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VAT hike means people will work longer to pay their taxes

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It will require an extra three days for taxpayers to reach that point in the year when they will have earned enough income to pay their tax bills, the Adam Smith Institute has said.

What is called ‘tax freedom day’ will fall on 30 May 2011. In 2010, the corresponding date was 27 May.

The think-tank, which supports lower tax regimes and limited government spending, pointed the finger of blame at the rise in VAT from 17.5 per cent to 20 per cent, which comes into effect on 4 January.

The date on which taxpayers start earning for themselves rather than the Exchequer is calculated by splitting annual tax payments from wages and front-loading the tax element.

Tax liabilities last reached a similar proportion of wages four years ago, in 2007, when ‘tax freedom day’ didn’t fall until June.

Tom Clougherty, the Institute’s executive director, said: “The fact that we spend almost five months working for the state and only seven months working for ourselves and our families is a shocking indictment of big, wasteful government.

“As well as hitting every household in the country, the VAT hike is going to dent consumer confidence and put a dampener on our economic recovery – as the Office of Budget Responsibility has already pointed out.”

The Institute’s director, Dr Eamonn Butler added: “In the long term, they need to fundamentally overhaul the entire tax system. Lower, simpler, flatter taxes would be fairer for individuals, and better for the economy.”