31 st July Total Lifetime Tax

Transcription

1 31 st July 2015 Total Lifetime Tax For several years, the high cost of living in the UK has been recognised by the political classes as an area which requires an urgent and concerted policy response. However all too often, these policy responses focus on demand and fail to address underlying issues. All too often, government is responsible for many of the problems. Energy bills are increased by ineffective green taxes and the cost of housing is driven up by draconian, outdated planning regulations for example. Tax is perhaps the biggest culprit of all. Instead of forever seeking to solve the problem of the high cost of living with various subsidies such as Help to Buy ISAs, tax credits, Housing Benefit etc. politicians need to recognise that the reason many people struggle to make ends meet in the first place is due to the high tax burden. This research note provides an estimate of the total amount of tax paid by different types of households over their lifetimes. The figure includes both direct and indirect taxes and is calculated on the basis of the current level of taxes applying over a working lifetime of 40 years and 15 years of retirement. The findings are also broken down by income quintiles (household incomes broken down into five groups ranging from least to most income). Key findings: Over a lifetime, an average household will pay 734,240 (in prices) in direct and indirect taxes. This represents a 2.3 per cent increase on the lifetime tax calculation for an average household last year ( 717,650). In , an average UK household received income of 39,200. With this level of income it would take almost 19 years just to pay their lifetime tax bill. 1

2 Over a lifetime, an average household in the bottom 20 per cent by income will pay 282,545 in direct and indirect taxes. This represents a 4.1 per cent increase on the lifetime tax calculation for this group last year ( 271,445). In , an average household in this group had an income of 12,916. With this level of income it would take almost 22 years just to pay their lifetime tax bill. Over a lifetime, an average household in the top 20 per cent by income will pay 1,488,275 in direct and indirect taxes. This represents a 2.2 per cent decrease on the lifetime tax calculation for this group last year ( 1,522,020). In , an average household in this group had an income of 83,750. With this level of income it would take almost 18 years to pay their lifetime tax bill. Over a lifetime, an average household will pay 253,040 of income tax (net of tax credits). Over a lifetime, an average household will pay 146,775 of VAT. Over a lifetime, an average household will pay 92,795 of Employee s National Insurance Contributions. Over a lifetime, an average household will pay 59,955 of Council Tax (net of council tax rebates). Sources and Methodology All data is from the ONS s Effects of Taxes and Benefits on Household Income, 1977 to Financial Year Ending Total lifetime tax is calculated as a non-retired (working) household s total direct and indirect taxes for multiplied by 40 years plus a retired household s total direct and indirect taxes for multiplied by 15 years. Lifetime tax is based on the current level of direct and indirect taxation applying throughout the lifetime and nominal prices are used throughout. 2

3 This does not take into account changes in taxation in the past or in the future but is indicative of the sheer level of taxation. Income quintiles are for equivalised disposable income. 1 Gross income is employment, investment, pension and other income plus cash benefits. Years of income required to pay tax is calculated by dividing a household s lifetime tax with its gross income in Table guide Table 1: Lifetime tax at rates of expenditure Table 2: Lifetime tax compared to gross income across all UK households Table 3: Lifetime tax for the years to Table 4: The four most burdensome taxes over a lifetime To arrange broadcast interviews, please contact: Andy Silvester, Campaign Director Andy.Silvester@taxpayersalliance.com To discuss the research, please contact: Harry Fairhead, Policy Analyst Harry.Fairhead@taxpayersalliance.com Financial support for this research paper was provided by the Politics and Economics Research Trust (charity number ). Any views expressed in this paper are those of the author and not those of the research trust or of its trustees

4 Table 1: Lifetime Tax at rates of expenditure Working life (40 years) Tax Bottom 2nd 3rd 4th Top All households Annual direct taxes & Employee's NIC ( ) 1,488 3,671 6,950 11,127 22,427 9,133 Annual indirect taxes ( ) 4,205 5,071 6,445 7,933 9,741 6,679 Total annual tax ( ) 5,693 8,742 13,395 19,060 32,168 15,812 Total working life tax ( ) 227, , , ,400 1,286, ,480 Retired Life (15 years) Annual direct taxes & Employee's NIC ( ) 1,074 1,114 1,649 2,916 6,735 2,698 Annual indirect taxes ( ) 2,581 3,143 3,336 4,669 6,702 4,086 Total annual tax ( ) 3,655 4,257 4,985 7,585 13,437 6,784 Total retired life tax ( ) 54,825 63,855 74, , , ,760 Total Lifetime Tax ( ) 282, , , ,175 1,488, ,240 Table 2: Lifetime tax compared to gross income across all UK households Bottom 2nd 3rd 4th Top All households Gross income ( ) 12,916 22,144 31,617 45,575 83,750 39,200 Total lifetime tax ( ) 282, , , ,175 1,488, ,240 Years of income required just to pay lifetime tax bill

5 Table 3: Lifetime Tax for the years to Total lifetime tax ( ) Year Bottom 2nd 3rd 4th Top All households , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,485 1,036, , , , , ,385 1,111, , , , , ,015 1,105, , , , , ,855 1,165, , , , , ,110 1,224, , , , , ,035 1,292, , , , , ,820 1,346, , , , , ,490 1,314, , , , , ,015 1,271, , , , , ,370 1,341, , , , , ,190 1,434, , , , , ,010 1,477, , , , , ,210 1,522, , , , , ,175 1,488, ,240 5

6 Table 4: The four most burdensome taxes over a lifetime ( ) Bottom Quintile 2nd 3rd 4th Top All households Income Tax (less tax credits) Working ,549 3,709 6,559 16,223 5,699 Working Life 18,040 61, , , , ,960 Retired ,840 5,168 1,672 Retired Life 2,955 5,430 11,880 27,600 77,520 25,080 Total Lifetime 20,995 67, , , , ,040 VAT Working ,609 2,079 2,836 3,631 4,695 2,970 Working Life 64,360 83, , , , ,800 Retired ,093 1,333 1,460 2,171 3,268 1,865 Retired Life 16,395 19,995 21,900 32,565 49,020 27,975 Total Lifetime 80, , , , , ,775 Employee's National Insurance Contributions Working ,142 2,105 3,249 4,716 2,309 Working Life 13,320 45,680 84, , ,640 92,360 Retired Retired Life , Total Lifetime 13,350 45,695 84, , ,095 92,795 Council Tax (less council tax rebate) Working ,137 1,320 1,489 1,125 Working Life 28,160 39,160 45,480 52,800 59,560 45,000 Retired ,046 1, Retired Life 13,125 11,280 12,675 15,690 22,035 14,955 Total Lifetime 41,285 50,440 58,155 68,490 81,595 59,955 6