The incomes of households are altered by sofiaie

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									 feAtURe

                                              The effects of taxes
Andrew Barnard
Office for National Statistics                and benefits on
                                              household income,
                                              2007/08

                                              T
                                                    he incomes of households are altered       with higher incomes. Therefore, they also
 SUMMARY
                                                    by government intervention, through        contribute to a reduction in inequality
 This article looks at how taxes and                taxes and benefits. In general,            although not to the same extent as cash
 benefits affect the income of households     households with the highest amount               benefits. Indirect taxes (taxes on final goods
 in the UK. It provides estimates of the      of income pay more in taxes than they            and services, such as VAT, and intermediate
 average amount of taxes paid, and the        receive in benefits, while the reverse is true   taxes, such as employers’ National
 value of benefits received, for households   for those with lower incomes. Taxes and          Insurance contributions) have the opposite
 with different levels of income. It also     benefits therefore decrease the inequality       effect to direct taxes taking a higher
 shows how the estimates are different for    of income. In 2007/08, before taxes and          proportion of income from those with
 various types of households, according to    benefits, the top fifth of households had        lower incomes, that is, they are regressive.
 factors such as whether the household        an average of £72,600 per year in income         While households higher up the income
 is retired, and the number adults and        from sources such as earnings, occupational      distribution pay more indirect tax in
 children living in the household. The        pensions and investments (defined as             absolute terms, they pay a lower proportion
 analysis also examines how income            original income). This is approximately          of their income in indirect tax.
 inequality has changed over time. The        16 times as great as the figure of £4,700 for       Households also receive benefits in kind
 analysis is published annually and results   the bottom fifth. After taking account of        from services provided free or at subsidised
 are presented here for 2007/08.              all taxes and benefits, the top fifth had an     prices by government, such as health and
                                              average final income of £52,400 per year         education services. The amount of benefits
                                              compared with £14,300 for the bottom fifth       in kind received falls gradually as income
                                              of households, a ratio of four to one. The       increases, indicating that they also lead to a
                                              difference between original income and           reduction in inequality.
                                              final income for 2007/08, broken down
                                              by quintiles, is also shown graphically in       Household characteristics
                                              Figure 1.                                        Households can be grouped according
                                                 Cash benefits play the largest part in        to the number of adults and children
                                              reducing inequality. Figure 2 shows the          living in the household, and according to
                                              extent to which cash benefits increase the       whether the household is retired or not.
                                              income of households, by income quintile         Grouping households allows for analysis
                                              group. It can be seen that the majority of       of how the tax and benefit system affects
                                              cash benefits go to households with the          different types of households. Additionally,
                                              lowest incomes. When cash benefits are           some types of households are more likely
                                              added to a household’s original income it        to have high incomes, whereas others tend
                                              forms their gross income.                        to have lower incomes. This is presented in
                                                 Direct taxes (income tax, employees’          Table 4.
                                              National Insurance contributions and                Single person households are slightly
                                              council tax and Northern Ireland rates),         more likely to have higher incomes, while
                                              except for council tax and Northern              households consisting of two adults with no
                                              Ireland rates, are progressive – they take       children, are very clearly concentrated in
                                              a larger proportion of income from those         the higher groups.



                                                                                                         Office for National Statistics     1
The effects of taxes and benefits on household income, 2007/08



    Figure 1                                                                                           private households. In other cases, there is
                                                                                                       no clear conceptual basis for allocation to
    Original income and Final income by quintile groups for ALL
                                                                                                       particular households. Finally, there may
    households1, 2007/08
                                                                                                       be a lack of data to enable allocation. In
    Average income per household (£ per year)
                                                                                                       this study, some £359 billion of taxes and
    80,000
                   Original income
                                                                                                       compulsory social contributions have been
    70,000                                                                                             allocated to households. This is equivalent
                   Final income
    60,000                                                                                             to 61 per cent of general government
    50,000                                                                                             expenditure, which totalled £593 billion in
    40,000                                                                                             2007. Similarly, £321 billion of cash benefits
    30,000                                                                                             and benefits in kind have been allocated
    20,000                                                                                             to households, making up 54 per cent of
    10,000                                                                                             general government expenditure. These
         0                                                                                             proportions are broadly the same to those
                 Bottom              2nd        3rd         4th            Top        All households
                                                                                                       in recent years’ analyses.
                                                                                                          The estimated values of taxes and
Note:
                                                                                                       benefits reflect the methodology used in
1 Households are ranked throughout by their grossed equivalised disposable incomes.
                                                                                                       this study. They are based on assumptions
                                                                                                       about which taxes and benefits should be
                                                                                                       covered and to whom they should apply.
    Figure 2
                                                                                                       Where it is practical, the methodology
    Gross Income by quintile groups for ALL households1, 2007/08
                                                                                                       used is similar to that used in previous
    Average income per household (£ per year)                                                          years. However, there have been some
    80,000                                                                                             changes in the underlying surveys and
                 Original income
    70,000                                                                                             improvements in the methodology. For
                 Cash benefits
    60,000
                                                                                                       this reason, one should be cautious about
    50,000
                                                                                                       making direct comparisons with earlier
    40,000
                                                                                                       years. Comparisons with previous years are
    30,000
                                                                                                       also affected by sampling error (for more
    20,000
                                                                                                       details see Appendix 2, paragraph 57). This
    10,000
                                                                                                       is especially true for estimates which are
        0
                 Bottom              2nd        3rd         4th           Top         All households   based on sub‑samples such as the results for
                                                                                                       decile or quintile groups, or particular types
Note:                                                                                                  of household. Time series are presented
1 Households are ranked throughout by their grossed equivalised disposable incomes.                    for some of the more robust measures, and
                                                                                                       these include Gini coefficients and other
  Households containing two adults with               how the Gini coefficient is calculated see       measures of inequality.
children tend to have lower incomes than              Appendix 2, paragraph 53.
those with no children. Households which                                                               Unit of analysis
consist of only one adult with children               Concepts and Sources                             The unit of analysis used in this study
are much more concentrated in the lower               This analysis looks at how taxes and             is the household. The households are
income groups. Retired households also                benefits affect the distribution of income.      ranked by their equivalised disposable
tend to have lower incomes.                           Diagram 1 shows the stages in the                income, which the analysis uses as a proxy
                                                      redistribution of income used in this            for standard of living. Equivalisation
Trends in income inequality                           analysis. Household members receive              is a process that adjusts households’
Disposable income is defined as gross                 income from employment, occupational             incomes to take account of their size and
income minus direct taxes. Inequality of              pensions, investments and from other             composition, to recognise that this affects
disposable income, as measured by the                 non‑government sources. The diagram              the demand on resources. For example, a
Gini coefficient, was almost unchanged                shows the various ways that government           couple with a child would need a higher
between 2006/07 and 2007/08, as shown in              raises revenue from households through           income than a childless couple for the two
Figure 5. Income inequality has remained              taxation and distributes benefits to them in     households to achieve the same standard
at roughly the same level since 1987.                 cash, and in kind.                               of living. The equivalence scale used
Income inequality increased rapidly in the               The analysis only allocates those taxes       in this analysis is the McClements scale
second half of the 1980s, reaching a peak in          and benefits that can reasonably be              (before housing costs are deducted). In
1990. After 1990 the trend was downwards,             attributed to households. Therefore, some        the earlier example, a childless couple’s
although inequality did not decrease to               government revenue and expenditure               income of £10,000 is treated as equivalent
the levels of the early 1980s. After 1995/96          is not allocated, such as revenue from           to an income of £12,300 for a couple with
inequality began to rise again reaching a             corporation tax and expenditure on defence       a ten year old child (see Appendix 2,
peak in 2001/02 – at a level very similar             and public order. There are three main           paragraph 48). Households with the same
to that in 1990. Inequality of income fell            reasons for not including some taxes and         equivalised income do not necessarily have
between 2001/02 and 2004/05 before rising             benefits in the analysis. Some taxes and         the same standard of living where other
again in the years to 2006/07. For details of         benefits fall on people who do not live in       characteristics are different. For example,


2            Office for National Statistics
                                                                                           The effects of taxes and benefits on household income, 2007/08



 Diagram 1                                                                                                                 There is known to be a degree of under‑
                                                                                                                        reporting in the EFS for some benefits. For
 Stages of redistribution
                                                                                                                        example, when compared to administrative
                                              ORIGINAL INCOME                                                           data from HM Revenue and Customs
            BENEFITS                    before government intervention                           TAXES
                                          (income from employment,
                                                                                                                        (HMRC), the EFS estimate of total tax
                                                investment etc)                                                         credit payments is only around two‑thirds
                                                                                                                        of the HMRC figure. Further details of the
                                                                                                                        concepts and methodology used are given
           CASH BENEFITS
   (state retirement pensions, etc)                                                                                     in Appendix 2.
                                                                                                                           The results of the analysis are reported
                                                                                                                        in three sections. The first looks at the
                                               GROSS INCOME
                                                                                                                        effects for all households. Non‑retired and
                                                                                                                        retired households have distinct income
                                                                                          DIRECT TAXES,                 and expenditure patterns and so the tax and
                                                                                       EMPLOYEES’ NIC and
                                                                                                                        benefit systems affect the two groups in very
                                                                                           LOCAL TAXES
                                                                                         (council tax, etc)             different ways. Therefore, the second and
                                                                                                                        third sections look separately at results for
                                                                                                                        non‑retired and retired households.
                                             DISPOSABLE INCOME

                                                                                                                        Results for all households
                                                                                          INDIRECT TAXES                Overall effect
                                                                                          (VAT, duties, etc)            Taken as a whole the tax and benefit system
                                                                                                                        leads to income being shared more equally
                                              POST-TAX INCOME                                                           between households. In this analysis,
                                                                                                                        income before taxes and benefits is termed
                                                                                                                        original income and includes income
         BENEFITS IN KIND                                                                                               from earnings, occupational pensions
       (education, health, etc)
                                                                                                                        and investments. Original income varies
                                                                                                                        considerably between households. Those in
                                                 FINAL INCOME                                                           the top quintile group have an average of
                                                                                                                        £72,600 compared with £4,700 per year for
                                                                                                                        the bottom group (Table 1).
households which own their homes outright             estimate payment of indirect taxes. The                              The extent of inequality in this measure
would be in a better position than identical          weighting process for the EFS data used for                       of income can be seen by looking at the
households with the same income which                 this analysis has been updated to use 2001                        proportion of total original income received
had to pay rent or mortgage payments.                 Census data, for further details please refer                     by groups of households in different parts
Equivalisation does not adjust for these              to Appendix 2, paragraph 5.                                       of the income distribution. At this stage,
differences.
   Equivalised income is used only to rank            Table 1
the households. Most monetary values                  Summary of the effects of taxes and benefits by quintile groups on ALL
shown in the analysis are not equivalised.            households, 2007-08
Where equivalised amounts are given, they                                                                       Quintile groups of ALL households1
                                                                                                                                                                    Ratio
are shown in italics. Once the households                                                                                                                 All top/bottom
have been ranked, the distribution is split                                                       Bottom         2nd       3rd       4th       Top households     quintile
into five or ten equally sized groups – that          Income, taxes and benefits
is quintile groups or decile groups. The              per household (£ per year)2
bottom quintile (or decile) group is that
                                                      Original income                               4 651      12 574   23 640    38 505    72 581      30 390         16
with the lowest equivalised disposable                   plus cash benefits                         6 453       7 131    5 309     3 311     1 666       4 774         0.3
incomes, while the top quintile (or decile) is        Gross income                                 11 105      19 705   28 949    41 816    74 247      35 164           7
that with the highest.                                   less direct taxes3 and employees’ NIC      1 202       2 770    5 393     9 096    18 517       7 396         15
                                                      Disposable income                             9 903      16 936   23 556    32 720    55 729      27 769           6

Data sources                                             less indirect taxes                        3 100       3 672    4 615     5 723      7 408      4 904           2
The main data source for this analysis is             Post-tax income                               6 803      13 264   18 941    26 997     48 321     22 865           7
                                                         plus benefits in kind                      7 494       6 602    6 206     5 591      4 050      5 989         0.5
the Expenditure and Food Survey (EFS)
                                                      Final income                                 14 297      19 866   25 147    32 588     52 371     28 854           4
which covers about 6,100 households in
the UK each year. It only covers private              Source: Office for National Statistics

households – people living in hotels,                 Notes:
lodging houses and in institutions, such              1 Households are ranked by equivalised disposable income.
                                                      2 All the tables in Part 1 of this article show unequivalised income. Equivalised income has only been
as old peoples’ homes, are excluded. The                used in the ranking process to produce the quintile groups (and to produce the percentage shares
EFS is used because as well as collecting               and Gini coefficients).
                                                      3 These are income tax (which is after deducting tax credits and tax relief at source on life assurance
data on household income, it also collects              premiums), council tax and Northern Ireland rates but after deducting discounts, council tax benefits
expenditure data which are used here to                 and rates rebates.



