New analysis from the Institute for Fiscal Studies (IFS), which re-assesses methodology used by the Office for National Statistics, has found that the UK tax system is more progressive than previously recognised.
The IFS found that while benefits do much of the work in reducing income inequality, taxes also redistribute from rich to poor and are responsible for at least a fifth of the total redistribution the tax and benefit system achieves.
Key results show:
the highest-income fifth of individuals on average have an income 12 times that of the poorest fifth before redistribution, which falls to 5 times after adding on cash benefits and deducting direct taxes;
taxes are progressive, but benefits are considerably more so, with the poorest fifth receiving 16 times more in benefits as a share of net income than the highest-income fifth, while the highest-income fifth pays just 2.7 times as much direct tax as the poorest fifth; and
30% of individuals are in households that receive more in cash benefits than they pay in direct and indirect taxes.
Different taxes have different distributional effects:
income tax and NICs taken together are progressive, with the highest income fifth paying 4 times as much direct tax as a share of income as the poorest fifth, and 20 times as much in cash terms;
council tax is regressive, even after accounting for council tax support, with the poorest tenth of the population paying 8% of their income in council tax, the next 50% paying 4-5% and the richest 40% paying 2-3%;
indirect taxes measured as a share of expenditure are distributionally neutral, accounting for 15% of people’s expenditure overall (around two thirds of which is VAT), with little variation across rich and poor households.
New analysis from the Institute for Fiscal Studies (IFS), which re-assesses methodology used by the Office for National Statistics, has found that the UK tax system is more progressive than previously recognised.
The IFS found that while benefits do much of the work in reducing income inequality, taxes also redistribute from rich to poor and are responsible for at least a fifth of the total redistribution the tax and benefit system achieves.
Key results show:
the highest-income fifth of individuals on average have an income 12 times that of the poorest fifth before redistribution, which falls to 5 times after adding on cash benefits and deducting direct taxes;
taxes are progressive, but benefits are considerably more so, with the poorest fifth receiving 16 times more in benefits as a share of net income than the highest-income fifth, while the highest-income fifth pays just 2.7 times as much direct tax as the poorest fifth; and
30% of individuals are in households that receive more in cash benefits than they pay in direct and indirect taxes.
Different taxes have different distributional effects:
income tax and NICs taken together are progressive, with the highest income fifth paying 4 times as much direct tax as a share of income as the poorest fifth, and 20 times as much in cash terms;
council tax is regressive, even after accounting for council tax support, with the poorest tenth of the population paying 8% of their income in council tax, the next 50% paying 4-5% and the richest 40% paying 2-3%;
indirect taxes measured as a share of expenditure are distributionally neutral, accounting for 15% of people’s expenditure overall (around two thirds of which is VAT), with little variation across rich and poor households.
