Poorest spend higher proportion on VAT than richest

Sterling coins
Image caption The poorest households are spending more on goods carrying VAT than they did 25 years ago

The poorest 20% of UK households spend a higher proportion of their disposable income on VAT than the richest 20%, the Office for National Statistics said.

Its research covered 2009/10, which was before the increase in VAT from 17.5% to 20% in January 2011.

When Chancellor George Osborne announced the increase in his 2010 Emergency Budget, the government said that VAT was a progressive tax.

But the ONS research suggested that is not the case.

It said that the poorest fifth spent 9.8% of their disposable income on goods attracting VAT in 2009/10, while the richest fifth spent 5.3%.

That figure for the poorest fifth showed a considerable fall from the figure of 10.7% in 2008/9 and 12.1% in 2007/8.

It is sometimes argued that the poorest households are not hit as hard by rises in VAT, because the tax is not charged on essential items such as food and non-alcoholic drinks.

The ONS research also found that the poorest households spent 58% of their expenditure on goods on which VAT was charged in 2009/10, much higher than the 45% they had allocated to VAT-charged items in 1986.

"This latest piece of research reinforces what is widely perceived to be the fundamental inequality at the heart of VAT: the poorer pay more of it relative to their incomes than the wealthy," said David Breger of HW Fisher & Company chartered accountants.

"It's clear that the Government needs to reconsider the full effect of VAT, which is inherently regressive."

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