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We don't need to tax low income families

There is a sound case, both economically and morally, for taking low income families out of taxation altogether by raising personal tax allowances.

 
We don't need to tax low income families

While the politicians bicker over whether we can afford tax cuts, the moral case for increasing personal tax allowances to £10,000 sooner rather than later is overwhelming. There is no doubt whatsoever that low income families are feeling the squeeze. 

A survey by charity, Family Action, highlights the enormous pressure on family finances with some families having less than £2 per person a day to spend on food.  The high and rising cost of fuel and food is hitting families very hard.

Family Action reports that families are facing an unprecedented squeeze on their finances leaving many with little hope for the future. Parents told the charity that they were ‘killing themselves’ to pay the bills and rising prices mean that parents are unable to save for their children's future. 

The survey found that babies and children are losing out as parents switch to cheaper milk formula for new babies and cut fresh fruit and vegetables from children's diets because, as one mother put it, ‘it is just too expensive’.  Anyone who has been to the butcher recently will know that meat is fast becoming an expensive luxury and many families are paying more for their annual season ticket to work than they are on their mortgage.  Cuts to Child Benefit, child care subsidies and tax credits are exacerbating the situation.

Debt pressure

This is an appalling state of affairs made worse by rising debt.  The Consumer Credit Counselling Service reports that at the end of last year, the average household was paying almost £200 per month in interest, representing nearly a quarter (23.8%) of available income.  If proof were needed of the difficulties facing families, it is in the recent figures from the Bank of England which show that credit card companies wrote off £3.64 billion in consumer debt in 2011. Some 7% of all outstanding debt on credit cards was declared unrecoverable last year.

There has been considerable pressure on chancellor George Osborne to accelerate the increase in personal tax allowances, scheduled to reach £10,000 by 2015, to take low income families out of taxation altogether. And there is a sound economic case for doing so.  Any extra in the monthly pay packet of those on average earnings or less will be spent – providing a useful boost to the economy.

£10K = poverty

The biggest single reason for increasing personal allowances is that an income of £10,000 a year is the official poverty level.  Yet over a million working people on the minimum wage – a pathetic £6.08 an hour or £11,065 a year- and many more part time workers on low salaries pay tax and National Insurance on these earnings and unless they have dependents, they will not be eligible for Tax Credits.  Moreover the lower income 50% of taxpayers contribute only 10% of income tax or £15 billion a year out of a total income tax take of around £150 billion. 

There are of course those who argue that we cannot afford income tax cuts while the government is trying to balance the books.  But if personal tax allowances were raised to £10,000 for, say, the 2013-14 tax year (administratively it is too late and too expensive to alter PAYE codings for the upcoming tax year) the cost could be limited by reducing the starting point for 40% tax by the extra £1,895 given as higher tax allowances.  This would bring down the threshold for 40% tax from £34,370 of taxable income to £32,475.  

Balancing the books

David Laws, Liberal Democrat former chief secretary to the Treasury, has pointed out that any extra cost could also be covered by cutting tax relief on pension contributions to the basic 20% rate which would save an estimated £7 billion a year.  There are many who believe that it is grossly unfair that the lion’s share of pension tax relief goes to higher rate taxpayers and is effectively a subsidy from the relatively poor to the relatively rich. In today’s austere environment this largesse cannot be justified.  

But will Osborne listen to these calls for higher personal tax allowances and announce concessions in the upcoming Budget? Probably not. Much more likely that the Conservatives will save the big tax cuts for the Budget before the 2015 election so that they get all the credit for putting more money in people’s pockets. But voters should remember that higher personal allowances were never Conservative policy and the £10,000 level by 2015 was only adopted after pressure from the Lib Dems.

28 comments so far. Why not have your say?

ermine

Mar 06, 2012 at 10:33

One argument against this is that everybody shoud have some skin in the game. If you don't pay tax, you will vote for freebies and jam today paid by everybody else.

