Tax

The poorest income group spends twice as much on so-called 'sin taxes' and VAT than the wealthiest income group as a proportion of their income, according to a report from the Institute of Economic Affairs think tank. Tax is the single biggest source of expenditure for those who live in poverty, it says.

Income inequality in 2011-12 was at its lowest point since 1986, according to the Office for National Statistics. In its latest annual report on the impact of tax and benefits, it calculates that the Gini coefficient for disposable income in 2011-12 was 32.3 per cent, a fall from its 2010-11 value of 33.7 per cent.

There is a 'negative and significant' link between income equality and work incentives, says a new academic study of EU countries.

The study used EUROMOD (an EU-wide microsimulation model) to disentangle the role of taxes, benefits and social insurance contributions in influencing income inequality and work incentives – the latter being indicated by marginal effective tax rates (METRs), the share of an increase in earnings lost through higher tax and social insurance contributions and/or lower benefit entitlement.

Poverty campaigners and think tanks have voiced disappointment over the 2013 Budget statement, accusing the Chancellor of doing little or nothing to help those on the lowest incomes. Against a backdrop of sluggish economic growth and high borrowing, the Budget used savings from deeper public spending cuts to give tax breaks to businesses and those on middle and higher incomes.

The Joseph Rowntree Foundation said the Chancellor had failed to deliver an anti-poverty Budget that would boost living standards and ease the strain on poor families. The Resolution Foundation think-tank pointed out that most of the benefit of income tax cuts went to higher-income households, at the same time as families on lower incomes faced cuts in tax credits. The Child Poverty Action Group accused the government of 'abandoning' low-income families on the frontline of austerity.