                                                                                                                                    Office for National Statistics       3
The effects of taxes and benefits on household income, 2007/08


Table 2                                                                                                                      income and higher rates of tax are paid
Percentage shares of household income and Gini coefficients,1 2007-08                                                        on higher incomes. As a proportion of
                                                                                                                             their gross incomes, households in the
                                                   Percentage shares of equivalised income for ALL households2
                                                                                                                             bottom quintile group pay an average of
                                       Original                    Gross             Disposable                  Post-tax
                                                                                                                             4 per cent in income tax compared with
                                       income                    income                 income                    income
                                                                                                                             18 per cent for those in the top quintile
Quintile group2
  Bottom                                       3                       7                      7                          6   group. The proportion of gross income
  2nd                                          8                      11                     12                         12   paid in employees’ National Insurance
  3rd                                         14                      16                     16                         16   Contributions (NICs) rises with income
  4th                                         24                      22                     22                         22
  Top                                         51                      44                     42                         44   until the third quintile group.
All households                               100                     100                    100                        100
                                                                                                                                Council tax (and domestic rates in
                                                                                                                             Northern Ireland) on the other hand are
Decile group2
                                                                                                                             regressive even after taking into account
  Bottom                                       1                       3                      3                          2
  Top                                         33                      28                     26                         28   council tax benefits and rates rebates.
Gini coefficient (per cent)                   52                      38                     34                         38   Households in the lower part of the income
                                                                                                                             distribution pay smaller absolute amounts
Source: Office for National Statistics
                                                                                                                             – average net payments by the bottom fifth
Notes:
                                                                                                                             of households are half those of the top fifth.
1 This is a measure of the dispersion of each definition of income (see Appendix 2, paragraph 51).
2 Households are ranked by equivalised disposable income.                                                                    However, when expressed as a proportion
                                                                                                                             of gross income, the burden decreases as
the richest fifth of households (those in the                     council tax or Northern Ireland rates.                     income rises. Council tax in Great Britain
top quintile group) receive 51 per cent of all                    Households with higher incomes pay both                    and domestic rates in Northern Ireland
original income (Table 2). This compares                          higher amounts of direct tax and higher                    represent 6 per cent of gross income for
with only 3 per cent for households in the                        proportions of their income in direct tax                  those in the bottom fifth but only 2 per cent
bottom fifth.                                                     with the top quintile group paying an                      for those in the top fifth.
  Adding cash benefits to original income                         average of £18,500 per household in direct
gives gross income. In contrast to original                       taxes. In contrast, the direct tax bill for                Indirect taxes
income, the amount received from cash                             households in the bottom quintile group                    The amount of indirect tax each household
benefits is higher for households lower                           is around £1,200. Consequently, direct                     pays is determined by their expenditure
down the income distribution than for                             taxes also reduce inequality of income.                    rather than their income. While the
those at the top. Of the total amount of cash                     Looking at income tax on its own, the top                  payment of indirect taxes can be expressed
benefits received, the bottom two quintile                        two quintile groups pay 79 per cent of total               as a percentage of gross income in the
groups together receive 57 per cent. These                        income tax, while the bottom two quintile                  same way as for direct taxes, it should be
households receive an average of £6,800                           groups together pay 8 per cent.                            remembered that for some households,
per year from cash benefits, representing                            Table 3 shows the effect of direct                      particularly towards the bottom of the
around 58 per cent of gross income for the                        and indirect tax on each quintile group.                   income distribution, annual expenditure
bottom quintile group and 36 per cent for                         Households at the lower end of the income                  exceeds annual income. For these
the second quintile group. This reduces the                       distribution pay smaller amounts of                        households, expenditure is not being
inequality of income.                                             direct tax compared with higher income                     funded entirely from income. To express the
                                                                  households. In addition, low income                        payment of indirect taxes as a percentage
Direct taxes                                                      households also pay a smaller proportion                   of gross or disposable income is potentially
Direct taxes include income tax, national                         of their income in income tax because                      misleading because for these households
insurance contributions (NICs) and                                tax is not paid on the first tranche of                    their expenditure will be a better indicator
                                                                                                                             of standard of living than their income.
    Figure 3                                                                                                                 Therefore, payment of indirect taxes is also
    Sources of gross income by quintile groups of equivalised disposable                                                     presented as a percentage of expenditure.
    income, 2007/08                                                                                                             There are a number of possible reasons
                                                                                                                             why expenditure may exceed income.
    £ per year
                                                                                                                             Some households with low incomes may
    80,000
                      Cash benefits                                                                                          draw on their savings or borrow in order
    70,000
    60,000            Investment income1                                                                                     to finance their expenditure. In addition,
    50,000
                      Earned income2                                                                                         the bottom decile in particular includes
    40,000
                                                                                                                             some groups who have, or report, very little
    30,000
                                                                                                                             income (for example people not currently
    20,000                                                                                                                   in employment and some self‑employed
    10,000                                                                                                                   people). For some people this spell of very
         0                                                                                                                   low income may only be temporary and,
                  Bottom               2nd               3rd               4th            Top         All households         during this period, they may continue
                                                                                                                             with previous patterns of spending. Some
Notes:                                                                                                                       types of one‑off receipts are not included
1 Investment income includes occupational pensions and annuities.
                                                                                                                             as current income in the EFS, for example,
2 Earned income includes wages and salaries, income from self-employment and income from
  “fringe benefits”.                                                                                                         inheritance and severance payments. In


4            Office for National Statistics
                                                                                                 The effects of taxes and benefits on household income, 2007/08


Table 3                                                                                                                         To give a more complete picture of the
Taxes as a percentage of gross income, disposable income and                                                                 impact of indirect taxes, they are shown
expenditure for ALL households by quintile groups,1 2007/08                                                                  in Table 3 separately as a proportion of
                                                                                                                             gross income, disposable income and
                                                                Quintile groups of ALL households2
                                                                                                                   All       expenditure. Direct taxes are also shown
                                                         Bottom        2nd       3rd       4th       Top    households       as a proportion of gross income so that the
(a) Direct and indirect taxes as a percentage of                                                                             impact of direct and indirect taxes can be
    gross income                                                                                                             compared.
Direct taxes                                                                                                                    In cash terms, the top fifth of households
   Income tax3                                                 3.2      6.9     10.7      13.5       18.4          13.7
   Employees’ NIC                                              1.5      3.1      4.6       5.5        4.7           4.5
                                                                                                                             pay almost two and a half times as much
   Council tax & Northern Ireland rates4                       6.1      4.0      3.4       2.8        1.8           2.8      indirect tax as the bottom fifth. This simply
All direct taxes                                              10.8     14.1     18.6      21.8       24.9          21.0
                                                                                                                             reflects higher expenditure by higher
                                                                                                                             income households. The only indirect taxes
Indirect taxes
   VAT                                                        10.8      7.2      6.5       5.8        4.5              5.8   where average payments do not vary much
   Duty on alcohol                                             1.5      1.0      0.9       0.8        0.6              0.8   across the income distribution are duties
   Duty on tobacco                                             2.6      1.8      1.2       0.7        0.3              0.8   on tobacco, television licences, taxes on
   Duty on hydrocarbon oils & vehicle excise duty              3.2      2.3      2.2       1.9        1.2              1.8
                                                                                                                             betting, and the tax element of the National
   Other indirect taxes                                        9.9      6.3      5.3       4.4        3.5              4.7
                                                                                                                             Lottery.
All indirect taxes                                            27.9     18.6     15.9      13.7       10.0          13.9
                                                                                                                                When expressed as a percentage of
All taxes                                                     38.7     32.7     34.6      35.4       34.9          35.0      expenditure, the proportion paid in indirect
(b) Indirect taxes as a percentage of disposable income                                                                      tax tends to be lower for households at
                                                                                                                             the top of the distribution compared with
VAT                                                           12.1      8.4      8.0       7.4        5.9              7.4
Duty on alcohol                                                1.6      1.2      1.1       1.1        0.8              1.0   those lower down (16 per cent for the top
Duty on tobacco                                                2.9      2.1      1.4       0.9        0.4              1.1   quintile compared with 20 per cent for the
Duty on hydrocarbon oils & vehicle excise duty                 3.6      2.7      2.7       2.4        1.5              2.2   bottom quintile). The higher percentage
Other indirect taxes                                          11.1      7.4      6.5       5.7        4.6              6.0
                                                                                                                             of expenditure by low income groups on
All indirect taxes                                            31.3     21.7     19.6      17.5       13.3          17.7      tobacco (1.9 per cent of total expenditure
(c) Indirect taxes as a percentage of expenditure   2                                                                        for the bottom quintile group compared
                                                                                                                             with 0.4 per cent for the top quintile group)
VAT                                                            7.9      7.9      7.8       7.7        7.1              7.5
Duty on alcohol                                                1.1      1.1      1.1       1.1        1.0              1.0   accounts for part of this difference.
Duty on tobacco                                                1.9      2.0      1.4       0.9        0.4              1.1      When expressed as a proportion of gross
Duty on hydrocarbon oils & vehicle excise duty                 2.3      2.5      2.6       2.5        1.8              2.3   or disposable income, the impact of indirect
Other indirect taxes                                           7.2      7.0      6.3       5.9        5.5              6.1
                                                                                                                             taxes declines much more sharply as income
All indirect taxes                                            20.3     20.5     19.2      18.1       15.8          18.1      rises. This is because those in higher income
Source: Office for National Statistics                                                                                       groups tend to channel a larger proportion
Notes:                                                                                                                       of their income into savings and mortgage
1 Households are ranked by equivalised disposable income.                                                                    payments, which do not attract indirect
2 Calculated to be consistent with disposable income. See paragraph 35 of Appendix 2 for the                                 taxes. In addition, for many households in
  definition of expenditure.
3 After deducting tax credits and tax relief at source on life assurance premiums.
                                                                                                                             the lower half of the distribution, recorded
4 After deducting discounts, council tax benefits and rates rebates.                                                         current expenditure is greater than recorded
                                                                                                                             current income. As a result, indirect taxes
some cases, the information given on                             data are measured in different ways in                      expressed as a proportion of income appear
direct tax is not consistent with that on                        the EFS, and either could be affected by                    more regressive than when expressed as a
income received, possibly because of timing                      measurement errors of different kinds                       proportion of expenditure.
differences. The income and expenditure                          (see Appendix 2, paragraph 6).                                 The final stage in the redistribution
                                                                                                                             process is the addition of benefits in kind,
  Figure 4                                                                                                                   such as those from state education and the
  Summary of the effects of taxes and benefits on ALL households,                                                            health service. Households in the bottom
  2007/08                                                                                                                    quintile group receive the equivalent of
  Average income per household (£ per year)                                                                                  around £7,500 per year from all benefits in
   20,000                                                                                                                    kind, compared with £4,100 received by the
   15,000                                                                                                                    top fifth (see Figure 4). These are described
   10,000
    5,000
                                                                                                                             in more detail later in the analysis.
        0                                                                                                                       Estimates of final income include receipt
   -5,000                                                                                                                    of all benefits and payment of all taxes.
  -10,000             Indirect taxes                                                                                         After redistribution through taxes and
  -15,000             Direct taxes
  -20,000                                                                                                                    benefits, the share of income received by
                      Cash benefits
  -25,000             Benefits in kind                                                                                       the bottom quintile group increased from
  -30,000                                                                                                                    3 per cent for original income to 6 per cent
                     Bottom              2nd            3rd             4th              Top          All households
                                                                                                                             for post tax income. The share of income
Note:                                                                                                                        received by the top quintile group fell from
1 Households are ranked throughout by their grossed equivalised disposable incomes.                                          51 per cent to 44 per cent.


                                                                                                                                       Office for National Statistics   5
The effects of taxes and benefits on household income, 2007/08


   The effect of taxes and benefits on income     Table 4
inequality can be seen by their effect on         Summary of household characteristics of quintile groups of ALL
the Gini coefficient. It can take values from     households,1 2007-08
0 to 100 per cent where a value of zero
                                                                                                                              Quintile groups of ALL households1
would indicate that each household had an
equal share of income, while higher values                                                                                                                                                     All
                                                                                                          Bottom              2nd           3rd                 4th          Top        households
indicate greater inequality.
   The Gini coefficients which appear in          Number of individuals per household

Table 2 produce a similar picture to the          Children 2                                                   0.6            0.6            0.6                0.5              0.4               0.5
shares of income discussed earlier. For           Adults                                                       1.7            1.8            1.9                2.0              1.8               1.8
2007/08, the figure of 52 per cent for              Men                                                        0.8            0.8            0.9                1.0              1.0               0.9
                                                    Women                                                      0.9            1.0            1.0                1.0              0.9               1.0
original income is reduced to 38 per cent
                                                  People                                                       2.3            2.3            2.4                2.5              2.2               2.4
for gross income by the inclusion of cash
benefits – a large reduction in inequality.       People in full-time education                                0.7            0.5            0.5                0.5              0.3               0.5
The coefficient for disposable income shows       Economically active people                                   0.6            0.8            1.3                1.6              1.6               1.2
the equalising effect of direct taxes with        Retired people                                               0.6            0.6            0.5                0.3              0.2               0.4

the figure falling further to 34 per cent.
                                                  Household type (percentages)
Indirect taxes reverse this effect, as the Gini
                                                  Retired                                                         39            40              29              16                 7               26
coefficient is increased to 38 per cent for
post‑tax income.                                  Non-retired
                                                    1 adult without children                                      16             9              10              14               21                14
Characteristics of households                       2 adults without children                                     11            14              19              29               43                23
                                                    1 adult with children3                                        12             8               5               3                1                 6
   Some types of household are more likely
                                                    2 adults with children                                        14            18              22              21               19                19
to be located in one part of the income             3 or more adults4                                              8            11              15              17                8                12
distribution than another and hence it
                                                  All household types                                         100             100           100                 100          100                   100
is possible to provide analysis of how
different household characteristics may           Source: Office for National Statistics
affect households’ incomes. Information           Notes:
about the characteristics of households           1 Households are ranked by equivalised disposable income.
in the different income groups is shown           2 Children are defined as people aged under 16 or aged between 16 and 18, unmarried and receiving
                                                    non-advanced further education.
in Table 4. Household size does not vary          3 This group is smaller than the category of ‘one parent families’ because some of these families will
much across the income distribution, with           be contained in the larger household types.
                                                  4 With or without children.
an average of between 2.2 and 2.5 people
per household in each quintile group in              Retired households are over‑represented                             in more detail in Appendix 2, while
2007/08. There are fewer children in the          at the lower end of the distribution with                              Figure 5 shows how the Gini coefficients
upper part of the income distribution. Men        60 per cent falling into the bottom two                                for the various measures of income
are slightly more likely to be in the upper       quintile groups. Among single person                                   have changed since 1982. As with other
part of the distribution while women are          retired households, women are both more                                estimates presented here, they are subject
spread more evenly across the distribution.       numerous and also more concentrated                                    to sampling error and some caution is
Higher income groups also contain more            towards the bottom of the income                                       needed particularly in the interpretation of
economically active people. The top fifth         distribution compared with men.                                        year‑to‑year changes. However, by looking
of households have almost three times as                                                                                 at data over several years it is possible to see
many economically active people as the            Changes in inequality over time                                        some underlying trends.
bottom fifth.                                     There are several ways of measuring income                                As shown in Figure 5, the Gini coefficient
   Among non‑retired two adult                    inequality of which the Gini coefficient is                            for disposable income was almost
households, those without children tend           one of the most widely used. It is described                           unchanged between 2006/07 and 2007/08.
to be concentrated towards the top of the
income distribution with 62 per cent in the         Figure 5
top two quintiles, while those with more            Gini coefficients 1982 to 2007/08
children are lower down. For two adult
                                                    Percentages
households with children, the position
                                                    60
in the income distribution tends to vary                                                                    Equivalised original income
according to the number of children.
                                                    50
Households with more children, unless
there is a corresponding increase in income,                                                Equivalised post-tax income
                                                    40      Equivalised gross income
will have lower equivalised incomes to
reflect the additional demand on resources.
                                                    30                                                                                    Equivalised disposable income
Non‑retired households with one adult
and one or more children are concentrated
in the lower groups. Around 67 per cent             20

of these households are in the bottom two             19
                                                         82
                                                                 19
                                                                   84
                                                                          19
                                                                            86
                                                                                   19
                                                                                       88
                                                                                            19
                                                                                              90
                                                                                                     19
                                                                                                       92          /95         /97        /99             /01         /03         /05        /07
                                                                                                               94          96          98              00         02          04          06
                                                                                                             19          19          19              20         20          20          20
quintile groups.


