Poorest hardest hit by austerity

 

The poorest members of society bore the brunt of tax and duty hikes under Chancellor George Osborne's deficit-busting austerity measures, official figures revealed today.

The research by the Office for National Statistics (ONS) covers the amount households were left with after paying taxes and receiving benefits in the year to April 2011.

The poorest fifth saw the chunk of average disposable incomes that they spent on indirect taxes, such as VAT and duties on alcohol, fuel and tobacco, rise from 28% in the previous year to 31%, or £3,365 out of £10,858, squeezing living standards further.

The richest tier saw the proportion they spent on indirect taxes rise from 12% to 13%, or £8,339 out of disposable incomes worth £63,890.

This means after indirect taxes the richest fifth had post-tax household incomes that were more than seven times those of the poorest fifth, the ONS added.

Meanwhile, the research revealed a fall in average disposable income across all households of £200 a year to £30,300 as wages came under pressure.

While the proportion of household income paid in indirect taxes increased for all groups due to the increase in the standard rate of VAT from 15% to 20%, the poorest were hit the hardest.

The amount of indirect tax each household pays is determined by how much they spend on goods and services that attract these taxes, the ONS added.

However, the figures showed that average households paid £7,500 per year in direct taxes such as income tax and council tax, with the richest fifth paying 24% or £19,700 of their gross income, while the poorest fifth paid 10% or £1,300.

Families last year faced the biggest squeeze on household incomes since the 1930s with high inflation, slow wage growth and a weak economy.

The largest fall in disposable incomes was seen in the middle fifth of households, dropping from £25,500 to £24,400, the ONS said.

The amount of cash benefits, such as tax credits, housing benefit and income support, received tends to be higher for poorer households than for richer households.

The largest cash benefits were received by households in the second fifth of households, at £8,300 on average, compared with £7,000 for households in the bottom group.

This is largely because more retired households are in this sector and the state pension is classified as a cash benefit.

The richest fifth only received £2,100 in cash benefits on average, with the main source being the state pension.

PA

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