sources of UK household income

Wages and salaries from employment continue to be the main source of income for most households in the UK. The latest edition of Social Trends finds that 56% of household income in 1999 came from this source. On average, social security benefits (or transfer payments) account for one fifth of household income. This figure has remained broadly stable over the last fifteen years, although the sources of state cash benefits have changed over time.

Nearly ten per cent of income accrues to those people in self employment and one tenth comes from net property income (including interest from savings and rent from the ownership of land).

These figures are averages for the whole of the UK. There are huge differences between groups such as students, pensioners, the disabled and households where one or more of those of working age are either unemployed or economically inactive.

INCOME TAX REDUCES OVERALL INEQUALITY

The income tax system in the UK is progressive - meaning that the percentage of income paid in tax rises with income.

The bottom two charts on this page illustrate how direct taxes and the impact of cash benefits from the state help to reduce the scale of inequality in the UK. Notice how the post tax income of the poorest households is substantially higher than their original income - the reverse is true for the top quintile, the highest 20% of income earners.

Measured by original income, the average income for the richest fifth of households is nearly 17 times that of the poorest. After tax and benefits that ratio has fallen to approximately 7.

This year the Government estimate that there were 1.2 million people earning a gross income in excess of £50,000 per year. The average rate of income tax payable rises from 1% for those earning less than £5,000 per year to 34% for people whose pay exceeds £100,000 per annum.

Last year, this final group each contributed (on average) £72,800 in income tax to the government! Last year the average household paid £3,470 in income tax to the government (or 17% of their total income)