Labour's tax rises hit poor households far harder than rich

The poorest people in society are paying a far higher proportion of their income on taxes – particularly council tax – than middle-income earners or the rich.

A new study by the Office of National Statistics, The Effects of Taxes and Benefits on Household Income, 2001-02, reveals that the least well-off have to find 7.1 per cent of their incomes in local taxes, compared with 3.7 per cent for middle-income groups and only 1.8 per cent for the highest earners.

Charities are also warning that low-income families are failing to claim almost £2m in council tax rebates, as households face an average 12 per cent rise in bills from this month.

Last year the total tax bill for the richest 20 per cent of households was 34.2 per cent of their incomes. Lowest-income groups paid 41.7 per cent in tax, the study shows.

When indirect tax payments are calculated, the ONS report found poor people were again unfairly penalised. The amount they spend on VAT and duty on alcohol, cigarettes and other items means they are spending 30.1 per cent of their incomes on indirect taxes, compared with 10.4 per cent for the richest 20 per cent in society.

The ONS said it did not measure changes in household finances or whether poorer people had become better off because of tax credits.

"When you are measuring change you need to look at it over two or three years," a spokesman said.

The findings were seized on yesterday by the Liberal Democrats, who said they showed council tax was unfair on the poor. Matthew Taylor, the Liberal Democrat Treasury spokesman, said that "under Labour, the poorest are being hit hardest by council tax rises.

"[Gordon] Brown's legacy is that the richest 20 per cent are still paying less of their income in tax than the poorest 20 per cent. This year's council tax rises confirm that Labour is taxing unfairly and spending unwisely," Mr Taylor said.

Campaigners for low- income families said that council taxes were a serious burden for many poor households in Britain. They said that although they had been helped by the Government's child tax credits, they would suffer from council tax rises this month.

"One of the concerns about council tax is that the take-up of council tax benefit is quite low and up to two million households eligible for council tax rebates are not claiming them," said Martin Barnes, Director of the Child Poverty Action Group. "An average £8 a week is going unclaimed and we are seeing quite high increases in council tax from April onwards."