ONS figures show the rich aren't that much richer than you
Amongst all the economic doom and gloom there’s sometimes a bright spot- that someone else might be feeling it worse than you. Latest figures released by the Office for National Statistics show that, with the income gap at its lowest for 26 years, it is the people considerably richer than yow that are feeling the pinch hardest. Wonder if the Government know about this…
Figures updated to 2011/12 show that household income of the richest quintile of people before tax was 14 times higher than those in the lowest fifth. However, once taxes and benefits were taken into account, that figure fell to just four times.
And most of the tax paid by the lowest fifth is in VAT and other indirect taxes. Because these are levied at a fixed percentage rather than increasing with income levels, VAT has a disproportionately high impact on those with lower incomes. The increase in VAT to 20% in January 2011 meant that the lowest quintile paid 29% of disposable income in indirect tax, compared with just 14% of income spent by the highest earners. However, once direct progressive taxes are added into the mix, the total proportion of income paid in taxes by both groups is similar, although the lowest still pay slightly more, proportionately, at 36.6% (compared with 35.5%). This inequality, particulary with VAT, is why some unions are calling for a drop in VAT rate rather than an increase in personal allowance- if you already earn less than £9,500, increasing the personal allowance will not benefit you at all.
Of course, those with the lowest incomes also tend to receive cash benefits to supplement their actual income, with 57.7% of gross cash income of this group coming from benefits, compared with just 3% of the highest income group. All this means that rich people’s income is ‘only’ four times that of the lowest paid.
Of course, this is only good news if you consider yourself to be among those with the lowest income and/or you subscribe to the social concept of income equalisation. It could be argued that, although the Government has a mandate to tax the population to help provide communal services, like defence and the NHS, the prospect of Robin Hood-esque taxation to give some of your money to other people is outside any such remit. Of course, this argument will be of no use whatsoever when you get prosecuted for not paying your taxes, but it might make you feel better when languishing in your cell.