London families ‘paying £1,200 more tax under Labour’

12 April 2012

London families are paying £1,213 a year more on average in tax after 13 years of Labour government, independent research reveals today.

Economists from the respected Institute for Fiscal Studies calculated that in Labour's first term in 1997 there was a government "giveaway" of £7.5 billion in extra spending.

But it was followed by a £6.4 billion "takeaway" in Labour's second term of 2001 to 2005.

Since 2005, the IFS found, the squeeze was stepped up, resulting in £8.1 billion being clawed into the Treasury from families, particularly wealthier households.

"The £8.1 billion takeaway in Labour's third term comes mostly from the richest households, with the incomes of the rest little changed on average," said the organisation.

The average London breadwinner now pays 3.3 per cent more to the Government from their earnings than in 1997, or £1,213.66.

The figures take into account tax credits and other forms of increased support for the low paid.

No other region has been plundered as heavily as London and some, including Labour's North-East heartlands, are actually better off.

"We can see a pattern of losses on average for southern regions of England, the North-West and Wales," said the IFS.

Even after removing the very wealthy from the calculations — the £100,000-plus earners, many of whom earn more than £150,000 and were clobbered by the new 50p tax rate that came in this week — Londoners are still paying more, by some £49.72 a week or 0.2 per cent of earnings.

The findings were published as arguments over tax dominated day two of election campaigning.

Much of the tax increase affecting London stems from rises in National Insurance, the same tax that Gordon Brown is planning to raise again next April and which the Conservatives say they will stop.

The extra tax bill is on top of what people would already pay because they are better off and may have moved into higher tax brackets, a phenomenon called fiscal drag.

The IFS claimed the "takeaway" over 13 years was arguably equivalent to £36 billion, or £1,400 per family, taking into account the way incomes had risen faster than benefits.

Labour's measures particularly benefited low-income families with children and pensioners receiving tax credits or means-tested benefits.

In a separate report, the IFS found that London household income levels had grown by 2.3 per cent since 1997.

But it said poverty was worse in the capital than anywhere else.

After adjusting for the higher cost of living in London, some 21 per cent of households were in relative poverty, which is defined as 60 per cent of median earnings.

That was down slightly from 23 per cent in 1997. Scotland had the lowest poverty level, at 14.6 per cent.

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