Did Labour put up tax on earnings by £1,895?

26 April 2015

"Labour put up tax on earnings by £1,895 in real terms for the average household"—Conservative Party press release

Labour claimed that the coalition raised taxes by £1,100, and now the Conservatives are hitting back with figures from the House of Commons Library. They say that the average household paid £1,895 more in income tax and national insurance contributions in 2010-11 than they did in 1997-98.

This doesn't necessarily mean that Labour put up taxes. Incomes have grown since 1997-98, and we would expect people to pay more tax even if no changes had been made to the tax system.

The average doesn't show us how the changes Labour did make to taxes and benefits affected different households: those on lower incomes generally fared better than the higher paid.

Incomes grew

Average incomes were about £7,100 higher (in real terms) in 2010-11 than they were in 1997-98.

We would expect the amount that people pay in tax to have risen too. But if we want to find out if households are better or worse off, we have to compare how much they paid in tax with how much they would have paid under the 1997-98 system.

Labour's changes made poorer households better off

While the Conservatives have focused on taxes, this only looks at one part of income after taxes and benefits. When the government increases taxes, it can also increase the generosity of benefits and tax credits to make sure poorer households don't lose out.

The Institute for Fiscal Studies looked at the effects of tax and benefit changes made by Labour from 1997 to 2010, and worked out that the average household was about £270 worse off under the system in place in April 2010 than they would have been under the system in place in 1997-98.

But different households had different experiences. The poorest 60% of households were better off as a result of these changes, with the poorest 10% gaining the most as a share of their income.

The richest 40% were made worse off, with the richest 10% losing the most as a share of their income.

This is actually a comparison with the first year of the coalition

The Conservatives are comparing average tax paid in 1997-98 with 2010-11. The coalition was elected in May 2010.

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