather saying that Elliott's damning of Labour for not doing more seems to be missing that point about the larger picture.)

May 18, 2007 in Economics | Permalink

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Comments

In 2003/2004 median household income was 336 pounds a week, which is about £17,000, so I imagine by now it is around £18,000.

For individuals, however, median income was around £11,000, for taxpayers, which is perhaps what you mean it was £16,400.

The cost of removing those under 20k from income tax would be 33bn, plus the loss of 22% of 15,000, or about 3,000 from the other half of taxpayers - so anothe 40bn or so?

Tim adds: You're right about the figures. Sorry, I was using (from memory, which is my excuse) something more like median wages. 73 billion loss in revenue? Sounds about right to me.

Posted by: Matthew | May 18, 2007 9:31:53 AM

"we can't get rid of VAT without leaving the EU for example, something which even I admit is a long term, not short term goal"

No, leaving the EU is a short term goal, VAT is the worst tax.

Posted by: Mark Wadsworth | May 18, 2007 10:17:47 AM

"we can't get rid of VAT without leaving the EU for example, something which even I admit is a long term, not short term goal"

No, leaving the EU is a short term goal, VAT is the worst tax.

Posted by: Mark Wadsworth | May 18, 2007 10:19:31 AM

I'm always tempted to agree with your argument, but then I wonder why people exempt from income tax should be left with the franchise.

Posted by: dearieme | May 18, 2007 1:06:19 PM

Why do the poor pay tax? Because with taxation at more than 40% of GDP, Brown can't afford for them not to.

(like dearieme, I can't stomach the idea of a vast rump of people who don't pay tax but do get to determine which party controls how much the rest of us have to cough up).

Posted by: andrew | May 18, 2007 2:47:07 PM