Having said that, I think the threshold is anomalous being so far below the full-time NMW, and the plans to raise it to 10k are reasonable.

> Family Action, highlights the enormous pressure on family finances with some families having less than £2 per person a day to spend on food. The high and rising cost of fuel and food is hitting families very hard.

Families benefitted hugely from Labour's largesse and the goal of lowering child poverty. It therefore stands to reason that they will feel the draught more when the largesse is scaled back. As the man said 'there is no money left'. Living standards are going to go down in the UK for the foreseeable future, so those families are going to have to start doing more with less or getting used to doing without.

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Keith Cobby

Mar 06, 2012 at 11:21

By raising the personal allowance and continuing to reduce the higher rate tax threshold, 40% will eventually become the basic rate as more people pay it.

We need to simplify the tax structure and reduce the overall level of tax as we are amongst the most highly taxed nation in the developed world. This will cause a drag on economic growth for the foreseeable future.

I am an advocate of flat taxes as they provide the best incentive for working harder, earning more and therefore paying more tax.

The same tax rate on income, capital gains, dividends, corporation tax and VAT.

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Anonymous 1 needed this 'off the record'

Mar 06, 2012 at 11:34

"Yet over a million working people on the minimum wage – a pathetic £6.08 an hour..."

The minimum wage is not designed to support a family, it is an entry level wage from which people can learn working skills and then progress up the ladder. Liberals and trade unions advocate raising it, little realising that doing so will destroy the job prospects of the young and lowly skilled as more low value jobs are written off.

Ask yourself when was the last time someone showed you to your seat in the cinema or filled your car up at the petrol pump? A long time ago, i suspect.

Whilst doing those menial tasks is dull, in the quieter periods there are opportunities to learn about sales, marketing, mechanics etc. A high minimum wage is not the answer.

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Anonymous 2 needed this 'off the record'

Mar 06, 2012 at 12:04

A £10k nil tax band could also be funded by;

Slashing the £100 BILLION quango bill in half, or

Slashing the Billions we pay to the EU,or

By not fighting stupid wars, or

By not paying £26k a year net of tax in benefits to fit and healthy people,or

By sacking Gordon Brown's 1 miilion non-job

I could go on and on.

There are dozens of ways a £10k nil rate band could be funded without one addition tax rise

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S-ville

Mar 06, 2012 at 12:23

ermine - was it ;largesse' or necessary redistribution? After all, reducing child poverty is surely a noble aim, and if you use the power of the state to achieve that, then what's the problem. Sadly, the Tories take a more Darwinian view of society.

Keith - agree re the flat tax, just as long as all allowances and avoidance dodges go at the same time, so there's no opportunity for those who can afford top quality accountants to juggle their financial affairs and avoid paying their share.

Anonymous 1 - The minimum wage might not be designed to support a family, but that's what it's doing.

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Rose G

Mar 06, 2012 at 15:04

Most average income earners PAYE already pay more than 40% on taxes:

PAYE; NI; Council tax; VAT = more than 40% - all of these go to the treasury & what do they do with it?

They use it to pay their salaries & expenses

To fund wars

To assist corrupt leaders of countries near & far increase their bank balances

To assist the equally corrupt EU with their pie in the sky dreams & their ridiculous CAP - anyone watch Panaroma & the money farmers can see exactly how unrealistic we are when it comes to using tax payers contribution to boost the wealth of the already wealthy!

There is neither rhyme nor reason to a lot of the policies introduced by this stupid current government - The total cost of reorganising the NHS

will be money wasted & no improvements whatsoever within a failing organisation - I suppose, when we have to pay for our health care, which I expect we will be within the next few years, only then will the public stop misusing the NHS & all the services provided & maybe then only will be more realistic about what can be funded by the taxpayer & what has to be funded by individuals.

