New research proves VAT hits the poorest hard

The poorest fifth of households in the UK spent a higher proportion of their expenditure on goods and services that attracted Value Added Tax (VAT) in 2009/10 than in 1986.

That's the conclusion of research out today from the Office for National Statistics (ONS).Overall, the data shows the poorest fifth of households in the UK pay more in VAT as a percentage of their disposable income than the richest fifth.

However, the analysis highlights changing spending patterns. Poorer households in 1986 spent a smaller proportion of their expenditure, than poorer households in 2009/10, on discretionary items which attracted VAT.

For example, after taking into account changes in prices, the poorest fifth of households spent, on average, around 250 per cent more on new cars, holidays abroad, meals out, audio/visual goods (including TVs) and photographic equipment combined in 2009/10 than in 1986. This is compared with an increase of 20 per cent for the richest households.

The analysis reveals that in 1986, the poorest fifth of households spent 55 per cent of their weekly expenditure on non-VATable items, compared with 45 per cent on VATable items. However, in 2001/02, this pattern had reversed. The poorest fifth of households spent, on average, 42 per cent on items which did not have any VAT levy compared with 58 per cent on items which did.

In 2009/10 this reversal was still evident, although to a lesser extent, as the poorest households spent, on average, 45 per cent of their total weekly expenditure on items which did not attract VAT, compared with 55 per cent on those which did. The research extends to 2010, but does not include the current 20 per cent rate of VAT introduced in 2011.

For the richest fifth of households there was no marked change in the proportion of their expenditure on VATable compared with non-VATable items over the period.