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Tax reform in the UK and changes in the progressivity of the tax system, 1985-95


  • Christopher Giles
  • Paul Johnson


From the middle of the 1980s until the end of that decade, the government experienced a growing economy and consequently buoyant tax revenues. In addition to cutting the public sector borrowing requirement (PSBR) and increasing spending, these revenues were used as a means of financing massive tax cuts, and in particular cuts in income tax rates. By the early 1990s, however,it had become clear that tax revenues had been cut to an unsustainably low level as recession led to a PSBR that threatened to run out of control. In response to this, in the two Budgets of 1993 the two Chancellors introduced a package of tax increases which, in terms of revenue raised, will reverse most of the tax reductions of the late 1980s. But taxes were increased in a way very different from that in which they were reduced. The overall effect has been a substantial reform of the UK tax system. This paper examines the changes that have been made in the tax system as they affect the personal sector, i.e. changes to taxes on personal income, on personal property and on expenditure. We start the analysis with the 1985 tax system as the base, for it was in 1986 that the first cut in income tax rates was introduced and the trend for significant tax cuts was set. And it was from this date that taxation as a proportion of GDP started to fall steadily until the end of the 1980s. We end the analysis with the tax system as it would have been left at the end of 1995 by the tax changes announced in the 1993 Budgets. A decade of contrasting tax changes are examined.

Suggested Citation

  • Christopher Giles & Paul Johnson, 1994. "Tax reform in the UK and changes in the progressivity of the tax system, 1985-95," Fiscal Studies, Institute for Fiscal Studies, vol. 15(3), pages 64-86, August.
  • Handle: RePEc:ifs:fistud:v:15:y:1994:i:3:p:64-86

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    References listed on IDEAS

    1. Chris Giles & Michael Ridge, 1993. "The impact on households of the 1993 budget and council tax," Fiscal Studies, Institute for Fiscal Studies, vol. 14(3), pages 1-20, August.
    2. Kakwani, Nanak C, 1977. "Applications of Lorenz Curves in Economic Analysis," Econometrica, Econometric Society, vol. 45(3), pages 719-727, April.
    3. R. A. Musgrave & Tun Thin, 1948. "Income Tax Progression, 1929-48," Journal of Political Economy, University of Chicago Press, vol. 56, pages 498-498.
    4. Dilnot, Andrew W & Kay, John A & Keen, Michael, 1990. "Allocating Taxes to Households: A Methodology," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 210-230, January.
    5. Morris, Nick & Preston, Ian, 1986. "Inequality, Poverty and the Redistribution of Income," Bulletin of Economic Research, Wiley Blackwell, vol. 38(4), pages 275-344, November.
    6. Paul Johnson & Graham Stark, 1989. "Ten years of Mrs Thatcher: the distributional consequences," Fiscal Studies, Institute for Fiscal Studies, vol. 10(2), pages 29-37, May.
    7. McClements, L. D., 1977. "Equivalence scales for children," Journal of Public Economics, Elsevier, vol. 8(2), pages 191-210, October.
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    Cited by:

    1. Chen, Shu-Hua & Guo, Jang-Ting, 2013. "Progressive taxation and macroeconomic (In) stability with productive government spending," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 951-963.
    2. Wagstaff, Adam & van Doorslaer, Eddy & van der Burg, Hattem & Calonge, Samuel & Christiansen, Terkel & Citoni, Guido & Gerdtham, Ulf-G. & Gerfin, Michael & Gross, Lorna & Hakinnen, Unto, 1999. "Redistributive effect, progressivity and differential tax treatment: Personal income taxes in twelve OECD countries," Journal of Public Economics, Elsevier, vol. 72(1), pages 73-98, April.

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