William Eichler 28 May 2019

Council tax is ‘regressive’, financial experts say

Council tax hits the poorest residents much harder than it does the wealthiest, according to the Institute for Fiscal Studies.

A new analysis of the impact of tax and benefits on income inequality has revealed that the poorest tenth of the population pay 8% of their income in council tax.

This is a much higher percentage than the next 50% pay (4-5%) and is more than double what the richest 40% pay (2-3%).

The calculations were made after council tax support was factored in.

The IFS, who carried out the research with funding from the Economic and Social Research Council, described the council tax system as ‘regressive’.

Overall, the IFS concluded that the system of direct taxes (income tax, national insurance contributions and council tax) and benefits reduces inequality.

Before redistribution the highest-income fifth of individuals on average have an income that is 12 times as large as that of the poorest fifth, the think tank found. After adding on cash benefits and deducting direct taxes this ratio falls to five.

Pascale Bourquin, a research economist at IFS, concluded: ‘The tax and benefit system significantly reduces the gap between rich and poor, with benefits playing a particularly big role.’

‘Council tax is clearly regressive, income tax and NICs are significantly progressive, and we should probably think of indirect taxes as being broadly distributionally neutral,’ Mr Bourquin continued.

‘But the bigger picture is that what matters for income inequality is the progressivity of the tax and benefit system as a whole, and not a specific part of it.’

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