Harry Fairhead is a Policy Analyst at the TaxPayers’ Alliance.
Many ConservativeHome readers will, hopefully, be aware of Tax Freedom Day – the point during the calendar year in which you notionally stop working to pay for the Government’s various programmes and start earning for yourself and your family. This year it arrived in early June. But what if we applied this illustration to a lifetime of hard graft?
If you are the hypothetical average household, you will, presuming you work non-stop from the age of 21, be in your early forties before you start earning for yourself. You’ll have to work for just over 20 years to pay your £826,030 lifetime tax bill. Families do move up and down the income spectrum, so the total sum is illustrative, but it highlights the enormous burden under which middle-income families are placed.
The figure is undeniably stark, and an important illustration of why the cost of living is so high. With 2014-15 rates of expenditure and with the current tax regime, average households will pay an enormous amount to the exchequer. Indeed, this year’s estimate is a 2.7 per cent increase on last year’s: the burden is large and growing.
Politicians from all sides have tried and failed to address the cost of living crisis through government meddling. George Osborne notably introduced a higher minimum wage, unashamedly aping Labour policy. Meanwhile, few of our elected leaders and representatives have recognised the enormous contribution of tax to the problem.
Look at fuel duty – when pump prices briefly touched £1 per litre early this year, the tax component was almost 75 per cent of the total price. And yet politicians seem happy to ignore and, worse, add to the problem. For example, Osborne’s Sugar Tax is forecast to cost consumers £520 million in the first year alone, and will hit the poorest hardest due to its regressive structure.
Non-tax measures can have similar effects. A lack of planning reform is recognised to be one of the key reasons there is such a shortage of housing, and consequentially stratospheric house prices. Removing the huge restrictions to development that the Government keeps in place would certainly help reduce the cost of living and make home ownership a genuine possibility for millions of young voters.
The salient point is that it is government intervention that raises the cost of living.
Equally, how government spends taxpayers’ money is important. Projects such as HS2 will benefit the relatively affluent (the richest families take twice as many rail trips as any other group) and yet the Government insists that spending an inordinate amount on it remains a good idea. Governments tell us they are looking after those on low incomes, but so often the evidence points the other way.
For context, the lowest earning fifth of households have a lifetime tax bill of almost £320,000, and yet they earn (including cash benefits) less than £14,000 a year. On this basis, it will be 23 years before these families earn enough to pay their lifetime tax.
Besides, collecting all of this money is a huge administrative burden, and then so much of it is simply redistributed back to taxpayers through our £200 billion welfare system. Wouldn’t it be much more simple just to leave all of this money in taxpayers’ pockets in the first place?
Given that taxpayers have little say over how much they have to contribute and that we still have a very large budget deficit, it is vital that each penny is spent wisely. No matter what your political persuasion, wasted money should be considered appalling – especially so in the context of the sums that are being taken from those that can least afford it.
To be fair, other policies such as raising the personal allowance have helped, but too often movement on tax seems to be one-way traffic, or a complete standstill. And such a large and interventionist government proves to be very expensive.
Households face a huge lifetime tax burdenm and the Government should actively look to reduce it, particularly for those on low incomes. Politicians should always ask themselves whether bigger government and higher taxes are really the solution to the problem of the day. When it comes to the cost of living crisis, the answer is a clear No.