Tax takes toll on take-home pay
TAKE-HOME pay fell last year for the first time since the recession of the early Nineties, according the Institute for Fiscal Studies. The think-tank blamed tax rises following Chancellor Gordon Brown's Budget of 2002.
The average fall for household income, after tax and benefits, was 0.2% to £408 a week between 2002-2003 following ten years of growth.
The IFS says the drop in part reflected measures announced in the 2002 Budget, which it labelled Brown's 'biggest tax-raising Budget to date'.
The measures included an uncapped 1% increase in National Insurance rates and the freezing of the personal income tax allowance in cash terms which pulled more people into the income tax net.
It said the tax and National Insurance rises - which took effect in April 2003 - reduced average incomes by 0.8% in 2003-2004. The increases in council tax reduced average incomes by a further 0.3%.
Those tax changes more than accounted for the decline in average income, the Institute said. But even excluding them, income growth was low compared to previous years.
But the Treasury immediately rejected the report. A spokesman said: 'The IFS analysis is complete rubbish. These figures show that since 1997, reported average take-home incomes have risen by almost 20% in real terms and are rising again this year thanks to the maintenance of stable economic growth, the creation of 300,000 more businesses and 2m jobs.'
The spokesman said the 0.2% drop equated to just £1 and could be explained in a number of ways. The most significant was the large drop in take-home incomes reported by self-employed individuals. Incomes would have actually risen by 1.8% if that group was discounted.
The IFS study was based on figures published by the Office for National Statistics.They showed the number of pensioners and children living in poverty had fallen, although there was no change among adults of working age.
Meanwhile, the Department for Work and Pensions insisted that the Government was 'on track' to smash its target of eradicating child poverty in Britain within a generation. The Department said 100,000 were taken out of poverty in 2003/04, taking the total since 1997 to 700,000.
The IFS said it was unlikely the Government would meet its aim of reducing child poverty by a quarter. It said between 300,000 and 500,000 would need to be pulled out of poverty in a year.
