Labour tax rises increase poverty gap
Charlotte Denny Wednesday April 18, 2001 The Guardian
Higher taxes on cigarettes and alcohol have increased the gap in spending power between rich and poor households since Labour came to power, government figures revealed yesterday. Despite the chancellor's initiatives to boost the incomes of the poorest households, inequality in post-tax income has risen to its highest level for 10 years, according to the office for national statistics.
The main reason appears to be changes to the indirect tax regime. The ONS figures show that inequality in disposable income - what people have to spend after direct taxes - has risen only slightly.
Indirect taxes such as excise duties and VAT hit the wallets of poorer households harder because they spend more of their income. While VAT rates have remained unchanged, excise duty on petrol, alcohol and cigarettes has risen sharply under Labour.
After falling for the first half of the 1990s, inequality in post-tax income started to rise in 1995, according to the ONS figures. It flattened out briefly then began rising again in 1997, reaching its highest level since 1990 last year.
The changes over the past three years are small by comparison with the rapid rise in inequality before and after tax which Britain experienced in the 1980s.
Wage inequality rose dramatically between 1979 and 1989. It fell slightly under John Major's government and has been largely stable since the mid 1990s.
Measures of income inequality after taxes are taken into account also rose steeply in the 1980s, particularly in the last half of the decade, when the then chancellor, Nigel Lawson, slashed the tax bills of top earners.
After-tax inequality fell under the Major government then resumed a rising trend under Labour.