Tax policies 'hit poorest hardest'


The poorest households are the biggest losers from the Government's tax policies, according to a union study.

The TUC said that by the time of the next general election, low-paid workers will be losing up to four times more from the VAT increase than any gains from the raising of the personal tax allowance.

A household with an average weekly income of £195 will gain £1.09 from rises in the personal tax allowance by 2015, but will lose £4.26 a week through the increase in VAT to 20% from January 2011, it was claimed.

Families on all income levels will lose more from the VAT rise than they will gain from the increase in the personal allowance and changes to National Insurance, said the TUC.

General secretary Frances O'Grady said: "Contrary to ministers' claims, the biggest losers from the Government's tax policies are the poorest households.

"It is a myth to say that raising the personal allowance will benefit those worse off in society. Low-income families will gain practically nothing from the increase in the personal allowance but will continue to lose significantly from the rise in VAT - in some cases over 6% of their income.

"Those who will fare best through the new personal tax allowance are richer households, although even they too lose out overall as a result of the VAT rise. If the Chancellor really wants to make a difference to family budgets, he should look at reversing his VAT hike and cuts to vital tax credits and benefits."

Shadow Treasury minister Catherine McKinnell said: "David Cameron and George Osborne give with one hand, but take much more with the other. For all their boasts about small rises in the personal allowance, for millions of families this is massively outweighed by the government's VAT rise. The Budget must cancel next month's tax cut for millionaires and instead cut taxes for people on low and middle incomes."

A Treasury spokesperson said: "In 2010 the Government was faced with the challenge of restoring Britain's worst public finances in peacetime history. We have had to take difficult decisions to deal with the deficit, including to increase VAT. However, the increase only applies to the standard rate, ensuring that the zero rate is maintained on food and children's clothing, and that the 5% rate on domestic fuel stays in place.

"We want a fairer, more efficient and simpler tax system in which those with the most contribute the most. We have cut income tax, frozen council tax, and cut and frozen fuel duty so that fuel is now 10p cheaper than it would have been under inherited plans."

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