This paper describes and comments upon the distribution of the tax burden in the UK. Its focus is on direct and indirect taxes levied on individuals and not on corporation taxes or capital taxes. The analysis draws upon data from the Office for National Statistics to examine average distribution of the tax burden across the first ten years of the Labour administration and how the current distribution of the tax burden affects different household types. The analysis shows that:
- The top 10% do not pay their fair share of tax.
- The bottom 10% face a highly punitive tax burden.
- ‘Middle England’ bear the brunt of the tax burden.
The reasons for this are examined in more detail, with the paper concluding that indirect taxes are regressive and this regressive character is not outweighed by direct taxes. The only consistently progressive tax is income tax and this fails to keep pace with the rising incomes of the top 10%. This is partly a result of tax avoidance by the better off and particularly the ability by some to define income gains as ‘capital gains’ and to pay capital gains tax instead of income tax. There is an overwhelming case for the extension of the full rate of National Insurance across all earnings so that it redistributes among all workers. This raises the question of whether income tax and National Insurance should now be unified.