6        Office for National Statistics
                                                                              The effects of taxes and benefits on household income, 2007/08


Nonetheless, the general trend of increase     technological change, a decline in the                   for non‑retired households than for all
between 2004/05 and 2007/08 was due to         role of trade unions, and a growth in self‑              households, and a summary is shown in
increased inequality of original income. It    employment income. There has also been                   Table 6.
was due in part to the faster rate of growth   a decrease in the rate of male participation
of wages and salaries and investment           in the labour market, often in households                Characteristics of non-retired
income in the upper part of the distribution   where there is no other earner, as well as               households
compared with the lower part.                  increased female participation among those               There is more variation in the size of
   The Department for Work and Pensions        with working partners. This has lead to an               non‑retired households, compared with
(DWP) publishes analysis each year of the      increased polarisation between two‑earner                households in total. The average non‑retired
income distribution in their publication       and zero‑earner households. In the late                  household size tends to decrease as income
Households Below Average Income (HBAI),        1990s, the proportion of people in workless              increases. This fall is largely accounted for
based on data from the Family Resources        households started to fall slowly, probably              by the decrease in the average number of
Survey. The Gini coefficients for disposable   contributing to the small reduction in                   children in each household from 1.0 in the
income in HBAI were also marginally            inequality of original income seen since                 bottom quintile group to 0.4 in the top.
higher in 2007/08 and 2006/07 compared         2001/02.                                                   Although one adult households with
with 2004/05. Due to HBAI being based                                                                   children tend to be concentrated lower
on a different survey, and some conceptual     Results for non-retired                                  down the income distribution, this
differences (for example, the use of a         households                                               tendency is slightly less pronounced than it
different equivalisation scale), HBAI          This section looks at the effect of taxes                used to be. In 1998/99, 75 per cent of these
estimates will differ slightly. However, the   and benefits on the income of non‑                       households were in the bottom two quintile
underlying trends between 2004/05 and          retired households. It examines how the                  groups, which compares with 67 per cent in
2007/08 are similar.                           characteristics of non‑retired households                2007/08.
   The recent growth in inequality followed    affect the receipt of benefits and payment
a period between 2001/02 and 2004/05           of taxes (for a definition of retired and                Original income
when income inequality was falling.            non‑retired households refer to Appendix 2,              The average original income for non‑retired
Over this period there was a slight fall in    paragraph 9).                                            households is £38,100 per year (Table 6).
inequality of original income due to faster                                                             As mentioned above, inequality of original
growth in income from earnings and self‑       Overall effect                                           income is lower for non‑retired households
employment income at the bottom end of         As for all households, the tax and benefit               than for all households. For example, the
the income distribution. Policy changes        systems lead to income being shared more                 ratio of the average original incomes for
such as the increases in the national          equally between non‑retired households.                  the top and bottom quintiles is 11 to one,
minimum wage, increases in tax credit          Before taxes and benefits, there is less                 compared with 16 to one for all households.
payments, and the increase in national         inequality of non‑retired households’                       The original income of non‑retired
insurance contributions in 2003/04 would       income, as shown in Table 5, than for                    households shows a relatively strong
also have resulted in small reductions         all households, as shown in Table 2.                     relationship to the number of economically
in inequality of disposable and post‑tax       However, after the process of redistribution,            active people they contain. On average,
income during this period.                     inequality of post‑tax income (as measured,              households in the top three quintile groups
   Inequality of disposable income             for example, by the Gini coefficient) is very            contain almost twice as many economically
increased in the late 1980s and late 1990s     similar to that for all households. The effect           active people as those in the lowest group
during periods of faster growth in income      of taxes and benefits is therefore smaller               (Table 6).
from employment, and fell in the early
1990s during a period of slower growth         Table 5
in employment income. Households               Percentage shares of household income and Gini coefficients1 for
which typically benefit the most during        NON-RETIRED households, 2007/08
periods of growth in employment income                                              Percentage shares of equivalised income for NON-RETIRED households2
are those in the middle and upper part
                                                                                Original                 Gross            Disposable                Post-tax
of the income distribution. This is due                                         income                 income                income                  income
to there being a much higher proportion        Quintile group2
of economically active adults in higher          Bottom                                  3                  6                      7                       6
quintile households compared with                2nd                                    10                 12                     12                      12
households in the lower part of the income       3rd                                    16                 16                     17                      16
                                                 4th                                    24                 23                     23                      23
distribution.
                                                 Top                                    46                 43                     41                      44
   The Institute for Fiscal Studies (IFS)
in their report ‘Permanent Differences?        All non-retired households           100                   100                    100                      100

Income and Expenditure Inequality in           Decile group 2


1990s and 2000s’ has investigated some           Bottom                                  1                  2                      3                        2
of the possible reasons for the higher           Top                                    29                 27                     26                       28

level of inequality since 1990. There has      Gini coefficient (per cent)              44                 37                     34                       38
been an increase in wage inequality, and
                                               Source: Office for National Statistics
particularly an increase in the gap between
                                               Notes:
wages for skilled and unskilled workers.
                                               1 This is a measure of the dispersion of each definition of income (see Appendix 2, paragraph 53).
Suggested reasons include skills‑biased        2 Households are ranked by equivalised disposable income.


                                                                                                                   Office for National Statistics          7
The effects of taxes and benefits on household income, 2007/08


Table 6                                                                                                                         Cash benefits
Summary of the effects of taxes and benefits by quintile groups on                                                              Table 7 gives a summary of the cash
NON-RETIRED households,1 2007/08                                                                                                benefits that each non‑retired quintile
                                                                                                                                group receives. There are two types of cash
                                                      Quintile groups of NON-RETIRED households1
                                                                                                                    Ratio       benefits: contributory benefits which are
                                                                                              All non-retired top/bottom        paid from the National Insurance Fund
                                           Bottom         2nd      3rd       4th          Top     households      quintile
                                                                                                                                (to which individuals and their employers
Income, taxes and benefits
                                                                                                                                make contributions while working) and
per household (£ per year)
                                                                                                                                non‑contributory benefits. For non‑retired
Original income                             7 502      21 814    33 864    47 081       80 185         38 089             11    households, non‑contributory benefits
   plus cash benefits                       5 984       4 816     2 759     1 768        1 113          3 288             0.2
Gross income                               13 485      26 629    36 624    48 849       81 298         41 377               6
                                                                                                                                make up nearly three‑quarters of all cash
   less direct taxes2 and employees’ NIC    1 561       4 711     7 744    11 387       20 510          9 183             13    benefits on average.
Disposable income                          11 924      21 918    28 879    37 462       60 789         32 194               5      Most non‑contributory benefits,
   less indirect taxes                      3 661       4 716     5 633     6 239        7 776          5 605               2   particularly income support, tax credits
Post-tax income                             8 263      17 202    23 247    31 223       53 012         26 590               6   and housing benefit, are income related
   plus benefits in kind                    8 347       7 388     5 950     5 224        3 843          6 151             0.5   and so payments are concentrated in the
Final income                               16 611      24 591    29 196    36 448       56 855         32 740               3
                                                                                                                                two lowest quintile groups. The presence
Number of individuals per household                                                                                             of some individuals with low incomes in
                                                                                                                                high income households means that some
Children3                                       1.0       0.9       0.6       0.5          0.4               0.7
Adults                                          1.8       2.0       2.1       2.1          1.8               2.0                payments are recorded further up the
  Men                                           0.8       1.0       1.1       1.1          1.0               1.0                income distribution. Of the total amount
  Women                                         1.0       1.0       1.0       1.0          0.9               1.0                of income support, tax credits and housing
People                                          2.8       2.9       2.7       2.6          2.2               2.7
                                                                                                                                benefit paid to non‑retired households,
People in full-time education                   1.0        0.8      0.6       0.5          0.3               0.6                85 per cent goes to the bottom two‑fifths,
Economically active people                      0.9        1.5      1.8       1.9          1.7               1.6
                                                                                                                                with the majority of this going to the
Retired people                                  0.1        0.1      0.1       0.1          0.1               0.1
                                                                                                                                bottom quintile.
Source: Office for National Statistics                                                                                             Child benefit is based on the number of
Notes:                                                                                                                          children in the household. Levels of child
1 Households are ranked by equivalised disposable income.                                                                       benefit received are also higher at the lower
2 These are income tax (which is after deducting tax credits and tax relief at source on life assurance
  premiums), council tax and Northern Ireland rates but after deducting discounts, council tax benefit                          end of the distribution, as these households
  and rates rebates.                                                                                                            tend to have more children.
3 Children are defined as people aged under 16 or aged between 16 and 18, unmarried and receiving
  non-advanced further education.
                                                                                                                                   In contrast to non‑contributory benefits,
                                                                                                                                a criterion for receipt of contributory
Table 7                                                                                                                         benefits is the amount of national insurance
Cash benefits for NON-RETIRED households by quintile groups,1 2007/08                                                           contributions that have been paid by, or
                                                                                                                                on behalf of, the individual. The amounts
                                                                 Quintile groups of NON-RETIRED households1
                                                                                                                                received from these benefits are also higher
                                                                                                              All non-retired   in the lower half of the distribution, but to
                                                       Bottom       2nd        3rd           4th      Top         households
                                                                                                                                a lesser extent than for non‑contributory
Average per household (£ per year)
                                                                                                                                benefits.
Contributory                                                                                                                       Cash benefits provide 44 per cent of
  Retirement pension                                       321       714       578           639      455                542    gross income for households in the bottom
  Incapacity benefit                                       521       428       192            69       30                248
  Jobseeker’s allowance2                                    70        40         5             1        2                 24
                                                                                                                                quintile group, falling to just 1 per cent
  Other                                                     64        89        58           147      137                 99    for households in the top quintile. Their
Total contributory                                         975     1 271       833           856      624                912
                                                                                                                                payment results in a significant reduction in
                                                                                                                                income inequality.
Non-contributory
  Income support3                                        1 022       545       252            48        7                375
  Tax credits4                                           1 162       679       242            76       26                437    Direct and indirect taxes
  Child benefit                                            757       705       522           416      295                539    Tables 8 and 9 show estimates of how much
  Housing benefit                                        1 324       676       239            47       31                464    direct and indirect taxes are paid by non‑
  Jobseeker’s allowance5                                   148        36         1             -        -                 37
  Sickness/disablement related                             381       682       543           205       93                381
                                                                                                                                retired households. The patterns are similar
Other                                                      213       221       128           120       37                144    to those described for all households.
                                                                                                                                As noted for all households, national
Total non-contributory                                   5 008     3 545     1 927           912      489              2 376
                                                                                                                                insurance contributions as a proportion of
Total cash benefits                                      5 984     4 816     2 759         1 768     1 113             3 288
                                                                                                                                gross income increase from the first to the
Cash benefits as a percentage of gross income               44        18            8            4       1                 8    fourth quintile group, but are then lower
Source: Office for National Statistics
                                                                                                                                for the top fifth of households. In 2007/08,
Notes:
                                                                                                                                employees NICs were levied at 11 per cent
1   Households are ranked by equivalised disposable income.                                                                     on weekly earnings from £100 to £670 and
2   Contribution based.                                                                                                         at 1 per cent above this. Many people in
3   Including pension credit.
                                                                                                                                households in the top quintile group will
4   Child tax credit and working tax credit.
5   Income based.                                                                                                               have a significant part of their earnings


8           Office for National Statistics
                                                                                                 The effects of taxes and benefits on household income, 2007/08


Table 8                                                                                                                    taxed at this lower rate and hence they will
Taxes as a percentage of gross income for NON-RETIRED households by                                                        contribute less, as a proportion of their
quintile groups,1 2007/08                                                                                                  income.

                                                      Quintile groups of NON-RETIRED households1
                                                                                                                           Benefits in kind
                                                                                                      All non-retired      The Government provides a number of
                                     Bottom            2nd           3rd           4th            Top     households
                                                                                                                           goods and services to households that
Percentages                                                                                                                are either free at the time of use or at
Direct taxes
                                                                                                                           subsidised prices. These goods and services
   Income tax2                            4.4          9.3          12.3           14.7          18.8              14.5
   Employees’ NIC                         2.6          4.9           5.9            6.2           4.7               5.2    can be assigned a monetary value and this
   Council tax & NI rates3                4.5          3.5           2.9            2.5           1.7               2.5    analysis allocates this value to individual
All direct taxes                        11.6          17.7          21.1           23.3          25.2              22.2    households. The addition of benefits in kind
                                                                                                                           to disposable income results in an estimate
All indirect taxes                      27.1          17.7          15.4           12.8           9.6              13.5
                                                                                                                           of households’ final income. The largest
All taxes                               38.7          35.4          36.5           36.1          34.8              35.7    two categories for which a value is assigned
Source: Office for National Statistics                                                                                     are health and education services and, in
Notes:                                                                                                                     total, six categories are assigned values. The
1 Households are ranked by equivalised disposable income.                                                                  value given to these benefits is based on the
2 After deducting tax credits and tax relief at source on life assurance premiums.                                         estimated cost of providing them, which
3 Council tax and Northern Ireland rates after deducting discounts, council tax benefit and rates rebates.
                                                                                                                           for all households is detailed in Table 13.
Table 9                                                                                                                    However, the actual value to households
Indirect taxes as a percentage of (a) disposable income and (b) household                                                  may be greater, or smaller, than the cost to
                                                                                                                           the Government of provision. Future work
expenditure1 for NON-RETIRED households by quintile groups,2 2007/08
                                                                                                                           may investigate methods for improving
                                                               Quintile groups of NON-RETIRED households2
                                                                                                                           these estimates.
                                                                                                         All non-retired      Table 10 gives a summary of the value
                                                      Bottom       2nd       3rd          4th     Top        households
                                                                                                                           of benefits in kind for each quintile group
(a) Percentages of disposable income                                                                                       for non‑retired households. The benefit
VAT                                                     11.6        8.4      7.9           7.2     5.7               7.3
                                                                                                                           in kind from education is allocated to a
Duty on alcohol                                          1.5        1.2      1.2           1.0     0.8               1.0
Duty on tobacco                                          3.2        2.0      1.4           0.8     0.3               1.1   household according to its members’ use
Duty on hydrocarbon oils & vehicle excise duty           3.6        2.9      2.8           2.4     1.4               2.3   of state education (Appendix 2, paragraph
Other indirect taxes                                    10.7        7.0      6.2           5.3     4.5               5.8   38). Households in the lower quintiles
All indirect taxes                                      30.7       21.5     19.5          16.7    12.8              17.4   receive the highest benefit from education,
                                                                                                                           as shown in Table 10. This is due to the
(b) Percentages of expenditure1
                                                                                                                           concentration of children in this part of
VAT                                                      7.7        7.6      7.7           7.5     6.9               7.4
Duty on alcohol                                          1.0        1.1      1.2           1.0     1.0               1.0   the distribution. In addition, children in
Duty on tobacco                                          2.1        1.8      1.3           0.8     0.4               1.1   households in the higher quintiles are more
Duty on hydrocarbon oils & vehicle excise duty           2.4        2.6      2.7           2.5     1.7               2.3   likely to be attending private schools and
Other indirect taxes                                     7.1        6.4      6.0           5.6     5.4               5.9
                                                                                                                           an allocation is not made in these cases.
All indirect taxes                                      20.4       19.5     18.9          17.5    15.4              17.7   Free school meals and welfare milk go
Source: Office for National Statistics                                                                                     predominantly to lower income groups,
Notes:                                                                                                                     where children are more likely to have
1 Calculated to be consistent with disposable income. See paragraph 35 of Appendix 2 for the                               school meals provided free of charge.
  definition of expenditure.                                                                                                  The benefit from the health service is
2 Households are ranked by equivalised disposable income.
                                                                                                                           estimated according to the age and sex of
Table 10                                                                                                                   the household members rather than their
Benefits in kind for NON-RETIRED households by quintile groups,1 2007/08                                                   actual use of the service, as the EFS does
                                                                                                                           not contain this information (Appendix 2,
                                                               Quintile groups of NON-RETIRED households1
                                                                                                                           paragraph 40). The assigned benefit is
                                                                                                         All non-retired   relatively high for young children, low in
                                                      Bottom       2nd      3rd           4th     Top        households
                                                                                                                           later childhood and through the adult years
Average per household (£ per year)                                                                                         until it begins to rise from late middle age
Education                                              5 260     4 096     3 100      2 287      1 223            3 193    onwards. This benefit is similar in the first
National health service                                2 870     3 137     2 738      2 809      2 406            2 792
Housing subsidy                                           46        26        14          6          3               19
                                                                                                                           four quintiles and lower in the top group, as
Travel subsidies                                          64        90        86        118        211              114    shown in Table 10. This pattern is a
School meals and welfare milk                            106        40        13          4          1               33    reflection of the demographic composition
All benefits in kind                                   8 347     7 388     5 950      5 224      3 843            6 151    of households. Studies by Sefton have
                                                                                                                           attempted to allow for variations in use of
Benefits in kind as a percentage of post-tax income      101        43       26            17       7                23
                                                                                                                           the health service according to socio‑
Source: Office for National Statistics                                                                                     economic characteristics.
Note:                                                                                                                         The benefit given to households for the
1 Households are ranked by equivalised disposable income.                                                                  National Health Service has risen in recent


