§ Lord Monkswellasked Her Majesty's Government:
On average what percentage of the income of those in the bottom 10 percentile of earnings is spent on:
and what percentage of extra income they lose for every £1 in extra earnings; and [HL3560]64WA
- (a) council tax; and
- (b) VAT and excise duty;
On average what percentage of the income of those in the top 10 percentile of earnings is spent on:
- (a) council tax; and
- (b) VAT and excise duty; and
- (c) income tax. [HL3561]
§ Lord McIntosh of HaringeyThe information requested falls within the responsibility of the Director of the Office for National Statistics who has been asked to reply.
Letter from the Director of the Office for National Statistics, Dr. Tim Holt, dated 15 July 1999.
As Director of the Office for National Statistics (ONS), I have been asked to reply to your recent parliamentary questions on the proportion of income spent on various items by those in the bottom and top decile groups of the earnings distribution.
The information you require is given in the attached table. The figures are derived from Table 2A, Appendix 1 in the latest edition of the article 'The effects of taxes and benefits on household income' published in the April 1999 edition of Economic Trends, a copy of which is available in the House of Commons Library. The information is given for the top and bottom decile groups of the income distribution, as no information is available on the amount of these taxes paid by decile groups of the earnings distribution. We cannot determine the percentage of extra income which households in the bottom decile pay in council tax, VAT and excise duty for every £1 in extra earnings.
Expressing expenditure taxes as a proportion of income for households in the bottom decile may give a misleading impression of the impact of these taxes on the poorest households. Among the households in the bottom decile are some with low incomes but high expenditure. These may be households suffering temporary reductions in income or fluctuating income levels. These households can maintain previous high levels of expenditure by borrowing or drawing on savings. As expenditure taxes tend to be proportional to expenditure rather than income, expressing such taxes as a percentage of income gives a high figure for this group.
Percentage of gross income paid in selected taxes, 1997–98 Households in the bottom decile Households in the top decile Council tax1 6.9 1.6 VAT and excise duties2 23.1 7.2 Income tax3 2.5 19.0 1 Includes water charges and Northern Ireland rates. 2 Duty on alcohol, tobacco, petrol and diesel, betting taxes and vehicle excise duty. 3 Net of tax relief on mortgage interest and life assurance premiums.