UK Taxation Policy

UK Taxation Policy and Social Impact

Austerity Measures and Social Security:

Government Objective (2010): The 2010 Conservative-Liberal Democrat coalition government aimed to reduce government borrowing, leading to changes in social security benefits.

Key Changes:

• Introduction of Universal Credit.
• Cap on total household benefit.
• Implementation of the 'bedroom tax' (removal of the 'spare room subsidy').
• Cap on total welfare spend.

Consequences of Austerity:

• Impact on Poverty: The Joseph Rowntree Foundation (JRF) reported significant rises in poverty, including among those employed.
• Work and Income: Despite the National Living Wage, JRF argues that work often does not pay enough, with some earning below the 'real living wage' (£9.50 per hour outside London).

Taxation Policy and Progressivity:

Progressive Taxation:

• Definition: A greater proportion of total taxation falls on the wealthiest, and the poorest pay proportionally less tax.
• Impact: Tends to reduce income inequality.
• Example: In 2010, the Labour government raised the top rate of income tax to 50% for those earning over £150,000.

Regressive Taxation

• Definition: More tax, proportionally, is taken from people on lower incomes, and the wealthiest pay proportionally less tax.
• Impact: Tends to increase income inequality.
• Example: Under the coalition government (2013), the top rate of income tax for the highest earners was reduced to 45%, with calls for further reduction.

---

UK Taxation Policy

Income Tax Distribution (2019):

• Top 1% Contribution: The Institute for Fiscal Studies reported that, in 2019, the top 1% accounted for over a third of income tax, while 42% paid no income tax.

Impact of Indirect Taxes:

• VAT, Alcohol, and Fuel Duty: Indirect taxes impact inequality, as higher rates represent a higher proportion of poorer people's income compared to wealthier individuals.

Conclusion:

Taxation policies play a pivotal role in shaping social and economic dynamics. Austerity measures and changes in taxation can have profound effects on poverty, income distribution, and overall societal inequality. The debate between progressive and regressive taxation continues, with implications for the well-being of different segments of the population.