Proportionate tax take from gross household income: the rich pay less

Document type
David Byrne; Sally Ruane;
Date of publication
18 March 2007
Poverty Alleviation Welfare Benefits and Financial Inclusion
Social welfare
Material type

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This piece aims to address concerns regarding the distribution of the tax burden across the population by presenting fiscal facts from the Office of National Statistics through graphs. Analysis focuses on the 2004/2005 financial year, with an overall outcome graph for the period 1997-2005.  The proportion of gross household income taken in tax is organised by decile in this research, rather than the quintile analysis shown in the Office of National Statistics (ONS) publications. This is because the authors believe quintiles conceal the impact of taxation on household income for the least well off 10% and best off 10%. This research shows that the impact of the tax burden after a decade of a Labour government contributes significantly to the unequal character of our society and the prevalence of poverty. While income tax is progressive, the figures show that National Insurance Contributions are progressive until the top 10% when the rate falls dramatically, and that Council Tax is a regressive direct tax - that is, the less well off pay a higher proportion of their gross income in tax than the better off. These taxes are discussed in terms of how a fairer tax burden can be achieved. The paper concludes that a full fiscal policy must address real inequalities of wealth which are far greater than inequalities of income. A redesigning and rebalancing of the tax system is required, one which not only overhauls tax avoidance schemes but which also tackles household as well as individual income.

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