End poverty premiums

Neither the tax system nor the market deliver a fair deal for families on low incomes. Analysis shows that poorer consumers get a worse deal across the board. Whether we talk about food, housing, water supply, telecommunications, public transport, financial services, energy or the tax system, families in poverty find themselves paying a premium.

In the public realm, the poorest families pay the largest proportion of their already low incomes in tax.

  • Indirect taxes. While direct taxation is generally progressive in that the proportion paid rises with income, indirect taxes on consumption such as VAT are sharply regressive. Estimates suggest that those in the poorest decile lose more than 30 per cent of their income to indirect taxes. This compares dramatically with those in the top decile who spend approximately 6-7 per cent of their incomes on such taxes.
  • Direct taxes. Some forms of direct taxation such as council tax are regressive. Even after taking council tax benefit into account, the poorest households with children pay 5 per cent of their gross incomes in council tax compared to 1 per cent of the richest families. This is compounded by weak take up of council tax benefit.

The private sector penalises poorer families by various means in the provision of goods and services .

  • Payment forms. Low income families are rarely able to take advantage of the cheaper prices which are routinely offered to customers paying by methods such as direct debit. Instead, pre-payment for vital services such a fuel impose a large premium on poorer families.
  • Lack of access. Poorer consumers are excluded from some lower-cost goods and services either because of lack of information, or because poor credit records limit access.

In this period of economic downturn the government appears reluctant to reconfigure the tax system so that the richest households bear more of the burden. But unless the role of income tax or national insurance is increased, consumption taxes are reduced, or levies are placed on wealth transfers, poor people will continue to pay more than their fair share of tax.

Likewise, CPAG believes that the government must ensure that markets are not stacked against poorer families through effective regulation and scrutiny of the private sector.