I agree that the last government were living in cloud cuckoo land during their stay here but there is absolutely no reason to the way they introduced the 10p tax band & shortly after scrapped it - that alone was sufficient to ensure GB never got off the ground when he wrestled power of TB - in any case, most of politics affecting England is voted by the Scots at Westminster - until the loathsome west lothian question is addressed, we will continue to have unfair taxation, unfair prescription charges, unfair tuition fees which have been voted for England, but not in Scotland!

We are unlikely to get any government to cut their spending - the tories will do their best to reduce public spending, but they will use public money to fund their pet projects like free schools, & who knows what else.

One thing I do believe is that Belgium has managed without a proper government, which leaves me with the question, what do we need government for? Is it mainly to suck to the media? There is nothing left to do except go on paying up & even when you are no longer of this earth, they still try to get every penny off you. Governments the world over are as corrupt as Mugabes, but they like to pretend they are doing it to make the world a better place, my big fat ****!!!

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Mike P-H

Mar 06, 2012 at 17:08

How much would we save by getting rid of our nucleur deterrant and has anybody got a sensible argument to justify keeping it?

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Maria Teresa Benford

Mar 06, 2012 at 18:27

Surely it makes no sense to take taxes in one hand and give benefits with the other hand? All we are doing is finding work for paper shufflers? If a minimum wage represents the minimum that someone requires to live on then that should be the threshold for paying tax!

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Michael Mason-Mahon

Mar 06, 2012 at 18:43

As they say a Politician is your friend until they get your vote. Labour had so many years to help the poor and now you have the Cameron Boys and Girls Brigade.

Every Government seems to have very big plans and none of them work unless you are Rich. Where do they get their advisors from where is their common sense.

1) £ 10,000 before tax is paid

2) £10,001 - £15,000 12p tax is Paid

3) £15,001 - £40,000 23p tax is Paid

4) £40,001 - £ 65,000 35p tax is Paid

5) £65,001 - £100,000 40p tax is Paid

6) £100,001- £199,000 45p tax is Paid

7) £199,001 - £500,000 50p tax is Paid

8) £500,001 - £1,500,000 55p tax is Paid

9) £1,500,001- £4,000,000 59p tax is Paid

10) £4,000,001 onwards 62p tax is Paid

Anyone Paid a Bonus over £1,000,000 65p is Paid

This may seem complicated it is not, what it is it is fair for everyone. The more you earn the more you have to help the Country.

You may say that people will leave this Country, do you want people here that are not willing to pay extra in the time of need.

When 3 Bankers are awarded (Lord Green, Michael Geoghegan and Douglas Flint) over £80 Million in five years for running a PLC there is something very wrong, yet Stuart Gulliver has been awarded over £23 Million in three years now that is mad.

Little boy asks his Daddy what do you do Daddy, I am a CEO and I get Paid Millions my Son.

But what do you do Daddy, do you Make something, do you Build anything?

No my Son I am a CEO and I am Paid Millions

Daddy is that Morally right?

What are Morals Son?????????????????????????

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Jon

Mar 06, 2012 at 18:56

Michael - you are fogetting that NI is also a tax. Even before you get your salary, your employer has paid over 12%. Then you pay 20% PAYE and 11% NI. So if you work it out the "basic" rate of tax is already over 40%. Those paying 50% PAYE are in total suffering some 70% deductions from their direct employment cost (ie gross salary cost to the employer). So your suggested rates are a great relief !!

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Michael Mason-Mahon

Mar 06, 2012 at 19:42

Jon

May I ask should a person on less than £15,000 be tax more than a person on £150,000. Also how can a CEO of a local Council be pid more than the Prime Minister?

A person on £65,000 will still receive £39,000. Which is much more than a person that is forced to live on less than £14,000.

This tax system is not forever it is till the Country is back on its feet.

Remember the people that put us in this mess, not just Banker's but Politicians.

How can a person convicted of fraud still go back to the House of Lords?

Just look at the behaviour of the MP's during question time, this would not be allowed in a class room.

Life may not be fair but it should not be so unfair on so many, that is why a Government has a duty to its people. Not just to protect the Rich and hurt the poor.

