Council tax is hitting poorer residents harder

Analysis of the impact of tax and benefits on income inequality by the Institute for Fiscal Studies has found that council tax is hitting the poorest residents far harder than it does the wealthiest.

Funded by the Economic and Social Research Council, the research finds that though benefits do much of the work in reducing income inequality, taxes also redistribute from rich to poor, and are responsible for at least a fifth of the total redistribution the tax and benefit system achieves.

It revealed that the poorest 10 per cent of the population pay eight per cent of their income in council tax, which is a much higher percentage than the next 50 per cent pay (five per cent) and is more than double what the richest 40 per cent pay (two per cent).

Pascale Bourquin, a research economist at IFS, said: “The tax and benefit system significantly reduces the gap between rich and poor, with benefits playing a particularly big role. However, contrary to the ONS’s claim, taxes do also reduce inequality. Within that, 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. 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. The government should achieve its desired amount of redistribution using those parts of the tax and benefit system best suited to that particular job.”