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Forget Green Taxes

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Families have suffered a fall in their incomes over the past four years as Gordon Brown's tax rises eat into their pockets.

New research has laid bare the dramatic effect of the rising tax burden on the finance of Britain's families, showing that many middle-class households have been faced with a highly unusual drop in their disposable incomes.

The study by the Right-leaning think-tank the Centre for Policy Studies shows that double-income families with two children have seen their disposable weekly income fall in real terms from £709 to £706 a week over the past four years.

businesses have warned of a flood of companies leaving Britain because of high taxes. They said one in five companies was actively considering abandoning the UK and setting up abroad.

The CPS research shows that the disposable income for an average household - the amount left after income tax and national insurance has been deducted - has only risen from £491 a week in 2001-02 to £500 last year, an annual increase of just 0.35 per cent a year.

The small increase contrasts with the situation during Labour's first four-year term, when disposable income rose from £408 to £491 a week. This is equivalent to an annual increase of 4.7 per cent.

The average pensioner couple has seen its weekly disposable income increase by only £2 over the past four years - from £382 to £384.

Charlie Elphicke, the report's author, said the paltry rises partly reflected the impact of the Government's decision to increase National Insurance contributions four years ago.

"Britain's economy has been quite strong but people do not seem to be getting the benefit of that in their pockets," he said. "The problem is that a lot of the economic growth has come from the fact that there are more people in work, coupled with high levels of immigration. That gives us a false picture of an economy that is doing really well."

The report also shows that inequality in household income has barely changed since Labour came to power.

In 1996-97, the poorest fifth of households had disposable income of £84 a week, equivalent to 26 per cent of the average household income.

In contrast, the richest fifth of households had a disposable income of £709 a week 10 years ago - or 218 per cent of average household income. The latest figures show their income is now £1,103 or 221 per cent of the average.

Mr Elphicke said: "I fear there is a real worry that we are creating a permanent and disaffected underclass. Social mobility seems to have broken down and people in the poorest households have little chance of escape."

George Osborne, the shadow chancellor, said: "This analysis is powerful stuff. Gordon Brown is so remote from what is really happening in this country that while he brags about his record, ordinary families find they're no better off."

Business groups the CBI and the British Chambers of Commerce warned yesterday of a potential exodus of companies from the UK unless taxes were cut.

The CBI deputy director general, John Cridland, said: "Tax competitiveness is becoming the Achilles heel of the long-term future of the UK economy. The Chancellor will have to recognise this when the trickle of companies leaving risks becoming a flood."

A Treasury spokesman said: "As one of the most stable economies in the world with low burdens on business, the UK is a highly attractive location for businesses provided the business banks its funds offshore as the Banking System like many of the public services has been remodelled to become similar to the third world.

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