Wednesday, 1 July 2015

Taxes we don't notice

One of the first things that the previous coalition government did in 2011 was to increase the standard rate of VAT from 17.5% to 20%.  In later years, they increased the point at which people started paying income tax, claiming that this was helping the lower paid in particular, although the main beneficiaries were actually those on higher incomes.
Any switch of taxation from what people earn (income tax) to what they buy (VAT) will almost inevitably have the effect of increasing the proportion of taxes paid by those on the lowest incomes.  But when they need to raise money, politicians tend to prefer indirect taxes in the belief that, after the initial shock of any increase, people notice them less, and resent them less, than a line on a payslip showing how much of their hard-earned cash is being sent to the Treasury.  They’re probably right in that assumption, but taxing people in a way that they don’t notice isn’t at all the same thing as taxing them in a way which is fair.
This story in the Independent, showing that the outcome of this approach to taxation is that the less well off pay a higher proportion of their income in tax when all the taxes are added together should therefore come as no surprise to anyone.  (Apparently, though, it does to some.)  We will never get a progressive taxation system unless the burden of taxation is shifted away from indirect taxation to direct taxation on income. 


Gav said...

Spot on. I commented on Mr Black's blog a good while back that low income families would probably benefit more from focus on reducing VAT (which no political party seemed bothered about at the time) rather than banging on about raising income tax thresholds. Boy, if I did! Might have touched a raw nerve there.

G Horton-Jones said...

This is what we need in Wales.

Highly variable rates of VAT which we can manipulate as conditions arise to regulate economic activity