Direct and Indirect Taxes; Some Effects of the 1979 Budget

<p>There were two principal elements to the June 1979 budget. One was the very substantial reductions which were made in the higher rates of income tax. The second was the major shift from direct to indirect taxation involved in raising the standard rate of VAT from 8 percent to 15 percent while reducing the basic rate of income tax and raising the tax threshold. This paper deals with the second of these elements. We are therefore concerned only with the way in which the budget redistributed income and altered incentives and disincentives among those with incomes below the level at which higher rates of tax apply-now around £12,000 per year. This does of course cover the overwhelming majority of taxpayers.</p>