                                                                                                                                     Office for National Statistics       9
The effects of taxes and benefits on household income, 2007/08


years, reflecting increased government              Figure 6
spending on health. Throughout the 1990s,
                                                    Income stages by non-retired household types, 2007/08
it was equivalent to around 9 per cent of
                                                    Average income per household (£ per year)
average post‑tax income for non‑retired
                                                    60,000
households. From 2001/02 onwards,                                                   3 or more adults1
although it has fluctuated year on year,            50,000
                                                                                                                             2 adults with children
the benefit has increased and by 2007/08
                                                    40,000
was equivalent to 11 per cent of post‑tax
income, or an average of £2,800 per year.           30,000
                                                                                1 adult non-retired                                 2 adults non-retired
   The housing subsidy, which excludes              20,000
housing benefit (Appendix 2, paragraph 41),
                                                    10,000                      1 adult with children
fell in the years leading to 2006/07, as the
proportion of households in public sector,               0
housing association and Registered Social            Original income                 Gross income            Disposable income         Post-tax income        Final income
Landlord housing has declined. However,
                                                  Note:
due to a slight change to the methodology
                                                  1 With or without children.
of calculation, the average value attributed
to housing subsidy rose slightly between          benefits such as tax credits and child benefit                       distribution. Of retired households with
2006/07 and 2007/08.                              than those without children. Final incomes                           two or more adults, 63 per cent are in the
   Travel subsidies cover the support             are also higher for those with children due                          bottom two quintile groups. One adult male
payments made to bus and train operating          to the value assigned to education services.                         households are slightly less concentrated
companies. The use of public transport by            For one adult households, original                                towards the bottom of the income
non‑retired households is partly related to       income is much lower for those with                                  distribution, with 54 per cent in the lowest
the need to travel to work and therefore to       children as the adult is less likely to be                           two quintiles. However, among one adult
the number of economically active people          economically active. Benefits, both in cash                          female households, which outnumber one
in a household. This results in estimates of      and in kind, are significantly higher for                            adult male households by about two and a
these subsidies being higher for households       those with children.                                                 half to one, 60 per cent are in the bottom
in higher income quintiles. This pattern                                                                               two quintiles.
is also due to London and the South East          Results for retired households                                          Among retired households, there is a high
having higher levels of commuting by              In this analysis retired households are those                        degree of inequality in income before taxes
public transport together with higher than        where the income of retired household                                and benefits. Table 11 shows that, before
average household incomes.                        members accounts for more than half of the                           government intervention, the richest fifth
   Taken together, the absolute value of          household gross income (see Appendix 2,                              of retired households receive 57 per cent
these benefits in kind declines as household      paragraph 9 for the definition of a retired                          of total original income, while the Gini
income increases. The ratio of benefits in        person). These households have quite                                 coefficient for this measure of income is
kind to post‑tax income decreases from            distinct income and expenditure patterns.                            64 per cent. Both these measures are higher
101 per cent for the lowest quintile group to     The tax and benefit systems affect them in                           (showing more inequality) than equivalent
7 per cent for the highest. This indicates that   different ways from non‑retired households.                          figures for non‑retired households. After
these benefits contribute to the reduction of        Retired households are much more likely                           the impact of taxes and benefits there is a
inequality.                                       to be towards the bottom of the income                               large reduction in inequality. Cash benefits

The effects of taxes and benefits by              Table 11
household type                                    Percentage shares of household income and Gini coefficients1 for
The tax and benefit systems affect different      RETIRED households, 2007/08
types of household in different ways
                                                                                                      Percentage shares of equivalised income for RETIRED households2
reflecting, in part, the number and ages of
people within each household type. Of the                                                    Original                    Gross             Disposable              Post-tax
                                                                                             income                    income                 income                income
types of non‑retired households shown in
Figure 6, only those containing one adult         Quintile group2
                                                    Bottom                                           3                      9                           9                 8
and children make significant net gains,            2nd                                              7                     14                          14                14
with average final incomes of £23,000 per           3rd                                             12                     17                          18                18
year compared with original incomes of              4th                                             21                     22                          22                22
£11,000. Households with two adults and             Top                                             57                     39                          37                38

three or more children, and households            All households                                  100                     100                         100               100
with three or more adults with children           Decile group 2

are also net beneficiaries, but to a smaller        Bottom                                           1                      4                           4                 3
extent.                                             Top                                             42                     25                          23                24

   Original income is strongly related to the     Gini coefficient (per cent)                       64                     29                          27                31
number of adults in the household. For two
                                                  Source: Office for National Statistics
adult households, those with children have
                                                  Notes:
broadly similar levels of original income to
                                                  1 This is a measure of the dispersion of each definition of income (see Appendix 2, paragraph 53).
those without, but they receive more cash         2 Households are ranked by equivalised disposable income.



10       Office for National Statistics
                                                                                              The effects of taxes and benefits on household income, 2007/08


Table 12                                                                                                                 may own their property outright), and
Summary of the effects of taxes and benefits on RETIRED households                                                       similarly the income from disability benefits
by quintile groups,1 2007/08                                                                                             may be offset by additional costs incurred
                                                                                                                         by the individual due to their illness or
                                                                 Quintile groups of RETIRED households1
                                                                                                                         disability.
                                                                                                           All retired      Retired households derive significant
                                                      Bottom       2nd       3rd       4th      Top       households
                                                                                                                         benefits from health services. Health benefit
Income, taxes and benefits                                                                                               is spread fairly evenly between retired
per household (£ per year)
                                                                                                                         households and in 2007/08 was worth an
Original income                                                                                                          average of £5,300. This is close to twice
  Earnings                                                55        122      471       538     1 049              447    the figure for non‑retired households,
  Occupational pensions                                  981      2 458    4 234     7 118    17 116            6 381    and increases their post tax income by
  Investment income                                      459        482      550     1 067     6 756            1 863    42 per cent. The benefits received by
  Other income                                            43        106      104       140        64               91
                                                                                                                         retired households from travel subsidies
Total original income                                  1 537      3 168    5 359     8 863    24 985            8 782
                                                                                                                         are mainly for bus travel, particularly in
plus Contributory benefits                             5 864      6 997    6 949     7 119     6 950            6 776    the form of concessionary fares and passes
     Non-contributory benefits                           988      2 011    2 794     2 683     2 370            2 169
                                                                                                                         for senior citizens and, since these are not
Total cash benefits                                    6 853      9 008    9 743     9 802     9 320            8 945    usually means‑tested, there is no particular
Gross income                                           8 390     12 176   15 102    18 665    34 306           17 727    relationship with income.
                                                                                                                            Overall, retired households are major
less Income tax2                                         149       365       694     1 282     4 904            1 479    beneficiaries from redistribution through
     Employees’ NIC                                        8         3        31        22        69               27    the tax and benefit system. Retired
     Council tax & Northern Ireland rates3               873       715       690       868     1 224              874
                                                                                                                         households with two or more adults have an
Disposable income                                      7 360     11 092   13 687    16 493    28 109           15 348    average original income of £13,100, but a
less Indirect taxes                                    2 327      2 387    2 688     2 914     4 364            2 936    final income of £22,200. The corresponding
                                                                                                                         figures for one adult retired households are
Post-tax income                                        5 033      8 706   10 999    13 579    23 745           12 412
                                                                                                                         £5,100 and £14,300. Among one adult
plus National health service                           5 421      5 470    4 972     5 327     5 128            5 264    households, women have a lower original
     Housing subsidy                                      15         30       37        30        16               26    income than men, but after the addition of
     Other benefits in kind                              320        373      160       219       158              246
                                                                                                                         benefits and the deduction of taxes, the
Final income                                          10 789     14 579   16 167    19 154    29 046           17 947    differences are greatly reduced.
Cash benefits as a percentage of gross income             82        74        65        53        27               50

Retirement pension as a percentage of cash benefits       84        75        70        72        73               74     AckNOwledgeMeNtS

Source: Office for National Statistics
                                                                                                                         The author gratefully acknowledges the
                                                                                                                         considerable work done for this study by
Notes:
1 Households are ranked by equivalised disposable income.
                                                                                                                         Daniel Annan, Sonia Carrera and Grace
2 After deducting tax credits and tax relief at source on life assurance premiums.                                       Anyaegbu.
3 Council tax and Northern Ireland rates after deducting discounts, council tax benefit and rates rebates.
                                                                                                                          RefeReNceS
play by far the largest part in bringing about                 The top fifth are much less dependent
                                                                                                                         Department for Work and Pensions (2007)
this reduction. Payment of direct taxes                        on cash benefits – these account for only
                                                                                                                         Opportunity for All, Indicators update 2007,
makes a further, though much smaller,                          27 per cent of their gross incomes.
                                                                                                                         The Stationery Office.
contribution. Payments of indirect taxes                          Most retired people will have made
result in an increase in inequality.                           contributions to the National Insurance                   Goodman A and Shephard A (2002)
   Overall, retired households receive                         Fund throughout their working lives. Many                 ‘Inequality and living standards in Great
an average of £8,800 per year in original                      of the benefits which retired households                  Britain: some facts’, The Institute for Fiscal
income with most of this coming from                           receive are paid out of this fund in the form             Studies Briefing Note 19.
occupational pensions and investments                          of contributory benefits. The most significant
                                                                                                                         Goodman A and Oldfield Z (2004)
(Table 12). Original income ranges from                        of these is the state retirement pension,
                                                                                                                         ‘Permanent Differences? Income and
£1,500 for the bottom quintile group                           which on average accounts for three‑
                                                                                                                         Expenditure Inequality in 1990s and 2000s’,
to £25,000 per year for the top. On the                        quarters of retired households’ cash benefits.
                                                                                                                         The Institute for Fiscal Studies Report No. 66.
other hand, amounts received from cash                            Non‑contributory benefits are lowest
benefits vary less across the distribution.                    in the bottom two quintile groups.                        Muriel A and Sibieta L (2009) ‘Living Standards
On average, households in the bottom fifth                     Housing benefit and disability benefits can               During Previous Recessions’, The Institute for
receive around £6,900 per year from this                       sometimes make up a significant proportion                Fiscal Studies Briefing Note No. 85.
source, while those in the second to fifth                     of the income of retired households, who
                                                                                                                         Sefton T (1997) ‘The changing distribution
quintile groups receive between £9,000 and                     as a result will appear higher up the income
                                                                                                                         of the social wage’, London School of
£9,800 per year. These cash benefits make                      distribution. However, this does not
                                                                                                                         Economics and Political Science.
up large proportions of the gross incomes                      necessarily mean that they have a higher
for the bottom four quintiles ranging from                     standard of living. Households receiving                  Sefton T (2002) ‘Recent changes in the
82 per cent for the bottom quintile group                      housing benefit are likely to have higher                 distribution of the social wage’, London
to 53 per cent for the fourth quintile group.                  housing costs than owner occupiers (who                   School of Economics and Political Science.


