Economics Snapshot - The Impact of Tax and Benefits on Inequality
Progressive income tax and cash welfare benefits help to reduce the gap between the richest and poorest households in the UK. In 2007/08, original income (before taxes and benefits) of the top fifth of households in the UK was £72,600. This is approximately 16 times as great as the figure of £4,700 for the bottom fifth. After taking account of all taxes and benefits, the top fifth had an average final income of £52,400 per year compared with £14,300 for the bottom fifth of households, a ratio of four to one.
The latest figures for the impact of tax and benefits on the UK income distribution reveal the importance of cash benefits such as Income Support, Pension Credit, Child Benefit, Incapacity Benefit and Retirement Pension as a means of redistribution. play a major role in reducing income inequality. Of the total amount of cash benefits received, the bottom two quintile groups together receive 57 per cent. Cash benefits represent around 58 per cent of gross income for the bottom quintile group and 36 per cent for the second quintile group, falling to 2 per cent for the top fifth of households.
Direct taxation, with the exception of Council tax and Northern Ireland rates, is progressive; that is households at the lower end of the income distribution pay smaller proportion of their income in direct tax compared with higher income households. As a proportion of their gross incomes, households in the bottom quintile group pay an average of 11 per cent in direct taxes compared with 25 per cent for those in the top quintile group.
In contrast indirect taxes are found to have a regressive effect on the final distribution of income. Overall the latest figures from the ONS find that income inequality in the UK in 2007-08 was little changed from the year before. This BBC news article provides more background.
Life in the Middle - income distribution in the UK
The TUC has published a report ’Life in the Middle - The Untold Story of Britain’s Average Earners‘ surveying ‘Middle Britain’ in particular, and income distribution across the population as a whole. They define Middle Britain as the fifth of the population (quintile) which earns within 10% of the median income of about £20,000 per year for households in the UK in 2006/7, the last year when full figures are available. The results make very interesting reading, and give some good up-to-date figures on income distribution for use in A2 microeconomics papers.
Most Popular Topic Tags on the Economics Blog
recession, demand, unemployment, economics, prices, price, inflation, investment, costs, profit, trade, employment, debt, supply, downturn, confidence, euro, gdp, competition, risk, capacity, china, production, incentives, exports, oil, expectations, manufacturing, sterling, housing, pay, food, profits, banks, tutor2u, globalisation, mortgage, property, revision, retailers, slowdown, borrowing, usa, innovation, emissions, dollar, deflation, airlines, supermarkets, entrepreneur, monopsony, efficiency, productivity, google, elasticity, moodle, aqa, keynes, welfare, consumption, externalities, wealth, saving, opec, economist, strategy, depression, economic cycle, protectionism, tim harford, stocks, inequality, competitiveness, jobs, carbon, depreciation, credit crunch, poverty, monopoly, infrastructure, cars, bank of england, environmental, vle, carbon trading, spare capacity, budget deficit, environment, subsidy, eu, wages, market failure, management, regulation, evaluation, losses, behavioural, government failure, steel, output gap, climate change, construction, macroeconomics, imports, oligopoly, japan, bbc, skills, cpi, commodities, farming, newsnight, paul mason, intervention, fiscal stimulus, currencies, population, stagflation, itunes, contestable, lse, agflation, minimum wage, interest rates, choices, aviation, amazon, single market, taxes, uk economy, monetary policy, cartel, survey, nationalisation, multiplier effect, quantitative easing, brazil, germany, rpi, pricing, dan ariely, opportunity cost, apple, pollution, oecd, rationality, keynes society, india, rsa, relative poverty, iphone, shipping, capital, merger, currency, imf, balance of payments, tragedy of the commons, price discrimination, current account, economies of scale, redundancies, london, savings, facebook, stakeholders, shareholder, behavioural economics, mpc, supply chain, liquidity, takeover, barriers to entry, reputation, income elasticity, poverty trap, microsoft, human capital, hamish mcrae, subsidies, discrimination, roger bootle, yuan, robert peston, duopoly, immigration, suppliers, us economy, quiz, gini