In 2021/22, UK government raised over £915bn a year in receipts – income from taxes and other sources. This is equivalent to around 39% of the size of the UK economy, as measured by GDP, which is the highest level since the 1980s.
The majority of receipts come from three main sources: income tax, National Insurance contributions (NICs) and value added tax (VAT). Together they raised over £530bn in 2021/22.
The Institute for Fiscal Studies (IFS), an economic think tank, has analysed how much households pay in tax. Their analysis, which covers around three quarters of tax revenues (including income tax, NICs, VAT, excise duties and council tax) found that the 50% of households with the largest incomes contribute around 78% of taxes.
Overall, direct taxes (which include income tax, NICs and council tax) lower income inequality. Richer individuals pay a greater share of their gross household income in direct taxes compared with poorer individuals.
Council tax limits the extent to which direct taxes reduce income inequality. Even after including council tax support claimed, the poorest fifth pay a greater proportion of their gross income on council tax than the richest fifth. Research from the IFS suggests that this is partly due to low take-up of council tax support entitlements.
Read the full publication on the House of Commons Library website.