The effects of taxes and benefits on household income, 2010/11

Document type
Report
Corporate author(s)
Great Britain. Office for National Statistics
Publisher
Office for National Statistics
Date of publication
26 June 2012
Subject(s)
Poverty Alleviation Welfare Benefits and Financial Inclusion
Collection
Social welfare
Material type
Reports

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This bulletin examines how taxes and benefits redistribute income between various groups of households in the UK. It shows where different types of households are in the income distribution and looks at the changing levels of income inequality over time.

Key points are: before taxes and benefits, the richest fifth of households had an average income of £81,500 in 2010/11, 16 times greater than the poorest fifth, who had an average income of £5,100; after all taxes and benefits are taken into account, the ratio between the average incomes of the top and the bottom fifth households (£61,400 and £15,200 respectively) is reduced to four-to-one; cash benefits and direct taxes have the impact of redistributing income from richer households to those with lower incomes, thereby reducing income inequality; indirect taxes such as VAT and duties on fuel and alcohol take a higher proportion of income from lower income households, and therefore increase income inequality; on average, households in the top two income quintiles paid more in taxes than they received in benefits, while households in the bottom three quintiles received more in benefits than they paid in taxes; there was a real terms decrease in disposable income between 2009/10 and 2010/11, with the largest fall being for the middle fifth of households; and the proportion of disposable income paid in indirect taxes increased across the income distribution in 2010/11 compared with the previous year - this is largely explained by the increases to the standard rate of VAT in 2010 and 2011.

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