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Truffle Hunter

Mar 06, 2012 at 19:44

Well said RoeG!!

The politicians are the problem. They are just as culpable regarding this new Great Depression, especially the last government that bent Keynes' theories to mean that government should spend and spend even in a period of boom. Under Keynes's theory governments were meant to act to stabilise the economic system when the private sector periodically went into recession- an entirely natural economic process. The political buffoons tried to defy this to try and bend the electoral advantage. We are being made poorer by their selfish actions.

Meanwhile in Europe, we have had 2 years of "hard work!! by the EU politicians trying to save their face. Their Euro invention was not fit for purpose - but, what the hell? They just proceeded to create it despite the warnings that it would not work. They have created this whole problem - the free markets were quite capable of dealing with changes in exchange rates prior to the Euro. In fact, as we all know, the old exchange rates acted like a pressure release valve for the economy. Uncompetitive countries gradually let their currencies depreciate. Under this system, there is no chance of pressure building up unnoticed to create the current mess. The political class and system needs breaking up. The pressures within the populace are gradually building against them. They fail to take notice at their peril. History shows us the way. Revolution!

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Franco

Mar 06, 2012 at 22:10

We are giving £2 billion a year to India alone and they have more billionaires and far higher GDP growth than we have.

And how many more billions are we giving to other countries and spend on wars?

How many billions is the invented quarrel with Iran costing us in higher prices for crude oil?

Those whom the gods will perish, they first make mad.

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Michael Mason-Mahon

Mar 06, 2012 at 22:23

If you want to look at the EU can anyone explain why the accounts of the EU HAVE NEVER BEEN SIGNED OFF for over 15 years. No Company in the World could get away with this. Yet Politician allow this to go on.

All they have been talking about today is the 50p Tax Rate why, is because they are Rich themselves and have to many Rich friends?

You should take a look at the link below:

http://www.guardian.co.uk/business/2011/feb/22/hsbc-stuart-gulliver-contract?INTCMP=ILCNETTXT3487

You may want to know that the previous Chairman and CEO are working for the Government, could this be the reason is why the Prime Minister is reluctant to call for investigation of HSBC Holdings PLC.

The press should look at Lord Green (ex-Chairman) Mr Flint (current Chairman) of HSBC Holdings PLC?

As for the Prime Minister he says I do not reward BANKERS, may I suggest you think again. You made Green a Lord the previous Chairman of HSBC PLC. He now works for the government, NOT A REWARD???

Can Lord Green claim £300 per day for sitting in the Lords?

Remember this is not a REWARD is it Prime Minister????

Help Stop Bankers Cheating, will the PRIME MINISTER HELP????

When GREEN was Chairman what did he do to HELP the customers in India?

Just look at what the following companies have done to their customers: HSBC, British Gas, Talk Talk just to name a few.

How dirty is Business in the UK?

How can you trust these Companies?

What is so wrong in doing the rght thing to people.

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MikeR

Mar 07, 2012 at 00:09

Hold on a minute - all the above assumes that you earn or have an income of more than 10k. What about those of us attempting to survive on an income of half that? Raising the income tax threshold does nothing for us. A fairer way to make things more affordable would be to reduce VAT.

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MikeR

Mar 07, 2012 at 00:11

And, by the way, the title of the article is "we dont need to tax low income families" . Single people ignored or milked as usual by press and government. We also dont need to tax low income singles either.

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Michael Mason-Mahon

Mar 07, 2012 at 06:55

Mike R You may have missed the point, if you earn less £10,001 you would not pay any tax. Is has nothing to do with being Single or Married.

It is amazing with all the Brains (or lack of them) in Government they are running around like headless Chickens trying to work about the higher tax rate.

Just look at the tax system above that would have a big effect on poor people.

How can the Tax man let major companies off owing Billions, if it was you or me that owed them they would want every penny.

One rule for the Rich and screw the poor as they do not have a voice that will be taken into account.

