Household Income
Top to bottom income ratio four-to-one

Original income and final income by income quintile group, 2009/10, UK |
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In 2009/10, original income, before taxes and benefits, of the top fifth of households in the UK was approximately 16 times greater than that for the bottom fifth (£77,900 per household per year compared with £4,800). After redistribution through taxes and benefits, the ratio between the top and bottom fifths was reduced to four-to-one (average final income of £58,100 compared to £15,100).
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 are received by these households.
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 59 per cent of gross income for the poorest fifth of households, 43 per cent for the second quintile, falling to 2 per cent for the top fifth of all households.
Direct taxes are progressive when taken as a whole although council tax and Northern Ireland rates are regressive. National Insurance contributions, as a percentage of gross income rose in the bottom four quintiles in 2009/10, from 1.4 per cent in the bottom quintile to 5.4 per cent in the fourth, but fell to 5.2 per cent in the top quintile. Overall in 2009/10, the bottom fifth paid 10 per cent of their gross income in direct tax while the top fifth of households paid 24 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 negligible effect.
Final income includes an adjustment for the receipt of benefits in kind from the state, such as health and education services. Households with lower incomes tend to receive more benefits in kind from the state (£7,600 for the bottom fifth compared with £5,100 for the top fifth). Retired households are the biggest users of health services provided by the state, while households with children are the biggest users of education services. These two groups are more likely to be in the lower income groups.
Source: Office for National StatisticsNote:
Households are ranked by equivalised disposable income, using the modified-OECD scale.
Published on 19 May 2010 at 9:30 am
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