                                                                                                                                    Office for National Statistics        11
The effects of taxes and benefits on household income, 2007/08




Appendix 1
Table 13 (Appendix 1)
Taxes and benefits allocated to households as a percentage of general government expenditure, 2007
Taxes and compulsory social contributions1                                         Benefits allocated to households
allocated to households
                                                                % of                                                                                  % of
                                              £ million         GGE2                                                               £ million          GGE2
Income tax (gross)                             147 390           24.8              Cash benefits
Tax reliefs                                        -30            0.0
                                                                                   Contributory (National Insurance, etc)
Income tax (net)                               147 360           24.8                Retirement                                       56 630            9.5
                                                                                     Incapacity benefit                                6 660            1.1
Employees’ & self-employed NI contributions     41 490            7.0                Widows’ and guardians’ allowances                   760            0.1
Council tax                                     23 140            3.9                Maternity/Statutory maternity pay                 1 730            0.3
                                                                                     Job seekers allowance                               430            0.1
                                                                                     Social fund                                       2 350            0.4
                                                                                     Other                                               280            0.0

Taxes on final goods and services
  VAT                                           61 170           10.3              Non-contributory
  Duty on hydrocarbon oils                      12 370            2.1                Income support                                   15 860            2.7
  Duty on tobacco                                7 810            1.3                Working and child tax credits                    15 230            2.6
  Vehicle excise duty                            4 380            0.7                Other family benefits                            10 420            1.8
  Duty on wines, cider, perry and spirits        4 670            0.8                War pensions                                        970            0.2
  Duty on beer                                   2 840            0.5                Other                                            23 080            3.9
  Betting duties                                   880            0.1
  Camelot: payments to NLDF                      1 200            0.2              Student support                                     1 010            0.2
  Stamp duty on house purchase                   3 980            0.7
  Other                                          2 890            0.5              Rent rebates and allowances                        15 540            2.6

Taxes & NI contributions on
  Intermediate goods & services3                                                   Benefits in kind
     Employers’ NI contributions                18 200            3.1
     Commercial & industrial rates               9 990            1.7                Health services                                  95 320           16.1
     Duty on hydrocarbon oils                    6 210            1.0                Education                                        70 820           11.9
     VAT                                         4 420            0.7                Travel subsidies4                                 2 520            0.4
     Vehicle excise duty                           500            0.1                Housing subsidy                                     520            0.1
     Other                                       5 550            0.9                School meals and welfare milk                     1 110            0.2

Total                                          359 050           60.5              Total                                             321 240           54.1

Total government expenditure                   593 270

Notes:
1 Paid to UK central and local government and European Union institutions.
2 Expressed as a percentage of general government expenditure.
3 These are taxes paid by industry and commerce assumed to be passed on to households in the prices of goods and services they buy. For instance, duty on
  derv used in the transportation of goods is an ‘intermediate’ tax whereas the duty on petrol bought by the private motorist is a tax on final goods and
  services.
4 Including concessionary fares expenditure.
Source: United Kingdom National Accounts, 2008 Edition.




12         Office for National Statistics
                                                                                                               The effects of taxes and benefits on household income, 2007/08


Table 14 (Appendix 1)
Average incomes, taxes and benefits by decile groups of ALL households, 2007/08
                                                                             Decile groups of all households ranked by equivalised disposable income                                                                    All
                                                                                                                                                                                                                     house-
                                                   Bottom             2nd              3rd              4th              5th              6th              7th              8th              9th              Top     holds
Average per household (£ per year)
Decile points (equivalised £)                               10 486           13 307           16 044           18 656           21 436           24 700           28 706           35 145           46 316
Number of households in the population (‘000s)      2 529            2 525            2 530            2 530            2 529            2 525            2 531            2 532            2 526            2 532   25 289
Original income
  Wages and salaries                                1 954            3 788         7 298           10 694           15 531           21 486           27 841           34 456           43 009           66 579      23 264
  Imputed income from benefits in kind                  3                3            22               47               74              163              286              393              613            1 377         298
  Self-employment income                              612              659           847            1 475            1 488            1 468            2 135            3 015            4 527           14 004       3 023
  Occupational pensions, annuities                    370              953         1 417            2 205            2 648            2 727            2 648            3 527            3 403            4 288       2 419
  Investment income                                   254              314           286              408              607              708              761            1 420            1 758            5 269       1 179
  Other income                                        231              161           163              287              125              253              292              238              174              159         208
  Total                                             3 424            5 879        10 033           15 115           20 474           26 805           33 962           43 048           53 485           91 676      30 390
Direct benefits in cash
   Contributory
     Retirement pension                             2 048            3 055            3 184            3 068            2 941            2 055            1 664            1 542            1 191             693     2 144
     Job seeker’s allowance (Contribution based)       72               43               20               37               12                6                1                1                4               -        20
     Incapacity benefit                               285              427              332              319              286              168              151               60               23              26       208
     Widows’ benefits                                  35               33               55               21               25                -               15               28               16               7        24
     Statutory Maternity Pay/Allowance                  5                1               26               25               60               23               91               81              132             131        58
  Non-contributory
    Income support and pension credit                 651              902              762             546              493              363              278               46               34                -      408
    Child benefit                                     422              492              461             421              460              412              376              380              299              277      400
    Housing benefit                                   755            1 045            1 053             775              596              373              298               73               49                9      503
    Job seeker’s allowance (Income based)             129               87               49               7               16                0                1                -                -                -       29
    Carer’s allowance                                  36               54              110             124               91               60               47               16               11                9       56
    Attendance allowance                                -               36               75              73              112               52               49               19               27                6       45
    Disability living allowance                       204              212              358             550              531              476              405              171              105               44      306
    War pensions/War widows’ pensions                   2               18               14              51                9               35              133               42               14                9       33
    Severe disablement allowance                        1               20               36              16               78               40               22               15                7                -       23
    Industrial injury disablement benefit               2                7                5              35               10               56               27               28               23                5       20
    Student support                                    73               84              106             127               31               40               40               67               49                2       62
    Government training schemes                         3                4                7              12                0                2                1                0                1                1        3
    Tax credits 1                                     564              822              697             405              264              213              154               84               43                1      325
    Other non-contributory benefits                   107              169              139             159              133               96              138               79               44               41      111
Total cash benefits                                 5 395            7 512            7 490            6 773            6 147            4 471            3 890            2 731            2 073            1 260    4 774
Gross income                                        8 820        13 390           17 523           21 888           26 622           31 276           37 853           45 780           55 558           92 936      35 164
Direct taxes and Employees’ NIC
   Income tax                                         270              599            1 214            1 978            2 871            3 746            4 916         6 690            8 947           18 521       4 975
      less: Tax credits2                               27              138              213              275              208              241              189           142               64               49         154
   Employees’ NI contributions                        100              242              483              757            1 121            1 547            2 033         2 559            3 158            3 805       1 580
   Council tax and Northern Ireland rates3            973            1 027            1 003            1 074            1 083            1 104            1 153         1 266            1 284            1 447       1 141
      less: Council tax benefit/Rates rebates         288              355              267              216              154               84               79            14                8                6         147
   Total                                            1 029            1 375            2 220            3 319            4 713            6 073            7 834        10 358           13 317           23 718       7 396
Disposable income                                   7 791        12 015           15 303           18 569           21 909           25 203           30 018           35 422           42 241           69 218      27 769
Equivalised disposable income                       7 273        11 928           14 698           17 392           19 961           22 996           26 699           31 617           40 338           68 887      26 179
Indirect taxes
   Taxes on final goods and services
      VAT                                           1 240            1 163            1 298            1 534            1 694            2 055            2 303            2 557            2 931            3 688    2 046
      Duty on tobacco                                 263              306              351              354              314              356              339              242              233              171      293
      Duty on beer and cider                           68               64               78               88              105              135              153              149              170              158      117
      Duty on wines & spirits                         113               79              100              132              115              158              200              202              242              324      167
      Duty on hydrocarbon oils                        276              265              330              372              434              547              575              666              679              652      480
      Vehicle excise duty                              87               84               96              115              126              146              154              188              190              199      138
      Television licences                             102               96              103              107              105              114              115              125              126              128      112
      Stamp duty on house purchase                     85               75               89              101              112              146              183              241              330              619      198
      Customs duties                                   20               19               20               23               25               28               30               33               36               46       28
      Betting taxes                                    23               24               29               46               37               34               48               45               30               42       36
      Insurance premium tax                            25               24               28               33               43               46               50               62               61               85       46
      Air passenger duty                               14               19               30               33               37               47               50               67               75              157       53
      Camelot National Lottery Fund                    35               39               48               59               56               55               60               52               52               33       49
      Other                                            10               12                9                5               19               24               24               17                9               35       17

  Intermediate taxes
     Commercial and industrial rates                  179             165              180              199              220              243              263              288              315              410      246
     Employers’ NI contributions                      333             308              335              372              410              453              491              537              588              765      459
     Duty on hydrocarbon oils                         112             104              113              125              138              153              165              181              198              258      155
     Vehicle excise duty                                9               8                9               10               11               12               13               14               16               21       12
     Other                                            183             169              184              204              226              249              270              295              323              420      252
Total indirect taxes                                3 177            3 022            3 431            3 913            4 228            5 002            5 486            5 961            6 602            8 214    4 904
Post-tax income                                     4 614            8 992       11 872           14 656           17 681           20 201           24 532           29 461           35 638           61 004       22 865
Benefits in kind
    Education                                       4 128            2 737            2 563            2 546            2 559            2 334            2 446            2 180            1 381            1 009    2 388
    National health service                         3 641            4 119            3 905            3 854            3 972            3 295            3 196            3 099            2 834            2 497    3 441
    Housing subsidy                                    33               39               33               31               28               14               15                5                4                2       20
    Rail travel subsidy                                16                5               19               24               16               18               41               76               78              154       45
    Bus travel subsidy                                 73               70               85               80               79               59               55               59               56               84       70
    School meals and welfare milk                      58               70               46               20               25               12                8                3                2                1       25
     Total                                          7 948            7 040            6 650            6 555            6 679            5 732            5 760            5 422            4 354            3 746    5 989
Final income                                       12 562        16 033           18 521           21 211           24 361           25 933           30 292           34 884           39 992           64 751      28 854

Notes:
1 Child tax credit and working tax credit.
2 Including tax relief at source on life assurance premiums.
3 Council tax and Northern Ireland rates after deducting discounts.




                                                                                                                                                                       Office for National Statistics                  13
The effects of taxes and benefits on household income, 2007/08


Table 14A (Appendix 1)
Average incomes, taxes and benefits by quintile groups of ALL households, 2007/08
                                                                 Quintile groups of all households ranked by equivalised disposable income
                                                                                                                                                             All
                                                       Bottom                   2nd                  3rd                  4th                  Top    households
Average per household (£ per year)
Quintile points (equivalised £)                                    13 307              18 656               24 700               35 145
Number of households in the population (‘000s)           5 054                 5 060                5 054               5 063                 5 058       25 289
Original income
  Wages and salaries                                     2 871                 8 996              18 509               31 148                54 794       23 264
  Imputed income from benefits in kind                       3                    35                 119                  339                   995          298
  Self-employment income                                   636                 1 161               1 478                2 575                 9 266        3 023
  Occupational pensions, annuities                         661                 1 811               2 688                3 087                 3 846        2 419
  Investment income                                        284                   347                 658                1 090                 3 514        1 179
  Other income                                             196                   225                 189                  265                   166          208
  Total                                                  4 651                12 574              23 640               38 505                72 581       30 390
Direct benefits in cash
   Contributory
     Retirement pension                                  2 551                 3 126                2 498               1 603                  942         2 144
     Job seeker’s allowance (Contribution based)            57                    29                    9                   1                    2            20
     Incapacity benefit                                    356                   326                  227                 105                   24           208
     Widows’ benefits                                       34                    38                   13                  22                   12            24
     Statutory Maternity Pay/Allowance                       3                    25                   41                  86                  132            58
  Non-contributory
    Income support and pension credit                     776                    654                 428                  162                   17          408
    Child benefit                                         457                    441                 436                  378                  288          400
    Housing benefit                                       900                    914                 484                  185                   29          503
    Job seeker’s allowance (Income based)                 108                     28                   8                    0                    -           29
    Carer’s allowance                                      45                    117                  75                   31                   10           56
    Attendance allowance                                   18                     74                  82                   34                   16           45
    Disability living allowance                           208                    454                 503                  288                   75          306
    War pensions/War widows’ pensions                      10                     33                  22                   87                   11           33
    Severe disablement allowance                           10                     26                  59                   19                    4           23
    Industrial injury disablement benefit                   4                     20                  33                   28                   14           20
    Student support                                        79                    117                  35                   54                   25           62
    Government training schemes                             3                     10                   1                    1                    1            3
    Tax credits1                                          693                    551                 238                  119                   22          325
    Other non-contributory benefits                       138                    149                 115                  108                   43          111
Total cash benefits                                      6 453                 7 131                5 309               3 311                 1 666        4 774
Gross income                                            11 105                19 705               28 949              41 816                74 247       35 164
Direct taxes and Employees’ NIC
   Income tax                                              435                 1 596                3 308               5 803                13 734        4 975
      less: Tax credits2                                    82                   244                  224                 165                    56          154
   Employees’ NI contributions                             171                   620                1 334               2 296                 3 481        1 580
   Council tax and Northern Ireland rates3               1 000                 1 039                1 093               1 209                 1 365        1 141
      less: Council tax benefit/Rates rebates              321                   241                  119                  47                     7          147
   Total                                                 1 202                 2 770                5 393               9 096                18 517        7 396
Disposable income                                        9 903                16 936               23 556              32 720                55 729       27 769
Equivalised disposable income                            9 601                16 045               21 479              29 158                54 613       26 179
Indirect taxes
   Taxes on final goods and services
      VAT                                                1 201                 1 416                1 875               2 430                 3 309        2 046
      Duty on tobacco                                      284                   353                  335                 291                   202          293
      Duty on beer and cider                                66                    83                  120                 151                   164          117
      Duty on wines & spirits                               96                   116                  137                 201                   283          167
      Duty on hydrocarbon oils                             271                   351                  490                 621                   665          480
      Vehicle excise duty                                   85                   105                  136                 171                   195          138
      Television licences                                   99                   105                  109                 120                   127          112
      Stamp duty on house purchase                          80                    95                  129                 212                   475          198
      Customs duties                                        19                    21                   26                  31                    41           28
      Betting taxes                                         23                    37                   36                  47                    36           36
      Insurance premium tax                                 24                    31                   45                  56                    73           46
      Air passenger duty                                    16                    32                   42                  58                   116           53
      Camelot National Lottery Fund                         37                    53                   55                  56                    42           49
      Other                                                 11                     7                   22                  21                    22           17

  Intermediate taxes
     Commercial and industrial rates                      172                    190                 232                  276                  363          246
     Employers’ NI contributions                          320                    354                 432                  514                  676          459
     Duty on hydrocarbon oils                             108                    119                 145                  173                  228          155
     Vehicle excise duty                                    9                     10                  12                   14                   18           12
     Other                                                176                    194                 237                  282                  372          252
Total indirect taxes                                     3 100                 3 672                4 615               5 723                 7 408        4 904
Post-tax income                                          6 803                13 264              18 941               26 997                48 321       22 865
Benefits in kind
    Education                                            3 432                 2 554                2 446               2 313                 1 195        2 388
    National health service                              3 880                 3 880                3 634               3 147                 2 666        3 441
    Housing subsidy                                         36                    32                   21                  10                     3           20
    Rail travel subsidy                                     10                    21                   17                  58                   116           45
    Bus travel subsidy                                      72                    82                   69                  57                    70           70
    School meals and welfare milk                           64                    33                   19                   6                     1           25
    Total                                                7 494                 6 602                6 206               5 591                 4 050        5 989
Final income                                            14 297                19 866              25 147               32 588                52 371       28 854

Notes:
1 Child tax credit and working tax credit.
2 Including tax relief at source on life assurance premiums.
3 Council tax and Northern Ireland rates after deducting discounts.