coefficient, collapse, coffee, obama, pensions, development, national debt, consumer surplus, crowding out, etonomics, crude oil, scarcity, eurozone, labour market, ecb, petrol, taxation, tesco, free, brand, smoking, budget, paradox of thrift, cost of living, transport, labour mobility, global, speculation, starbucks, recovery, iceland, allocative efficiency, behaviour, surplus, federal reserve, david smith, waste, shareholders, ireland, happiness, growth, information failure, vat, creative destruction, open source, cost benefit analysis, trade deficit, tariffs, northern rock, edinburgh, ownership, scrappage, robert frank, ocr economics, aggregate demand, diane coyle, freight, kaletsky, royal economic society, eton college, exploitation, government borrowing, utility, fishing, labour force survey, edexcel economics, sony, leverage, marginal cost, tax, information, discounting, animal spirits, peter day, liquidity trap, contestable market, anchoring, zimbabwe, european union, savings ratio, wiki, needs, internet, public sector, evan davis, public goods, heathrow, price war, hotels, energy, standard of living, contestability, hbos, stephanie flanders, twitter, wants, poland, blog, migrants, consumer welfare, aqa economics, devaluation, spain, pubs, milk, foreign exchange, indirect tax, forecast, external shocks, comparative advantage, eu enlargement, movies, advertising, bond, mervyn king, income elasticity of demand, blogging, ebea, property rights, deforestation, copper, accelerator, hot money, jim o'neill, ucas, bonds, paul krugman, libor, elasticity of supply, carbon tax, income, greece, income tax, diesel, accelerator effect, guardian, john kay, fixed costs, nissan, deficit, global economy, sub-prime, economic efficiency, vacancies, research, biofuel, renewable, companies, profit margin, price capping, joint venture, price mechanism, natural monopoly, world bank, martin wolf, training, startups, house prices, competition commission, gilts, geoff riley, edmund conway, coal, fairness, producer surplus, immobility, redundancy, social costs, will king, sentiment, base rate, walmart, ageing population, disposable income, equity, corus, collusion, tickets, oil prices, fair trade, dynamic efficiency, obesity, social entrepreneur, russia, real income, res, binge drinking, philip allan, low pay, jobless, vehicles, broadband, cash, youth unemployment, price fixing, king of shaves, enlargement, google wave, hysteresis, tata, tariff, eastern europe, income distribution, compound interest, contestable markets, positional goods, economax, repossession, general motors, sustainability, green shoots, ftse, age structure, frictional, satisficing, students, logic of life, pay floor, disincentives, yahoo, liberalisation, blackberry, green revolution, negative externalities, oft, aldi, resources, gillette, economics revision, collaboration, trend growth, migration, financial times, fiscal drag, healthcare, asda, market structure, cadbury, credit, ryanair, wheat, market power, winners curse, price volatility, apprenticeships, hidden unemployment, demography, cyclical, british airways, deindustrialisation, sovereign debt, credit cards, declan curry, nokia, renewable energy, optimal currency area, anti-trust, public good, law of unintended consequences, bric economies, decoupling, markets, marginal tax rate, rory cellan-jones, diseconomies of scale, barclays, economic welfare, tax burden, undercover economist, child poverty, retailing, pension, the economist, landfill, schumpeter, exchange rates, veblen goods, enterprise, brics, redistribution, floating exchange rate, gold, car scrappage, kraft, unintended consequences, vertical integration, structural, monetary policy committee, nhs, internet explorer, reserve currency, football, job losses, costa, scotland, deleveraging, drugs, nelson thornes, hyperinflation, automatic stabilisers, podcast, o2, pay cuts, real gdp, monopoly power, global business, labour supply, ocr as economics, hedging,All tags
ECONOMICS TEACHER RESOURCE NEWSLETTER
Join over 4,000 other Economics Teachers in the UK and around the world who receive the tutor2u Economics Resource Email newsletter. Get special offers, first news of latest resources, teaching ideas, conferences and workshops.
Recent Threads on the Economics Teacher Discussion Forums:
Posts in: General Economics Teaching
Need help. - Economic Growth
Economies of scale presentation A2
Economic development
International Competitiveness
Keynesian Aggregate Supply
Demand Supply (% VAT Imposed) How to...?
Policy conflict and the Euro
Registering for the tutor2u VLU
Video Case-study - lunchtime prices slashed
Long Exam Example to Use for Revision Please?
