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COMMENT
Last month, we received a postcard here at Fool HQ from the Prime Minister, which highlighted that the UK now has: Although my political allegiance is to the left of centre, I'm not terribly impressed with this government's stewardship of our nation's finances. And, while I don't doubt that the above figures are broadly true, they don't tell the whole story about our financial health. For example, they don't mention that consumers are drowning in debt, with personal debts more than twice as high as when Labour came to power in May 1997! Furthermore, the government isn't keen to admit that taxes have risen every year for the last ten years! Indeed, according to economic think-tank The Institute for Fiscal Studies, taxes will account for almost 39% of our gross domestic product this tax year (GDP is predicted to be £1,175 billion). The way I see this is that I'm working for the government for two days a week and then three days for me and my family! For the record, the government will collect almost £455 billion in direct and indirect taxes this tax year (2004/05). This works out at £9,440 per adult, or £7,600 per person. Yikes! Over three-fifths of this huge sum (61%) is collected via the following taxes:
Tax revenues for 2004/05
Source of revenue
Forecast
2004/05 (£bn)Proportion
of total (%)Comments
Income tax
128
28
Thirty million people pay income tax
National Insurance contributions
78
17
Charged on earned income
Value Added Tax (VAT)
73
16
The main consumption tax (a tax on spending)
Eighteen million UK adults pay no income tax, mostly because they are retired or not working for other reasons. And when it comes to paying income tax, we should thank high earners. That's because five pounds out of every nine (55%) of income tax is collected from the UK's 3.4 million higher-rate taxpayers. One in nine taxpayers pays some higher-rate tax at 40%, compared to one in 33 in 1980.
Other taxes worth a mention include:
| Tax revenues for 2004/05 | |||
|---|---|---|---|
| Source of revenue | Forecast 2004/05 (£bn) |
Proportion of total (%) |
Comments |
| Company taxes | 55 | 12 | Corporation tax, petroleum revenue tax and business rates |
| Motoring taxes | 29 | 6 | Vehicle Excise Duty and fuel duty |
| Council Tax | 20 | 4 | This has risen rapidly in recent years |
| "Sin" taxes | 17 | 4 | Tobacco, alcohol and gambling duties |
| Stamp duty | 9 | 2 | Charged on purchases of homes and shares |
| Capital Gains Tax and Inheritance Tax | 4 | 1 | Paid by investors or estates |
If you want to cut your personal tax bill, it pays not to spend too much nor live too well! That's because taxes account for:
As for saving tax on your earnings and other sources of income, check out Ten Ways to Give Less To The Taxman – this was published earlier today.
Good luck with holding onto your hard-earned cash!
More: Savers And Investors Need ISAs! | Visit our Tax centre.
Many thanks to the Institute for Fiscal Studies for providing this data.