Wednesday, January 09, 2008

Tax Poverty Crisis


Nick Clegg's first question at PMQs was on "fuel poverty".

Fuel poverty? For some reason nobody's ever satisfactorily explained, fuel poverty is where you spend more than 10% of your income on fuel. And with spiralling energy prices, the number of households in that position looks set to increase even beyond the present 4m, itself a doubling since 2003.

Clegg wanted to know what Bottler was going to do about it? Like maybe issuing some kind of directive to our energy companies not to be so beastly and to stop raising prices. Er, yes... Bottler/Darling have already tried that one by bludgeoning the OFT into... well, jolly well doing something!

Precisely what, of course, is unclear. World energy prices are soaring, and UK energy retailers can't magic that away. Moreover, as the energy companies themselves have now pointed out, around half of the recent retail price hike has been down to Bottler's green taxes:

"It is estimated that rises in the three main green taxes this year, including the Carbon Emissions Reduction Target (CERT), will add £28.50 to annual household bills. npower's price rise will raise its average annual electricity bill by £64.

A source at another energy company said: "No one is against green taxes; most of us are in favour. But it's a bit rich for a Chancellor to give the impression that we're all profiteering when the Treasury is putting up our prices. And it's not just green taxes, it's other business taxes."

Fuel poverty? Sounds more like tax poverty.

The reality is that the most egregious cause of poverty is not fuel prices at all, but tax. And the government's own figures prove it.

Following the fuel poverty definition, let's define tax poverty as where a household spends more than 10% of its income on tax. On that basis, of the UK's 24.8m households, in 2005-06 roughly... ooohh... let's see... 24.8m paid more than 10%. So that's 100% of UK households living in tax poverty (see table 14 here and yes, yes, I'm sure there must be some subsistence crofters on Benbecula who aren't part of the cash economy, but let's not split hairs).

In fact, the average household tax payment (direct and indirect taxes) in 2005-06 was £11,500, which was 35% of gross income (all cash income, including social security receipts).

35%!

It makes 10% spent on fuel look trivial.

And do you know the best bit?

For the poorest 10% of households, the percentage of their income taxed away by Bottler is no less than 44%.

No wonder they're so strapped.

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