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ermine

Mar 07, 2012 at 12:24

@s-ville

was it ;largesse' or necessary redistribution? After all, reducing child poverty is surely a noble aim, and if you use the power of the state to achieve that, then what's the problem.

Children are part of society, they are not a constituency on their own. The needs of all of society have to be balanced, there is no endless pot of money that will produce the amount necessary to eliminate child poverty, particularly when you measure poverty in a relative way as we do now.

We could afford that largesse in the good times. We can't now. It's time to live within our means. Poverty will increase across the scale, but yes, child poverty will increase, reverting back to what it was before. There is no free lunch, there is no cake.

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Rose G

Mar 07, 2012 at 13:17

Thank you Truffle Hunter!

I must confess that with the exception of a few old guards still active within politics in the UK, who had a moral compass, & some integrity, our current lot at westminster (expenses scandal notwithstanding) are a bunch of highly educated morons, if that is not being insulting to the morons. The concept of power corrupting and absolute power corrupting absolutely is not just a concept but a reality.

Wherever in the world you go, the politicians are doing their own thing & together with the help of their equally corrupt wankers in the financial services industry are making fools of us all. When our politicians tell us that we should be proud of contributing to the corrupt politicians the world over in the name of charity, let's be clear about one thing, there are certainly pay backs for those who are actually pushing to continue to fund other corrupt governments so that the status quo is maintained.

The only people who get a free or subsidised lunch these days is our politicians Ermine. There is absolutely no will to tackle fraud because it appears lots of people with the werewithal and the nous use the many loopholes to avoid taxation, or to get subsidies from the CAP - I was absolutely astounded to find out that taxpayers were funding non farmers to the tunes of millions, while the actual farmer could not access the subsidies.

Cerain sections of society seems to believe that we can get something for nothing - this attitude permeates every walk of life, starting from the head down, rotten to the core & disease is spreading!

Politicians together with the bankers have led to where we are, and we may not be having our own uprising, but it disgusts me to my soul to know that all of what we are facing has been decided at some round table or masonic lodge!

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Michael Mason-Mahon

Mar 07, 2012 at 15:10

@ s-ville

You say There is no free lunch, there is no cake?

Only for Board Directors and Politicians do they get a free lunch and cake, but they want to take the whole table. Look at their GREED it has no limits.

When you have MOD going over £4 Billion on projects if this had taken place in the Private Sector people would have lost their jobs.

How much money is being wasted? A lot of Civil Servants work a lot of unpid overtime is this fair?

As far as "reducing child poverty is surely a noble aim" this should not be an aim, it has to be a duty. How many Governments have promised to do the right thing only to mess it up so much that Poverty is increased.

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MikeR

Mar 09, 2012 at 23:25

Michael Mason-Mahon

No, I didnt miss the point, though maybe I didnt make my point clear. If the allowance is increased to 10,000 then yes more people would be taken out of income tax and therefore have more disposable income. However, those earning less would be in the same position as before, with no concessions. And they would be paying more tax than 12 months ago - 20% VAT instead of 17.5%. Every time you get a house or car maintained, buy most items, or buy fuel, you are paying more tax - hence my plea to do something for those on the lowest incomes, who may have a few thousand savings which exempt them from any other benefits.

And yes, we should be taxing higher earmers more than we do now.

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Michael Mason-Mahon

Mar 10, 2012 at 06:48

I do agree with you that VAT is totally unfair at 20% and this can be reduced without a problem. They should introduce a super Luxury Tax of 8% this was done in India for many years. 4 and 5 star Hotels charges this, you could also in clude many other in this tax band.

In India you pay a 12.5% Luxury Tax on drinks and everything in the Hotels and it worked. Fuel duty here is just an easy target you should look at how Tesco sets their petrol price? A few weeks ago I was driving on the Old Kent Road a Texaco was £1.29.9 yet Tesco was £1.34.9 this company had a price promise policy yet they were caught failing to keep to this they had to stop it.

