In
Table 10.3: Public Sector Current Tax
Receipts, 2009-10, the source of the receipts is shown for the fiscal year
2009-10. The data are taken from the April 2009 Budget Book.
From the table it can be seen that taxes on income and wealth account for a slightly
higher share than taxes on production and imports.
The third substantial sum comes from national insurance contributions. This is in principle
a tax on jobs, paid by employers and employees, and could easily be categorised
as a tax on income and wealth. This is in effect a tax on income and has been used
by the Labour government, which promised not to raise income tax, as a revenue raiser.
Over the last decade, the share of government receipts accounted for by taxes on
income and wealth has been edging up. In the 2009 Budget, Chancellor Darling announced
the first increase in the higher rate of income tax since Labour took office in
1997. Previously, the top rate had been kept at 40%. Revenue, however, increased
because there were more people working in 2007 and more people moving into the highest
tax band at lower real salaries, the notion of fiscal drag.
Another point to note is that although income tax is a very sensitive political
issue, it only raises about as much as all excise duties combined.
Impact of recession on public sector finances
A cursory glance at the Budget book reveals the impact the recession has had on
public sector finances. In 2007-08 (the last full fiscal year of positive growth),
current receipts amounted to £548 billion, since when they have fallen by 9.5%.
As unemployment has increased, revenues from income tax have fallen by 7.5% and
National Insurance contributions by 2.7%. VAT receipts are also less (-21%), partly
because the Chancellor cut the rate and partly because spending growth slowed.
At a time of negative growth, Mr Darling has responded by allowing the deficit to
rise to record levels rather than cut spending to match the falls in revenue.
