Last week, the Chancellor Philip Hammond presented his budget with much ado about the now-abandoned increase in National Insurance Contributions (NICS) for the self-employed.
It’s interesting to look at the trends in personal tax in the UK alongside our attitudes to it, especially when there is so much discussion about the NHS, social care provision, prisons, policing and education being negatively affected by a combination of rising and/or changing population. Over the winter austerity started to bite and many woke up to its effects – so what are the trends in how much tax we are paying and what do we know about our attitudes in Britain to paying for our key public services?
The chart below illustrates that since 1990/91 income tax paid on gross salaries has fallen in the UK – with the exception for those earning the highest salaries (above £500k a year). Increases to the Personal Tax-Free Allowance (the amount you earn before any tax is deducted) has risen from £6,475 in 2010/11 to £11,500 in 2017/18. For most of us, the trend has been that year on year, our personal tax liability has fallen.
Income Tax Liabilities by Personal Income (£) / Per cent
Although direct taxes have reduced, overall many UK households are worse off.
This is because in-work benefits (e.g. Working Tax Credit, Housing Benefit, Child Tax Credit) have been frozen, capped or cut and indirect taxes (e.g. VAT, Insurance Premium Taxes) have risen over the same period. According to the IFS, by 2015 this had led to an average loss to households of £489 per year (an average gain of £321 a year from cuts to direct taxes, an average loss of £333 a year from increases in indirect taxes and a £477 a year average loss from benefit cuts)[i].
Austerity in public spending to address the budget deficit (the gap between revenue and expenditure) has been a central government theme since 2010.
With slower economic growth and an ageing and growing population we are forcing a hard choice – even more austerity or higher taxes.
As users of public services, recipients of pensions and welfare benefits and tax payers, what does the British public want to do? British Social Attitudes (BSA) is an annual survey which asks respondents questions about these issues and provides insight into how attitudes are changing over time. Like many other areas of life, when it comes to public spending and taxation people are divided.
BSA found that last year there was a change and there is now some support for higher public spending for health, education and social. However, the public is evenly split over whether there should be more spending or whether it should remain at the same level.
The proportion of BSA respondents saying the government should increase taxes and spending was around 6 in 10 through the 1990s, dropping to around a third in the 2000s – but this has turned a corner and in 2015, 47% supported more tax and spend.
There is a pattern here that correlates with levels of government spending.
The public’s attitudes are nuanced. There is minimal support for reducing welfare spending, except in relation to the unemployed – 45% would like to see less government spending on benefits for unemployed people – and low income working couples without children (61% think a working-age couple without children who are struggling to make ends meet should look after themselves, rather than the government topping up their income). Overall, a minority backed the reduction of spending on welfare and many would like to see an increase in the benefits paid to some recipients of welfare in particular, carers, people with disabilities and those on low incomes who have children.
Much of last week’s debate focused on the government breaking its manifesto pledge. Although there was some clarification that many self-employed workers are part of the growing gig economy of Uber drivers and couriers rather than small entrepreneurs and that welfare benefits for the self-employed and employed were beginning to converge, there didn’t seem to be a lot of noise around increasing tax. Perhaps we have woken up to the fact that we can’t have our cake and eat it when it comes to tax?
[i] Browne and Elming (2015). The Effect of the coalition’s tax and benefit changes in household incomes and work incentives. IFS Briefing Note BN159.