The UK Government charges ridiculously high levels of tax and duty on us. If you don’t believe me here’s an example.
So you want to buy a cheap bottle of spirits – maybe whisky or vodka (two of my favourites). Your budget is £12.
Firstly you need to subtract VAT at 20%, which the retailer has to account for to HM Revenue and Customs. On £12.00 this is £2.00, leaving £10.00 for the net cost of the product. But before the retailer, wholesaler and manufacturer can enjoy this revenue they have to subtract alcohol duty from the product. For spirits this is £28.22 for a litre of pure alcohol.
Assuming a 70cl bottle contains 40% alcohol by volume (a.b.v.) the alcohol duty due for your bottle is £7.90. This leaves only £2.10 for the manufacturer, wholesaler and retailer to share between them and earn profits on. That’s £2.10 of a product that you’ve paid £12.00 for, only 17.5% going to the people adding value and delivering a little bottle of joy to within your reach. Whereas the government, at the stroke of the Chancellor’s pen, reaps £9.90 for doing nothing. Oh, hang on, they do something: they add bureaucracy at every step of the supply chain in accounting for VAT, and at the manufacturer (or importer) for alcohol duty, thereby reducing those businesses’ profits even further.
This is a parasitic relationship.
However, it gets worse…
Consider how much you have to earn to pay for that £12 bottle of spirits?
Let’s have a look at someone on National Minimum Wage of £6.31 per hour, as an example, assuming they work 37.5 hours per week. This would result in gross wages of £236.63 per week (£12,338.30 per annum). On this they and their employer would pay 13.6% PAYE tax and NICs (employers and employees National Insurance Contributions). An employer has to pay them £13.89 for them to buy a £12 bottle of spirits, which only £2.10 goes to the businesses supplying it; therefore from all that economic activity to earn wages, make the spirits, package, ship and display near to this worker’s house, £11.69 goes to the government – 84.9% overall tax rate.
Now let’s consider someone who’s on the average UK working wage, currently £447 per week (September 2013, ONS). Their effective tax rate, from what it costs to employ them, is 26.7%. This means their employer has to pay them £16.36 for them to buy a £12 bottle of spirits, of which only £2.10 doesn’t go to the government. So from overall cost to the employer of £16.36 only £2.10 isn’t tax, an effective tax rate of 87.2%.
Finally let’s look at a salary of £40,000 per annum, which is about the salary of a tube driver. Their employer has to pay out a whopping £19.93 for their employee to be able to buy a £12 bottle of spirits, of which only £2.10 isn’t tax. So the government collects 89.5% of this money.
Note that the above calculations all include the tax-free allowance within their assumptions. If you just consider an additional cost to your employer for them to pay enough to earn a £12 bottle of spirits (a pay rise, as it were) the impact is far worse (this is the marginal rate).
- National Minimum Wage: employer needs to pay £16.70 for employee to buy £12 bottle of spirits – effective tax rate 87.4%.
- Average earnings: employer needs to pay £18.21 for employee to buy £12 bottle of spirits – effective tax rate 88.5%.
- £40,000 per annum: employer needs to pay £22.73 for employee to buy £12 bottle of spirits – effective tax rate 90.8%.
Incidentally, this is why £10 bottles of spirits (70cl @ 40% a.b.v.) are impossible to find now. Only 43p would be available for the manufacturer, wholesaler and retailer, the other £9.57 going to HMRC – a tax rate of 95.7%. The employer of a tube driver on £40,000 per annum would effectively be paying a tax rate of 98.7% for his employee to buy a £10 bottle of whisky.
In summary, don’t blame the shopkeeper who has sold you the booze, or the wholesaler (or distributor) they bought it from, or the manufacturer (or importer): these people all created and added value in getting that bottle of joy into your hands. However the Chancellor of the Exchequer does nothing but remove value from the supply chain and the economy. At the stroke of a pen.
Blame the government.
Always blame the government.