14         Office for National Statistics
                                                                                         The effects of taxes and benefits on household income, 2007/08


Table 15 (Appendix 1)
Household characteristics of decile groups of ALL households, 2007/08
                                                                Decile groups of all households ranked by equivalised disposable income                          All
                                                                                                                                                              house-
                                                Bottom   2nd           3rd         4th        5th        6th        7th         8th       9th        Top       holds
Average per household (number)

People                                             2.4    2.3           2.3        2.4         2.5       2.4         2.5        2.5        2.3       2.1         2.4
  Adults                                           1.8    1.6           1.7        1.8         1.9       1.9         2.0        2.0        1.9       1.8         1.8
    Men                                            0.8    0.7           0.8        0.9         0.9       0.9         1.0        1.0        1.0       1.0         0.9
    Women                                          0.9    0.9           1.0        1.0         1.0       1.0         1.0        1.0        0.9       0.8         1.0
  Children                                         0.6    0.7           0.6        0.5         0.6       0.5         0.5        0.5        0.4       0.4         0.5
Economically active people                         0.6    0.5           0.8        0.9         1.1       1.4         1.6        1.6        1.6       1.6         1.2
Retired people                                     0.5    0.7           0.6        0.6         0.5       0.4         0.3        0.3        0.2       0.1         0.4

People in full-time education                     0.73   0.58          0.53       0.51        0.51      0.47        0.48       0.43       0.30      0.27        0.48
   In state primary schools                       0.21   0.29          0.26       0.22        0.25      0.21        0.18       0.19       0.15      0.13        0.21
   In state secondary schools                     0.22   0.19          0.17       0.17        0.18      0.14        0.19       0.16       0.09      0.07        0.16
   In further and higher education                0.29   0.08          0.07       0.09        0.07      0.09        0.10       0.08       0.04      0.02        0.09
   In other educational establishments            0.01   0.01          0.02       0.02        0.02      0.02        0.01       0.01       0.01      0.05        0.02
Composition (percentages)

Household type

Retired

  1 adult                                           18    22            22         21          19         15         11           6         4          3         14
     1 adult men                                     5     4             7          6           7          4          3           1         2          2          4
     1 adult women                                  13    18            15         15          13         11          9           4         2          1         10
  2 or more adults                                  18    21            19         18          14          9          6           9         5          2         12

Non-retired

  1 adult                                           18    13            10          8          10         11         13          15        18         23         14
     1 adult men                                    11     8             5          4           6          5          6           9        11         16          8
     1 adult women                                   7     6             4          3           4          6          7           7         8          7          6
  2 adults                                          13     8            13         15          15         23         29          30        40         46         23
  3 or more adults                                   5     3             5          8           8         10         13          12         9          4          8
  1 adult with children                              9    14             9          6           7          4          2           3         2          1          6
  2 adults with 1 child                              5     4             5          7           6         11          9           9         9          8          7
  2 adults with 2 children                           5     6             7         10          10         10         10          10        10          9          9
  2 adults with 3 or more children                   4     5             5          3           4          2          2           2         1          2          3
  3 or more adults with children                     5     4             5          4           7          5          5           5         2          1          4

Household tenure

Rented                                              45    49            45         42          36         32         26          14         9          9         31
  Local authority rented                            22    22            18         18          12          9          6           2         1          0         11
  Housing association or RSL                         8    15            13         12          10          7          6           2         1          0          7
  Other rented unfurnished                           5     7             8          6           8          8          7           4         4          3          6
  Rented furnished                                   9     3             5          5           4          5          6           4         3          4          5
  Rent free                                          0     2             2          1           2          2          2           2         1          1          1
Owner occupied                                      55    51            55          58         64         68         74          86        91         91         69

  With mortgage                                     17    14            22         26          32         39         48          58        64         67         39
  Rental purchase                                    0     0             -          0           1          1          0           1         1          -          0
  Owned outright                                    38    37            32         31          32         28         26          27        26         24         30
Age of chief economic supporter

Under 25                                            11     5             5          4           3          4          4           2         2          1          4
Over 24 and under 35                                10    12            11          8           9         14         18          20        22         23         15
Over 34 and under 45                                19    17            17         19          18         20         19          21        24         28         20
Over 44 and under 55                                17    12            13         13          19         21         21          24        21         24         19
Over 54 and under 65                                12    13            16         19          15         16         21          19        20         18         17
Over 64 and under 75                                13    17            19         20          15         12          8           9         6          4         12
Over 74                                             18    25            19         18          19         12         10           6         5          3         13

Employment status of chief economic supporter

Self-employed                                        7     5             6          7           6          5          7           7        10         16          8
Full-time employee                                   6    15            23         33          41         56         64          68        74         74         45
Part-time employee                                  13     9            12          9           8          6          7           7         5          5          8
Unemployed                                           7     4             1          1           1          1          0           1         1          -          2
Unoccupied and under minimum NI age                 34    24            17         12           9          7          5           3         2          1         12
Retired/unoccupied over minimum NI age              32    43            40         38          35         24         17          14         9          5         26
Other                                                0     0             -          -           0          -          -           -         -          -          0




                                                                                                                             Office for National Statistics     15
The effects of taxes and benefits on household income, 2007/08


Table 15A (Appendix 1)
Household characteristics of quintile groups of ALL households, 2007/08
                                                         Quintile groups of all households ranked by equivalised disposable income
                                                                                                                                                   All
                                                Bottom                  2nd                  3rd                  4th                Top    households
Average per household (number)

People                                             2.3                   2.3                  2.4                  2.5                2.2          2.4

  Adults                                           1.7                   1.8                  1.9                  2.0                1.8          1.8
    Men                                            0.8                   0.8                  0.9                  1.0                1.0          0.9
    Women                                          0.9                   1.0                  1.0                  1.0                0.9          1.0
  Children                                         0.6                   0.6                  0.5                  0.5                0.4          0.5

Economically active people                         0.6                   0.8                  1.3                  1.6                1.6          1.2
Retired people                                     0.6                   0.6                  0.5                  0.3                0.2          0.4

People in full-time education                     0.65                  0.52                 0.49                0.46                0.28         0.48

  In state primary schools                        0.25                  0.24                 0.23                0.18                0.14         0.21
  In state secondary schools                      0.20                  0.17                 0.16                0.17                0.08         0.16
  In further and higher education                 0.18                  0.08                 0.08                0.09                0.03         0.09
  In other educational establishments             0.01                  0.02                 0.02                0.01                0.03         0.02

Composition (percentages)

Household type

Retired

  1 adult                                           20                    22                  17                    8                  4           14
     1 adult men                                     5                     7                   5                    2                  2            4
     1 adult women                                  15                    15                  12                    6                  2           10
  2 or more adults                                  19                    19                  12                    7                  4           12

Non-retired

  1 adult                                           16                     9                  10                   14                 21           14
     1 adult men                                    10                     5                   6                    7                 13            8
     1 adult women                                   6                     4                   5                    7                  7            6
  2 adults                                          11                    14                  19                   29                 43           23
  3 or more adults                                   4                     6                   9                   12                  7            8
  1 adult with children                             12                     8                   5                    3                  1            6
  2 adults with 1 child                              4                     6                   8                    9                  8            7
  2 adults with 2 children                           5                     8                  10                   10                  9            9
  2 adults with 3 or more children                   5                     4                   3                    2                  2            3
  3 or more adults with children                     4                     5                   6                    5                  2            4

Household tenure

Rented                                              47                    44                  34                   20                  9           31

  Local authority rented                            22                    18                  11                    4                  1           11
  Housing association or RSL                        12                    12                   9                    4                  1            7
  Other rented unfurnished                           6                     7                   8                    6                  3            6
  Rented furnished                                   6                     5                   5                    5                  4            5
  Rent free                                          1                     1                   2                    2                  1            1

Owner occupied                                      53                    56                  66                   80                 91           69

  With mortgage                                     15                    24                  35                   53                 66           39
  Rental purchase                                    0                     0                   1                    0                  0            0
  Owned outright                                    37                    32                  30                   26                 25           30

Age of chief economic supporter

Under 25                                             8                     4                   4                    3                  1            4
Over 24 and under 35                                11                     9                  12                   19                 22           15
Over 34 and under 45                                18                    18                  19                   20                 26           20
Over 44 and under 55                                14                    13                  20                   22                 23           19
Over 54 and under 65                                13                    17                  16                   20                 19           17
Over 64 and under 75                                15                    19                  14                    8                  5           12
Over 74                                             21                    18                  16                    8                  4           13

Employment status of chief economic supporter

Self-employed                                        6                     6                   5                    7                 13            8
Full-time employee                                  10                    28                  49                   66                 74           45
Part-time employee                                  11                    11                   7                    7                  5            8
Unemployed                                           6                     1                   1                    0                  0            2
Unoccupied and under minimum NI age                 29                    15                   8                    4                  1           12
Retired/unoccupied over minimum NI age              37                    39                  30                   15                  7           26
Other                                                0                     -                   0                    -                  -            0




16         Office for National Statistics
                                                                                                               The effects of taxes and benefits on household income, 2007/08


Table 16 (Appendix 1)
Average incomes, taxes and benefits by decile groups of NON-RETIRED households, 2007/08
                                                                      Decile groups of non-retired households ranked by equivalised disposable income                                                                   All
                                                                                                                                                                                                                     house-
                                                   Bottom             2nd              3rd              4th              5th              6th              7th              8th              9th              Top     holds
Average per household (£ per year)

Decile points (equivalised £)                               10 957           14 505           17 981           20 915           24 061           27 549           31 842           39 183           51 102
Number of households in the population (‘000s)      1 863            1 865            1 866            1 860            1 868            1 862            1 867            1 865            1 861            1 869   18 645
Original income
  Wages and salaries                                3 266         8 209           15 247           21 976           26 804           32 254           37 885           43 371           50 183          74 849       31 404
  Imputed income from benefits in kind                  4            14               70               91              156              370              347              553              861           1 576          404
  Self-employment income                              892         1 276            2 181            1 767            2 600            2 193            2 853            4 263            5 282          17 586        4 089
  Occupational pensions, annuities                    181           336              460              712              979              964            1 186            1 283            1 581           2 384        1 007
  Investment income                                   126           187              236              318              493              527              664            1 094            1 366           4 337          935
  Other income                                        329           183              261              308              209              181              499              163              192             174          250
  Total                                             4 798        10 206           18 455           25 172           31 240           36 488           43 434           50 728           59 465         100 905       38 089
Direct benefits in cash
   Contributory
     Retirement pension                               144             498              672              757              480              677              724              554              524              387      542
     Job seeker’s allowance (Contribution based)      115              24               50               30                5                5                2                0                5                -       24
     Incapacity benefit                               458             583              398              457              233              150              115               24               41               19      248
     Widows’ benefits                                  49              50               24               33               14               11                -                5               22                -       21
     Statutory Maternity Pay/Allowance                  7              22               41               81               28               62              122              166              102              149       78
  Non-contributory
    Income support and pension credit                 867            1 177             612              479              352              153               68               27               13                -      375
    Child benefit                                     669              845             712              698              551              494              401              430              303              288      539
    Housing benefit                                 1 173            1 475             803              549              309              170               53               42               53               10      464
    Job seeker’s allowance (Income based)             189              108              58               15                0                1                -                -                -                -       37
    Carer’s allowance                                  53               94             162              110               74               63               17                6               16                5       60
    Attendance allowance                                -               18              14               23               14                8                -                7                -                8        9
    Disability living allowance                       279              266             460              514              385              358              200              102               83               20      267
    War pensions/War widows’ pensions                   -                7               -                -                0               55                3                3               17                -        9
    Severe disablement allowance                        2               37              29               24               65               14               13               18                3                -       20
    Industrial injury disablement benefit               2                7               5               22               31               16               18               23               34                -       16
    Student support                                   108              169             173              100               64               49               93               63                9                2       83
    Government training schemes                         6               12              17                1                1                3                -                2                -                1        4
    Tax credits1                                      936            1 389             861              498              265              218               84               69               52                -      437
    Other non-contributory benefits                    33               99              77               74               48               92               56               27               26               35       57
Total cash benefits                                 5 091            6 877            5 167            4 464            2 920            2 599            1 969            1 568            1 303             923     3 288
Gross income                                        9 889        17 082           23 622           29 636           34 160           39 087           45 402           52 296           60 768         101 828       41 377
Direct taxes and Employees’ NIC
   Income tax                                         378            1 144            2 337            3 412            4 360            5 230         6 541            8 096           10 141           20 563       6 220
      less: Tax credits2                               75              250              437              351              295              265           181              131               44               59         209
   Employees’ NI contributions                        163              542            1 057            1 563            1 955            2 352         2 803            3 219            3 586            4 099       2 134
   Council tax and Northern Ireland rates3            893            1 013            1 060            1 059            1 131            1 126         1 192            1 262            1 263            1 482       1 148
      less: Council tax benefit/Rates rebates         352              333              160              119               62               43            20                6                5                7         111
   Total                                            1 006            2 116            3 858            5 565            7 089            8 400        10 335           12 440           14 941           26 078       9 183
Disposable income                                   8 882        14 966           19 765           24 071           27 071           30 687           35 067           39 856           45 827           75 750      32 194
Equivalised disposable income                       7 378        12 784           16 232           19 279           22 477           25 708           29 615           35 366           44 398           74 425      28 766
Indirect taxes
   Taxes on final goods and services
      VAT                                           1 335            1 436            1 770            1 913            2 190            2 399            2 467            2 891            3 060            3 912    2 337
      Duty on tobacco                                 371              391              417              469              433              364              324              274              219              143      341
      Duty on beer and cider                           86               82              115              128              152              176              158              167              185              166      141
      Duty on wines & spirits                         110               89              141              129              165              199              184              231              273              339      186
      Duty on hydrocarbon oils                        307              375              473              530              645              624              661              739              676              682      571
      Vehicle excise duty                              81              103              129              140              163              164              184              196              187              203      155
      Television licences                             125              127              127              130              132              130              127              131              130              132      129
      Stamp duty on house purchase                     69               92              136              118              168              191              191              302              356              703      233
      Customs duties                                   23               23               25               28               30               31               32               35               37               50       31
      Betting taxes                                    23               25               30               48               38               42               59               34               32               45       37
      Insurance premium tax                            23               29               36               41               49               53               57               58               60               89       49
      Air passenger duty                               13               38               31               40               42               48               61               68               75              165       58
      Camelot National Lottery Fund                    35               37               51               65               55               62               61               50               51               31       50
      Other                                            13               12               11               18               35               26               23               14               18               35       20
  Intermediate taxes
     Commercial and industrial rates                  201             203              224              245              265              274              280              310              326              441      277
     Employers’ NI contributions                      375             379              418              457              494              510              523              579              607              822      516
     Duty on hydrocarbon oils                         126             128              141              154              167              172              176              195              205              277      174
     Vehicle excise duty                               10              10               11               12               13               14               14               16               16               22       14
     Other                                            206             208              230              251              272              280              287              318              334              451      284
Total indirect taxes                                3 533            3 788            4 515            4 916            5 506            5 759            5 869            6 608            6 844            8 709    5 605
Post-tax income                                     5 350       11 177           15 249           19 155           21 565           24 928           29 198           33 249           38 983           67 042       26 590
Benefits in kind
    Education                                       5 982            4 538            4 256            3 936            3 153            3 046            2 617            1 958            1 377            1 070    3 193
    National health service                         2 712            3 028            3 096            3 177            2 711            2 764            2 803            2 815            2 424            2 388    2 792
    Housing subsidy                                    46               46               27               24               16               11                7                4                3                2       19
    Rail travel subsidy                                20               12               25               37               21               48               75               60               89              191       58
    Bus travel subsidy                                 52               45               63               55               57               45               48               52               44               97       56
    School meals and welfare milk                      96              116               43               38               17                9                5                3                1                0       33
     Total                                          8 909            7 785            7 509            7 268            5 975            5 924            5 556            4 893            3 937            3 748    6 151
Final income                                       14 259        18 963           22 758           26 423           27 540           30 853           34 754           38 141           42 920           70 790      32 740

Notes:
1 Child tax credit and working tax credit.
2 Including tax relief at source on life assurance premiums.
3 Council tax and Northern Ireland rates after deducting discounts.



