Under Labour, poorest 5th pay more tax than the richest.

[afleitch]

http://www.cityam.com/news-and-analysis/Allister-Heath/v3wex9416u.html

Great little article on why the poorest need to be taken out of the taxation system. This comes hot on the heels of David Cameron's proposal to tighten tax credits payments for the richest (at present the tax credits system can give residual welfare payments to families with incomes of nearly twice the national average) So at present a family with an income of £45,000 can receive some tax credits while for example a 23 year old single man with an income of £14000 cannot.
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''HERE is a disturbing fact you won’t have read anywhere else: the poorest families in Britain today pay a greater proportion of their income in tax than the wealthiest. Such a claim may sound crazy but here are the figures: the bottom fifth of earners pay 38.7 of their gross income in total tax, the next fifth 32.7 per cent, then 34.6 per cent, 35.4 per cent, falling to 34.9 per cent for the top fifth of higher-earning households. For those of you about to email in disbelief – after all, we have just had 12 years of Labour government – feel free to check out my sources. All these explosive figures are contained in The Effects of Taxes and Benefits on Household Income, 2007/08, a 38-page report by Andrew Barnard, published online yesterday by the Office for National Statistics.

My stats are before benefits, such as welfare payments. Their horribly anti-poor bias is entirely due to indirect taxation – value added tax and duties on alcohol and tobacco – which hit those on lower incomes much more severely. The bottom fifth pay 27.9 per cent of their gross income in indirect tax, the next fifth 18.6 per cent, then 15.9 per cent, 13.7 per cent and just 10.0 per cent for the top fifth. The poorest fifth of households paid 7 per cent of all tax, up from 6.8 per cent in 1996-97. Remember that next time you hear a well-meaning health czar call for another hike in duties on cigarettes or alcohol. And as you would expect, the better off pay much more in direct taxes – income tax, national insurance contributions and council tax – than the poor. The bottom fifth pay 10.8 per cent of their gross income in direct tax, the next fifth 14.1 per cent, then 18.6 per cent, 21.8 per cent and 24.9 for the top fifth.

It would be wrong to take these figures as proof that the “rich” need to be clobbered even further with higher rates of income tax. There is only so much you can squeeze out of people in this way: we have already breached this limit. The 50 per cent rate of tax and the attack on non-doms will yield nothing, while cutting incentives, reducing entrepreneurialism and fuelling a brain drain, threatening Britain’s long-term competitiveness and all of our prosperity, rich or poor.

However, the poorest should not have to pay so much in direct taxes, only for the welfare state to pay all of it and more back. It would be better to take the poor out of direct taxation altogether, as part of a larger reform of the welfare state. It is equally silly  for the rich to be given so much in benefits: as Charlie Elphicke, a top City lawyer, points out in a Centre for Policy Studies analysis of yesterday’s data, the poorest fifth received 25.9 per cent of all benefits in 2007-08, down from 28.1 per cent in 1996-97. The richest fifth grabbed 10.6 per cent, up 0.5 points.

It makes sense to move away from universal benefits and cut back on handouts for the rich; but for that we will need a revolution in thinking and a decisive break from the post-1945 social settlement. Yet now is the time for revolutionary thinking: Britain faces a true budgetary crisis, with the gap between revenues and spending set to reach  £200bn a year. We can either put up tax, with Vat hiked to 22 per cent within a couple of years’ time, which will raise a lot of money but hurt the poor the hardest; or we can cut spending, which will hit the middle classes the most. We will probably get a bit of both; but focusing on the latter option would be fairest.''

[Filuwaúrdjan]

My stats are before benefits, such as welfare payments.

...thus making the analysis, in practical terms, useless and misleading.

[afleitch]

My stats are before benefits, such as welfare payments.

...thus making the analysis, in practical terms, useless and misleading.

Not necessarily; it still demonstrates how the government's tax intake hits the lowest paid. After this there are of course welfare payments, but they struggle to catch up in real terms with changes in standards of living and are also very selective in who they compensate. As I said in my introduction there are countless numbers of people who have 38% of their income taken away from them and are not given a penny in return yet people with a far higher income are given tax credit top ups. Which leads to the question, why take so much away from them in the first place? Because this government wants to be selective in who it compensates and extending welfare payments to those who are upper middle class has it's political advantages.

[Jacobtm]

I agree that direct taxes on the poor should be severely reduced. Income tax could work the same way if the lowest bracket started much higher than it does, since the rich pay the lion's share of income taxes anyway.

But if your indirect taxes are high because you choose to spend your money on alcohol and tobacco, why should you deserve anyone's sympathy?

[Silent Hunter]

A single man of 23 is not the same as a family.

If poorer people stopped smoking, they'd be better off in many ways too.

[afleitch]

A single man of 23 is not the same as a family.

Even if that family owns it's own home, has a pretty damn good income and sends it's kids to a private school They are more deserving than a 23 year old who can hardly afford to keep a home never mind buy one ?

[Filuwaúrdjan]

Even if that family owns it's own home, has a pretty damn good income and sends it's kids to a private school

I don't think many families on £45,000 a year send their children to private school. A two-parent-family-with-children on that sort of income is clearly middle class ("objectively" at least) but isn't upper middle class; in most of the country that sort of money (with dependencies at least. Now an individual on £45k...) doesn't stretch to that sort of lifestyle.

[Filuwaúrdjan]

Not necessarily;

I'll admit that "useless" was unfair. I stand by "misleading" though.

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Not just "this government" but all governments [after government got itself involved in the provision of welfare]. And anything that smells of bolstering "traditional values" will always win out to an extent; such is social policy in this country (see all those feminist attacks on the "male breadwinner model" of the Griffiths-era benefits system).

[Antonio the Sixth]

Disheartening.

[k-onmmunist]

The Labourites trying to defend their government's policy of overtaxing is hilarious.

We need a progressive tax structure, rather than this ridiculous system we have now.

[Filuwaúrdjan]

The Labourites trying to defend their government's policy of overtaxing is hilarious.

I'm not actually defending anything, as such, just making a few comments on things that need commenting on/are of interest to me.

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Details, details. Empty declamation is not good enough.