Household Income
Top to bottom income ratio four-to-one
Average income per household, 2007/08, United Kingdom
Original income, before taxes and benefits, of the top fifth of households in the UK in 2007/08 was approximately 16 times greater than that for the bottom fifth at £72,600 per household per year compared with £4,700. After redistribution through taxes and benefits, the ratio between the top and bottom fifths is reduced to four-to-one (average final income of £52,400 compared to £14,300).
Some types of households gain more than others from this redistribution. Retired households pay less in tax than they receive in benefits and so gain overall. Among non-retired households, single adult households with children also gain. Most other non-retired households pay more in tax than they receive in benefits. However, households with children do relatively better than households without children due to the cash benefits and benefits in kind (including health and education services) which they receive.
Cash benefits such as Pension Credit, Income Support, Incapacity Benefit, and the State Retirement Pension play the largest part in reducing income inequality. The majority of these go to households in the lower part of the income distribution. Cash benefits make up 58 per cent of gross income for the poorest fifth of households, 36 per cent for the second quintile, falling to 2 per cent for the top fifth of all households.
With the exception of Council Tax and Northern Ireland rates, all direct taxes are progressive; that is they take a larger proportion of income from those households with higher gross incomes. In 2007/08, the top fifth of households paid 25 per cent of their gross income in direct tax while the bottom fifth paid 11 per cent.
Indirect taxes are regressive, taking a higher proportion of income from households with smaller incomes. Since direct and indirect taxes have opposite effects on the level of inequality, the tax system as a whole has a much smaller effect on inequality than cash benefits.
Source: Office for National Statistics
Note: Households are ranked by equivalised disposable income.
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