The impact of the 1981 Budget

<p>After the 1979 budget, in which the Chancellor reduced income tax but increased VAT to 15 per cent, we presented (Kay and Morris (1979)) a simple framework to describe the UK tax system. This shows that, for the majority of taxpayers, the whole tax system which comprises income tax, National Insurance contributions, VAT, specific duties and rates can be approxiamtely described by a tax credit and a marginal rate. It is as if tax is levied by the government at a single rate, and then taxpayers receive a tax credit equal to the value of personal allowances, zero rating on VAT, etc. to offset this, This is not in fact how the tax system works, but it provides a simple way of describing it.</p>