National Statistics Online - Articles - The effects of taxes and benefits on household income, 1999-2000
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The effects of taxes and benefits on household income, 1999-2000
How taxes and benefits redistribute income in the UK; where different types of households and individuals are in the income distribution; the changing levels of income inequality over time.
This article looks at how taxes and benefits redistribute income between various groups of households, shows where different types of household and individuals are in the income distribution and examines the changing levels of income inequality over time.
Government intervention, by means of taxes and benefits, alters the incomes of households and tends to reduce the differences between households. Before this intervention, the top fifth of households have an average of £54,400 from original income (that is from sources such as earnings, occupational pensions and investments). This is around 19 times as great as the figure of £2,800 for the bottom fifth. However after taxes and benefits the ratio is greatly reduced to four to one.
Cash benefits play the largest part in reducing inequality. These make up around two thirds of the gross income for the poorest fifth of households. Direct taxes, except for local taxes, are progressive - they take a larger proportion of income from those higher up the income distribution - therefore they also contribute to a reduction in inequality although not to the same extent as cash benefits. The proportion of gross income paid in direct tax by the top fifth of households is almost double that paid by those in the bottom fifth: 24 per cent compared with 13 per cent. This article also looks at trends in disposable income inequality between households over time.
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