                                                                                                                                                                       Office for National Statistics                  17
The effects of taxes and benefits on household income, 2007/08


Table 16A (Appendix 1)
Average incomes, taxes and benefits by quintile groups of NON-RETIRED households, 2007/08
                                                           Quintile groups of non-retired households ranked by equivalised disposable income
                                                                                                                                                            All
                                                        Bottom                 2nd                 3rd                  4th                    Top   households
Average per household (£ per year)
Quintile points (equivalised £)                                   14 505             20 915               27 549              39 183
Number of households in the population (‘000s)            3 727              3 726                3 730               3 732                3 730         18 645
Original income
  Wages and salaries                                      5 738             18 612               29 529              40 628              62 516          31 404
  Imputed income from benefits in kind                        9                 80                  263                 450               1 219             404
  Self-employment income                                  1 084              1 974                2 396               3 558              11 434           4 089
  Occupational pensions, annuities                          259                586                  971               1 235               1 982           1 007
  Investment income                                         156                277                  510                 879               2 851             935
  Other income                                              256                285                  195                 331                 183             250
  Total                                                   7 502             21 814               33 864              47 081              80 185          38 089
Direct benefits in cash
   Contributory
     Retirement pension                                    321                 714                 578                  639                    455         542
     Job seeker’s allowance (Contribution based)            70                  40                   5                    1                      2          24
     Incapacity benefit                                    521                 428                 192                   69                     30         248
     Widows’ benefits                                       49                  28                  12                    3                     11          21
     Statutory Maternity Pay/Allowance                      15                  61                  45                  144                    126          78
  Non-contributory
    Income support and pension credit                     1 022                545                 252                   48                      7         375
    Child benefit                                           757                705                 522                  416                    295         539
    Housing benefit                                       1 324                676                 239                   47                     31         464
    Job seeker’s allowance (Income based)                   148                 36                   1                    -                      -          37
    Carer’s allowance                                        73                136                  68                   12                     11          60
    Attendance allowance                                      9                 18                  11                    3                      4           9
    Disability living allowance                             272                487                 372                  151                     51         267
    War pensions/War widows’ pensions                         3                  -                  28                    3                      9           9
    Severe disablement allowance                             19                 27                  39                   16                      1          20
    Industrial injury disablement benefit                     5                 14                  24                   21                     17          16
    Student support                                         138                136                  56                   78                      6          83
    Government training schemes                               9                  9                   2                    1                      0           4
    Tax credits1                                          1 162                679                 242                   76                     26         437
    Other non-contributory benefits                          66                 75                  70                   41                     31          57
Total cash benefits                                       5 984              4 816                2 759               1 768                1 113          3 288
Gross income                                             13 485             26 629               36 624              48 849              81 298          41 377
Direct taxes and Employees’ NIC
   Income tax                                               761              2 875                4 795               7 318              15 352           6 220
      less: Tax credits2                                    162                394                  280                 156                  51             209
   Employees’ NI contributions                              353              1 310                2 153               3 011               3 842           2 134
   Council tax and Northern Ireland rates3                  953              1 060                1 129               1 227               1 372           1 148
      less: Council tax benefit/Rates rebates               343                140                   52                  13                   6             111
   Total                                                  1 561              4 711                7 744              11 387              20 510           9 183
Disposable income                                        11 924             21 918               28 879              37 462              60 789          32 194
Equivalised disposable income                            10 081             17 756               24 093              32 490              59 411          28 766
Indirect taxes
   Taxes on final goods and services
      VAT                                                 1 386              1 841                2 295               2 679                3 486          2 337
      Duty on tobacco                                       381                443                  399                 299                  181            341
      Duty on beer and cider                                 84                121                  164                 163                  176            141
      Duty on wines & spirits                                99                135                  182                 208                  306            186
      Duty on hydrocarbon oils                              341                501                  635                 700                  679            571
      Vehicle excise duty                                    92                134                  163                 190                  195            155
      Television licences                                   126                128                  131                 129                  131            129
      Stamp duty on house purchase                           81                127                  180                 246                  529            233
      Customs duties                                         23                 27                   30                  33                   43             31
      Betting taxes                                          24                 39                   40                  46                   38             37
      Insurance premium tax                                  26                 38                   51                  57                   74             49
      Air passenger duty                                     25                 35                   45                  64                  120             58
      Camelot National Lottery Fund                          36                 58                   58                  56                   41             50
      Other                                                  12                 15                   30                  18                   27             20
  Intermediate taxes
     Commercial and industrial rates                       202                 235                 269                  295                    383         277
     Employers’ NI contributions                           377                 437                 502                  551                    714         516
     Duty on hydrocarbon oils                              127                 147                 169                  186                    241         174
     Vehicle excise duty                                    10                  12                  14                   15                     19          14
     Other                                                 207                 240                 276                  303                    393         284
Total indirect taxes                                      3 661              4 716                5 633               6 239                7 776          5 605
Post-tax income                                           8 263             17 202               23 247              31 223              53 012          26 590
Benefits in kind
    Education                                             5 260              4 096                3 100               2 287                1 223          3 193
    National health service                               2 870              3 137                2 738               2 809                2 406          2 792
    Housing subsidy                                          46                 26                   14                   6                    3             19
    Rail travel subsidy                                      16                 31                   34                  68                  140             58
    Bus travel subsidy                                       49                 59                   51                  50                   70             56
    School meals and welfare milk                           106                 40                   13                   4                    1             33
    Total                                                 8 347              7 388                5 950               5 224                3 843          6 151
Final income                                             16 611             24 591               29 196              36 448              56 855          32 740

Notes:
1 Child tax credit and working tax credit.
2 Including tax relief at source on life assurance premiums.
3 Council tax and Northern Ireland rates after deducting discounts.



18          Office for National Statistics
                                                                                      The effects of taxes and benefits on household income, 2007/08


Table 17 (Appendix 1)
Household characteristics of decile groups of NON-RETIRED households, 2007/08
                                                         Decile groups of non-retired households ranked by equivalised disposable income                      All
                                                                                                                                                           house-
                                                Bottom   2nd        3rd         4th        5th        6th        7th        8th            9th    Top       holds
Average per household (number)

People                                             2.8    2.9        2.9        3.0         2.8       2.7         2.7        2.6           2.2    2.2         2.7

  Adults                                           1.9    1.8        2.0        2.1         2.1       2.1         2.1        2.0           1.9    1.8         2.0
    Men                                            0.9    0.8        1.0        1.0         1.1       1.1         1.1        1.0           1.0    1.0         1.0
    Women                                          1.0    1.0        1.0        1.0         1.0       1.0         1.0        1.0           0.9    0.8         1.0
  Children                                         0.9    1.1        0.9        0.9         0.7       0.6         0.5        0.5           0.4    0.4         0.7

Economically active people                         0.9    1.0        1.4        1.6         1.8       1.9         1.9        1.9           1.7    1.7         1.6
Retired people                                     0.1    0.1        0.1        0.1         0.1       0.1         0.1        0.1           0.1    0.0         0.1

People in full-time education                     1.07   0.97       0.85       0.79        0.63      0.60        0.50       0.43       0.29      0.29        0.64

  In state primary schools                        0.35   0.50       0.39       0.39        0.27      0.23        0.20       0.22       0.13      0.15        0.28
  In state secondary schools                      0.31   0.31       0.30       0.26        0.20      0.23        0.18       0.14       0.10      0.07        0.21
  In further and higher education                 0.40   0.13       0.13       0.11        0.12      0.12        0.11       0.05       0.04      0.02        0.12
  In other educational establishments             0.01   0.03       0.04       0.03        0.04      0.01        0.01       0.02       0.02      0.05        0.03

Composition (percentages)

Household type

Non-retired

  1 adult                                           28    20         15          14         15         14         18         16            23      24         19
     1 adult men                                    18    10          9           8          8          6         10         10            13      17         11
     1 adult women                                  10    10          6           6          7          8          8          6            10       7          8
  2 adults                                          18    18         24          22         31         32         34         39            45      49         31
  3 or more adults                                   8     5         11          13         13         15         17         10             8       4         10
  1 adult with children                             16    21         13          11          4          4          3          2             2       1          8
  2 adults with 1 child                              8     7         10           9         13         13          9         12             9       8         10
  2 adults with 2 children                           7    11         13          16         14         12         12         11            10      10         12
  2 adults with 3 or more children                   7     8          7           6          3          3          2          3             1       2          4
  3 or more adults with children                     8     8          7           9          7          7          5          5             2       1          6

Household tenure

Rented                                              62    59         42          38         35         23         21         11            10       8         31

  Local authority rented                            30    24         17          11          9          5          3          2             1       0         10
  Housing association or RSL                        12    17          9          10          6          3          3          2             1       0          6
  Other rented unfurnished                           7    11          8           9         12          7          7          3             4       3          7
  Rented furnished                                  13     6          8           6          7          6          7          3             4       4          6
  Rent free                                          0     1          1           1          1          2          2          1             0       1          1

Owner occupied                                      38    41         58          62         65         77         79         89            90      92         69

  With mortgage                                     23    26         39          45         46         59         59         71            69      71         51
  Rental purchase                                    -     0          0           1          1          1          0          1             0       -          0
  Owned outright                                    15    14         18          17         18         18         19         17            20      21         18

Age of chief economic supporter

Under 25                                            16     9          4           6          5          5          4          0             3       0          5
Over 24 and under 35                                15    18         17          14         18         21         21         25            22      25         20
Over 34 and under 45                                28    30         31          29         27         24         23         26            29      29         28
Over 44 and under 55                                26    22         19          28         27         26         28         25            25      24         25
Over 54 and under 65                                13    17         23          17         21         19         19         19            18      19         19
Over 64 and under 75                                 2     1          4           5          2          4          4          3             2       3          3
Over 74                                              0     2          2           3          1          1          1          1             1       0          1

Employment status of chief economic supporter

Self-employed                                       11    10         11           8          9          7          7         10            12      18         10
Full-time employee                                  10    31         48          59         72         78         80         80            81      77         62
Part-time employee                                  19    17         18          14          7          8          9          7             5       5         11
Unemployed                                          10     5          2           1          2          0          0          1             1       -          2
Unoccupied and under minimum NI age                 49    36         18          13          8          5          2          1             0       0         13
Retired/unoccupied over minimum NI age               1     2          3           5          3          1          2          1             1       0          2
Other                                                1     0          -           1          -          -          -          -             -       -          0




                                                                                                                          Office for National Statistics      19
The effects of taxes and benefits on household income, 2007/08


Table 17A (Appendix 1)
Household characteristics of quintile groups of NON-RETIRED households, 2007/08
                                                   Quintile groups of non-retired households ranked by equivalised disposable income
                                                                                                                                                     All
                                                Bottom                 2nd                 3rd                  4th                    Top    households
Average per household (number)

People                                             2.8                 2.9                  2.7                 2.6                     2.2          2.7

  Adults                                           1.8                 2.0                  2.1                 2.1                     1.8          2.0
    Men                                            0.8                 1.0                  1.1                 1.1                     1.0          1.0
    Women                                          1.0                 1.0                  1.0                 1.0                     0.9          1.0
  Children                                         1.0                 0.9                  0.6                 0.5                     0.4          0.7

Economically active people                         0.9                 1.5                  1.8                 1.9                     1.7          1.6
Retired people                                     0.1                 0.1                  0.1                 0.1                     0.1          0.1

People in full-time education                     1.02                0.82                 0.61                0.47                    0.29         0.64

  In state primary schools                        0.42                0.39                 0.25                0.21                    0.14         0.28
  In state secondary schools                      0.31                0.28                 0.22                0.16                    0.09         0.21
  In further and higher education                 0.26                0.12                 0.12                0.08                    0.03         0.12
  In other educational establishments             0.02                0.03                 0.02                0.01                    0.04         0.03

Composition (percentages)

Household type

Non-retired

  1 adult                                           24                  14                  15                   17                     24           19
     1 adult men                                    14                   9                   7                   10                     15           11
     1 adult women                                  10                   6                   8                    7                      8            8
  2 adults                                          18                  23                  31                   37                     47           31
  3 or more adults                                   7                  12                  14                   14                      6           10
  1 adult with children                             18                  12                   4                    3                      2            8
  2 adults with 1 child                              8                  10                  13                   11                      8           10
  2 adults with 2 children                           9                  15                  13                   11                     10           12
  2 adults with 3 or more children                   7                   6                   3                    2                      2            4
  3 or more adults with children                     8                   8                   7                    5                      1            6

Household tenure

Rented                                              61                  40                  29                   16                      9           31

  Local authority rented                            27                  14                   7                    2                      1           10
  Housing association or RSL                        14                  10                   5                    2                      1            6
  Other rented unfurnished                           9                   9                  10                    5                      3            7
  Rented furnished                                  10                   7                   6                    5                      4            6
  Rent free                                          0                   1                   2                    2                      1            1

