ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Income tax rates* in the UK are progressive. Exactly how much income tax you pay depends on the tax band you’re in. As illustrated by the table below, basic-rate taxpayers pay 20% in income tax, while higher-rate taxpayers pay 40%. Additional-rate taxpayers pay 45% tax rate if their income is over £150, 000.

Detailed explanation-2: -The Schedular system and Schedules A and D still remain in force for corporation tax. The highest rate of income tax peaked in the Second World War at 99.25%. It was then slightly reduced and was around 90% through the 1950s and 60s. In 1971 the top rate of income tax on earned income was cut to 75%.

Detailed explanation-3: -Most employees pay 13.25% of their income between £12, 571and £50, 270 in national insurance. Those earning above £50.270 pay only 3.25%. The net result is that the less well-off pay a higher proportion of their income in national insurance compared to high earners. The UK tax system is regressive.

Detailed explanation-4: -Increases to indirect taxes and a new ‘inheritance tax’ were hardly enough, and in 1799 Pitt introduced a tax on incomes. Under this new tax all annual incomes over £200 were taxed at 10 per cent, while those between £60 and £200 were taxed at a graduated rate from just under one per cent to 10 per cent.