Book Chapter
The prime function of the tax system is to raise revenue. On that measure the current tax system looks in many ways remarkably similar to that in place 40 years ago in the late 1970s. In the current tax year, the UK government expects to raise 15% of national income from taxes on personal income, 10% from indirect taxes, and 2% from corporation taxes, little different from what it did in 1978-79.
Other effects though are quite different. If the tax system’s first job is to raise revenue, its second – alongside the benefit system – is to undertake redistribution in a way which minimises economic costs and disincentives. On these measures the UK tax and benefit system has undergone a dramatic transformation, leaving it almost unrecognisable from that in place 40 years ago, let alone from when the first edition of Tolley’s Income Tax was launched in 1916.
This chapter explores the consequences of just a few of these changes for how the tax and benefit system redistributes resources, and the incentive individuals face to increase their earnings
