Tax Burden Rises Under Conservative Government

Strategic Insights -

The Conservative government's tax policies have resulted in a significant increase in personal taxation, with the typical family's direct tax burden rising from 16.1% in 1978-79 to 19.5% next year. A Guardian analysis of the tax system reveals that even after adjusting for inflation, the tax burden has increased by over 5.5% for an average taxpayer and nearly 9% for someone earning three times the average. The government's reliance on indirect taxes, including VAT, excise duties, and National Insurance contributions, has offset the decrease in income tax for those earning the average or more.

Key Takeaways:

  • The typical family's direct tax burden has risen from 16.1% in 1978-79 to 19.5% next year.
  • The tax burden has increased by more than 7% for a taxpayer on average earnings.
  • Even after adjusting for inflation, the tax burden has increased by over 5.5% for an average taxpayer and nearly 9% for someone earning three times the average.
  • Relief for mortgage interest payments is worth around a third less than it was in 1978-79 for comparable mortgages.
  • The government's tax measures implemented next year would have been more severe than anything contemplated by the then Labour chancellor, Denis Healey, in 1978-79.
  • The shadow budget proposed by Labour would have meant a taxation increase significantly less than that planned next year.
  • For a married couple with a £30,000 mortgage and one earner, Labour's tax plans would have left those earning up to £25,000 a year between £25 and £225 a week better off than they will be next year.
  • Those above £25,000 would have been significantly worse off, excluding any effect of indirect taxes.
  • The government's refusal to lift the ceiling on NI contributions or lift the top rate of tax to 50% has resulted in higher taxes for average earners and below.

Statistics:

  • 19.5%: the typical family's direct tax burden next year
  • 16.1%: the typical family's direct tax burden in 1978-79
  • 7%: the increase in tax burden for a taxpayer on average earnings
  • 5.5%: the increase in tax burden for an average taxpayer, even after adjusting for inflation
  • 9%: the increase in tax burden for someone earning three times the average, even after adjusting for inflation
  • £950m: the revenue from VAT on domestic fuel and power in 1994-95
  • £2,300m: the revenue from VAT on domestic fuel and power in 1995-96
  • £1,500m: the amount drained from the economy by higher taxes on road fuel next year
  • £3.20: the additional tax paid by a married man on average earnings with two children as a result of indirect tax increases
  • 1%: the equivalent increase in income tax raised by pushing up employees' NI contributions from 9 to 10%
  • £1,750m: the revenue from employees' NI contributions raised
  • £1,470m: the revenue from freezing income tax allowances and basic rate limit
  • £910m: the revenue from limiting the married couple's allowance to 20%
  • £820m: the revenue from limiting mortgage interest relief to 20%
  • £345m: the revenue from higher tax on company cars

Sources:

  • Written Treasury answer to Harriet Harman, shadow chief secretary to the Treasury
  • Guardian/Coopers & Lybrand analysis of the tax system
  • Research by the independent tax planners TraQs
  • Treasury written answer to a parliamentary question
  • Budget reports for 1993 and 1994-95
  • Telegraph article on tax increases