The consequences of direct and indirect taxation and benefits received in cash or kind on people and households, broken down by household type.
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The Main Points
Prior to the coronavirus (COVID-19) pandemic, the average household income of the richest fifth of the population (£108,500) was over 12 times greater than that of the poorest fifth (£9,000); however, this disparity was reduced to four times (£76,100 and £19,600, respectively) when taxes and benefits were taken into account.
The Gini coefficient for household income after taxes and benefits has increased over the last 10 years, growing by an average of 0.1 percentage points per year, despite the fact that taxes and benefits have the ability to redistribute income. The declining ability of cash benefits to redistribute income from the richest to the poorest, which coincided with the freezing of many cash benefits at their financial year ending (FYE) 2016 values, is largely responsible for the rise in household income inequality over the past ten years after taxes and benefits. The average household income of the richest fifth of the population increased on average by 0.9% each year over the ten years prior to FYE 2020, whereas the average annual gain for the poorest fifth of the population was only 0.5%.
Over the past ten years, indirect taxes have contributed the most to income disparity (4.0 percentage points); in FYE 2020, the lowest fifth of the population paid 30.1% of their disposable income on indirect taxes, compared to the highest fifth's 11.3%.
The amount of indirect taxes paid as a percentage of spending was comparable, although in FYE 2020, the lowest fifth of the population continued to pay a larger
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