Why do they refuse to disclose the amount of profit they make from petrol????

You may also look at puting a 2.5% luxury tax on the sale of properties over £700,000 - 3.5% over £1 Million.

Cars over £50,000 2% luxury tax

there are so many ways to get the rich to pay a fairer share.

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Keith Snell

Mar 10, 2012 at 10:29

If the £10,000 lower limit of tax is adopted which makes sense it is not possible to do away with benifits altogether, there are for instance people who are too ill either physically or mentally to work but need housing food etc. for which 10K is inadequate. It is also time that the super rich made a fair contribution. This should be by reintroducing super tax for those with earnings [earnings = salary + bonus] of over 750K. The super rich always have the ability to move to lower taxed economies [as most F1 drivers do] so it is important to set upper tax limits to avoid a brain drain. However if someone could come up with a brainless drain we could export at least 50% of our self serving MPs and 75% of our useless MEPs thus reducing their drain on the taxpayer.

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Michael Mason-Mahon

Mar 10, 2012 at 11:42

The £10,001 is where tax starts for people who are earning, you would not be taxing benifits.

Douglas Flint Chairman of HSBC called for businesses to be more transparent. It is a great shame that HSBC Holdings PLC and the HSBC Group cannot be more transparent.

This is a man who lied about customers and cheated shareholders of the truth concerning the behaviour of The Hongkong and Shanghai Banking Corporation Limited in India.

It is my personal belief you cannot trust what this man says and it is a shame that he is the Chairman of HSBC . In five years he has been awarded over £18 Million what for?

When will he tell the truth about what The Hongkong and Shanghai Banking Corporation Limited in India has done to customers?

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Jeremy Bosk

Mar 10, 2012 at 13:18

Like MikeR, I am one of those with an income well below £10,000 but capital of over £16,000 so get no benefits. Until I finish spending my redundancy money and pension lump sum or the old age pension kicks in in two years. It is a toss up which will happen first.

The NHS dentist (I suppose I count as lucky still having one of those) gets £400 next week which is more than a month's worth of my pension. My wallet will be screaming louder than me.

Oddly enough, as a diabetic and having other assorted ailments, I do get free medical prescriptions which saves almost £40 a month. Not to mention eye tests, blood tests and foot checks. Which cost those of you who still pay income tax a small fortune. So thank you for that. I suppose the pain of untreated teeth is less often fatal.

I could spend everything on doing up the house and become penniless faster but prefer to fight by working hard at my stock picking.

I entirely agree about VAT being iniquitous and NICs are just a tax on jobs.

The moral is: don't bother saving for your old age because they will take it off you anyway.

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jonners

Mar 10, 2012 at 21:49

What ermine fails to realise is that the poor pay a higher percentage in tax than the better, namely 20% on VAT, which is an a regressive tax, therefore with NI their tax rate would be 31% before income tax. Given that the poorest spend 100 % of thir income it would be a boost to aggregate demand in the economy, and the treasury would be clawing back 20% of it in VAT receipts. Everyone should be aware of much tax they pay the government wheter it be a pint of beer or petrol, ( In those cases VAT plus customs duties).

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J Jones

Mar 14, 2012 at 23:52

Take people out of the tax system & they will just be voting to spend "other peoples money".

The unfortunate effect might be more leaders like Gordon Brown who just spend at an unsustainable rate.

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jonners

Mar 15, 2012 at 01:02

Again perhaps many people need to realise that we all pay 20% VAT with few exceptions,before the extra taxes imposed on petrol and alcohol. AS VAT is regressive poorer people pay a much more higher percentage of their income than those better off. Adam Smith said that taxes have to be equitable, regressive taxes are not. Therefore the poorest pay the highest amount of tax and effectively subsidise the rich. Of course governments love these " stealth" taxes, after a while people forget about them. I love driving, and what a treat it is in America, where petrol is less than half the price it is here.

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