Owner occupied                                      39                  60                  71                   84                     91           69

  With mortgage                                     24                  42                  52                   65                     70           51
  Rental purchase                                    0                   0                   1                    1                      0            0
  Owned outright                                    15                  18                  18                   18                     21           18

Age of chief economic supporter

Under 25                                            13                   5                   5                    2                      2            5
Over 24 and under 35                                17                  15                  20                   23                     23           20
Over 34 and under 45                                29                  30                  25                   25                     29           28
Over 44 and under 55                                24                  24                  26                   26                     25           25
Over 54 and under 65                                15                  20                  20                   19                     18           19
Over 64 and under 75                                 2                   4                   3                    4                      3            3
Over 74                                              1                   2                   1                    1                      1            1

Employment status of chief economic supporter

Self-employed                                       10                   9                   8                    9                     15           10
Full-time employee                                  20                  53                  75                   80                     79           62
Part-time employee                                  18                  16                   8                    8                      5           11
Unemployed                                           7                   1                   1                    1                      0            2
Unoccupied and under minimum NI age                 42                  16                   7                    1                      0           13
Retired/unoccupied over minimum NI age               1                   4                   2                    2                      1            2
Other                                                0                   0                   -                    -                      -            0




20            Office for National Statistics
                                                                                                               The effects of taxes and benefits on household income, 2007/08


Table 18 (Appendix 1)
Average incomes, taxes and benefits by decile groups of RETIRED households, 2007/08
                                                                        Decile groups of retired households ranked by equivalised disposable income                                                                     All
                                                                                                                                                                                                                     house-
                                                   Bottom             2nd              3rd              4th              5th              6th              7th              8th              9th              Top     holds
Average per household (£ per year)

Decile points (equivalised £)                               9 698            11 662           13 322           15 182           16 792           18 467           20 538           23 767           29 353
Number of households in the population (‘000s)        662             665              664              665              664              663              664              665              665              666     6 643
Original income
  Wages and salaries                                   23               40              159               84              300              623              203           869              488            1 368         416
  Imputed income from benefits in kind                  -                -                -                -                -                -                -             5                -                -           1
  Self-employment income                               47                -                -                -               20                -                -             -               91              150          31
  Occupational pensions, annuities                    711            1 250            1 978            2 938            3 673            4 794            6 162         8 073            9 828           24 404       6 381
  Investment income                                   447              470              652              312              465              636              996         1 137            2 275           11 238       1 863
  Other income                                          0               86              147               66               95              112              109           172              112               17          91
  Total                                             1 228            1 846            2 936            3 399            4 553            6 165            7 470        10 255           12 794           37 177       8 782
Direct benefits in cash
   Contributory
     Retirement pension                             5 096            6 455            6 686            6 902            6 909            6 637            7 129            6 917            6 625            7 055    6 641
     Job seeker’s allowance (Contribution based)       38                -               19                -                -               28                -                -                -                0        9
     Incapacity benefit                                24               60              228              127              192               61               41              141               30               42       95
     Widows’ benefits                                  26               28                -               32               70                -               10                -               27              119       31
     Statutory Maternity Pay/Allowance                  -                -                -                -                -                -                -                -                -                -        -
  Non-contributory
    Income support and pension credit                 278             491              458              657              544               630             580              405              851              102      500
    Child benefit                                      29               -               19                8               13                13               8                1                8                -       10
    Housing benefit                                   122             176              532              789              910             1 064             884              628              895              119      612
    Job seeker’s allowance (Income based)              19               -               20                -                -                 -              21                -                -                -        6
    Carer’s allowance                                   -              50               28               58              100                55              13               63               34               38       44
    Attendance allowance                                -              46               90              170              151               115             234              261              272              115      145
    Disability living allowance                        20             137              188              321              463               703             589              720              634              372      415
    War pensions/War widows’ pensions                   9              38               19               47              140                53              34              124              360              179      100
    Severe disablement allowance                        -               2               15               23               24                19              85               89               62                -       32
    Industrial injury disablement benefit               -              25                2                -                -                56              25               92               78               28       30
    Student support                                     -              10                -               13                -                 -               8                2                -                -        3
    Government training schemes                         0               -                2                -                -                 -               -                -                -                -        0
    Tax credits1                                       26               -               47                -                -                 -               -                2                -               22       10
    Other non-contributory benefits                   246             253              243              273              281               254             240              258              274              299      262
Total cash benefits                                 5 934            7 771            8 596            9 419            9 796            9 689            9 901            9 704        10 150               8 491    8 945
Gross income                                        7 162            9 617        11 532           12 819           14 349           15 854           17 371           19 959           22 943           45 668      17 727
Direct taxes and Employees’ NIC
   Income tax                                         155              148              283              452              603              792            1 021            1 550            1 997            7 813    1 481
      less: Tax credits2                                3                2                2                2                1                6                3                3                1                1        2
   Employees’ NI contributions                         17                -                3                2               19               43                6               37               28              110       27
   Council tax and Northern Ireland rates3          1 138            1 081            1 083            1 010            1 029              997            1 088            1 082            1 162            1 555    1 122
      less: Council tax benefit/Rates rebates         158              316              311              352              331              316              263              170              240               29      249
   Total                                            1 149              911            1 057            1 109            1 319            1 511            1 849            2 495            2 945            9 448    2 379
Disposable income                                   6 014            8 706        10 476           11 709           13 030           14 343           15 521           17 464           19 998           36 220      15 348
Equivalised disposable income                       7 126           10 766        12 485           14 319           15 974           17 634           19 500           22 111           26 329           42 932      18 918
Indirect taxes
   Taxes on final goods and services
      VAT                                           1 132             772              977              894              986             1 119            1 094            1 436            1 450            2 435    1 229
      Duty on tobacco                                 120             101              227              191              283               166              135              146              117              102      159
      Duty on beer and cider                           37              32               55               38               56                52               32               67               42               66       48
      Duty on wines & spirits                         115              78               67               92              110               123               70              135              107              228      112
      Duty on hydrocarbon oils                        244             160              184              166              183               196              197              224              221              451      223
      Vehicle excise duty                             101              74               71               80               71                75               87               86               98              181       92
      Television licences                              69              49               58               63               69                77               58               59               60               76       64
      Stamp duty on house purchase                    119              70               74               49               57                51               68               79              124              325      102
      Customs duties                                   16              13               15               15               16                17               17               20               21               32       18
      Betting taxes                                    18              25               30               32               36                52               29               31               19               40       31
      Insurance premium tax                            28              22               22               23               25                27               47               32               39               93       36
      Air passenger duty                               15               5               13               30               38                21               24               48               38              153       39
      Camelot National Lottery Fund                    29              42               51               46               65                55               44               54               35               40       46
      Other                                             2               0               19                4                7                 4                7               12                1                4        6
  Intermediate taxes
     Commercial and industrial rates                  141             114              131              129              143              150              152              174              186              282      160
     Employers’ NI contributions                      264             212              244              241              267              279              283              325              346              525      299
     Duty on hydrocarbon oils                          89              71               82               81               90               94               95              110              117              177      101
     Vehicle excise duty                                7               6                7                6                7                8                8                9                9               14        8
     Other                                            145             116              134              132              147              153              155              179              190              289      164
Total indirect taxes                                2 691            1 962            2 463            2 311            2 657            2 719            2 602            3 226            3 218            5 510    2 936
Post-tax income                                     3 323            6 743            8 013            9 399       10 373           11 624           12 919           14 238           16 780           30 710       12 412
Benefits in kind
    Education                                         349               59              362              132               52               41              132               69               88                -      128
    National health service                         5 021            5 822            5 604            5 336            5 154            4 790            5 346            5 307            5 123            5 132    5 264
    Housing subsidy                                    15               15               24               36               35               38               31               30               27                5       26
    Rail travel subsidy                                 6                2                4                5                6                4                5                6                6               30        7
    Bus travel subsidy                                103              118              114              127              109              105              115              110               93              100      109
    School meals and welfare milk                       3                -                -                2                2                -                2                -                -                -        1
     Total                                          5 496            6 015            6 108            5 639            5 358            4 979            5 629            5 522            5 336            5 267    5 535
Final income                                        8 819           12 759        14 120           15 037           15 731           16 603           18 549           19 760           22 116           35 977      17 947

Notes:
1 Child tax credit and working tax credit.
2 Including tax relief at source on life assurance premiums.
3 Council tax and Northern Ireland rates after deducting discounts.




                                                                                                                                                                       Office for National Statistics                  21
The effects of taxes and benefits on household income, 2007/08


Table 18A (Appendix 1)
Average incomes, taxes and benefits by quintile groups of RETIRED households, 2007/08
                                                             Quintile groups of retired households ranked by equivalised disposable income
                                                                                                                                                             All
                                                       Bottom                 2nd                  3rd                  4th                    Top    households
Average per household (£ per year)

Quintile points (equivalised £)                                  11 662              15 182               18 467               23 767
Number of households in the population (‘000s)           1 327               1 329                1 328               1 329                   1 331        6 643
Original income
  Wages and salaries                                        32                 122                  461                 536                     928          416
  Imputed income from benefits in kind                       -                   -                    -                   3                       -            1
  Self-employment income                                    23                   -                   10                   -                     120           31
  Occupational pensions, annuities                         981               2 458                4 234               7 118                  17 116        6 381
  Investment income                                        459                 482                  550               1 067                   6 756        1 863
  Other income                                              43                 106                  104                 140                      64           91
  Total                                                  1 537               3 168                5 359               8 863                  24 985        8 782
Direct benefits in cash
   Contributory
     Retirement pension                                  5 776               6 794                6 773               7 023                   6 840        6 641
     Job seeker’s allowance (Contribution based)            19                   9                   14                   -                       0            9
     Incapacity benefit                                     42                 177                  127                  91                      36           95
     Widows’ benefits                                       27                  16                   35                   5                      73           31
     Statutory Maternity Pay/Allowance                       -                   -                    -                   -                       -            -
   Non-contributory
    Income support and pension credit                      385                 557                 587                  493                    476          500
    Child benefit                                           14                  13                  13                    4                      4           10
    Housing benefit                                        149                 660                 987                  756                    507          612
    Job seeker’s allowance (Income based)                   10                  10                   -                   10                      -            6
    Carer’s allowance                                       25                  43                  78                   38                     36           44
    Attendance allowance                                    23                 130                 133                  248                    193          145
    Disability living allowance                             79                 255                 583                  654                    503          415
    War pensions/War widows’ pensions                       24                  33                  97                   79                    269          100
    Severe disablement allowance                             1                  19                  21                   87                     31           32
    Industrial injury disablement benefit                   12                   1                  28                   58                     53           30
    Student support                                          5                   6                   -                    5                      -            3
    Government training schemes                              0                   1                   -                    -                      -            0
    Tax credits1                                            13                  24                   -                    1                     11           10
    Other non-contributory benefits                        249                 258                 267                  249                    286          262
Total cash benefits                                      6 853               9 008                9 743               9 802                   9 320        8 945
Gross income                                             8 390              12 176               15 102              18 665                  34 306       17 727
Direct taxes and Employees’ NIC
   Income tax                                              151                 367                  698               1 285                   4 905        1 481
      less: Tax credits2                                     3                   2                    3                   3                       1            2
   Employees’ NI contributions                               8                   3                   31                  22                      69           27
   Council tax and Northern Ireland rates3               1 109               1 046                1 013               1 085                   1 358        1 122
      less: Council tax benefit/Rates rebates              237                 331                  323                 217                     135          249
   Total                                                 1 030               1 083                1 415               2 172                   6 196        2 379
Disposable income                                        7 360              11 092               13 687              16 493                  28 109       15 348
Equivalised disposable income                            8 946              13 402               16 804              20 806                  34 630       18 918
Indirect taxes
   Taxes on final goods and services
      VAT                                                  952                 935                1 053               1 265                   1 942        1 229
      Duty on tobacco                                      111                 209                  224                 141                     109          159
      Duty on beer and cider                                35                  46                   54                  50                      54           48
      Duty on wines & spirits                               96                  79                  116                 103                     168          112
      Duty on hydrocarbon oils                             202                 175                  190                 211                     336          223
      Vehicle excise duty                                   87                  75                   73                  86                     139           92
      Television licences                                   59                  60                   73                  58                      68           64
      Stamp duty on house purchase                          95                  61                   54                  73                     225          102
      Customs duties                                        14                  15                   17                  18                      26           18
      Betting taxes                                         21                  31                   44                  30                      29           31
      Insurance premium tax                                 25                  23                   26                  40                      66           36
      Air passenger duty                                    10                  21                   30                  36                      95           39
      Camelot National Lottery Fund                         36                  49                   60                  49                      37           46
      Other                                                  1                  11                    5                   9                       2            6
  Intermediate taxes
     Commercial and industrial rates                       127                 130                 146                  163                    234          160
     Employers’ NI contributions                           238                 243                 273                  304                    436          299
     Duty on hydrocarbon oils                               80                  82                  92                  102                    147          101
     Vehicle excise duty                                     6                   7                   7                    8                     12            8
     Other                                                 131                 133                 150                  167                    239          164
Total indirect taxes                                     2 327               2 387                2 688               2 914                   4 364        2 936
Post-tax income                                          5 033               8 706               10 999              13 579                  23 745       12 412
Benefits in kind
    Education                                              204                 247                   47                 100                      44          128
    National health service                              5 421               5 470                4 972               5 327                   5 128        5 264
    Housing subsidy                                         15                  30                   37                  30                      16           26
    Rail travel subsidy                                      4                   5                    5                   5                      18            7
    Bus travel subsidy                                     110                 120                  107                 112                      96          109
    School meals and welfare milk                            1                   1                    1                   1                       -            1
    Total                                                5 756               5 873                5 168               5 576                   5 301        5 535
Final income                                            10 789              14 579               16 167              19 154                  29 046       17 947

Notes:
1 Child tax credit and working tax credit.
2 Including tax relief at source on life assurance premiums.
3 Council tax and Northern Ireland rates after deducting discounts.




22         Office for National Statistics
                                                                                      The effects of taxes and benefits on household income, 2007/08


Table 19 (Appendix 1)
Household characteristics of decile groups of RETIRED households, 2006/07
                                                           Decile groups of retired households ranked by equivalised disposable income                        All
                                                                                                                                                           house-
                                                Bottom   2nd        3rd         4th        5th        6th        7th         8th         9th      Top       holds
Average per household (number)

People                                             1.6    1.5        1.6        1.5         1.5       1.5         1.5        1.5          1.4     1.6         1.5

  Adults                                           1.5    1.5        1.5        1.5         1.5       1.5         1.5        1.5          1.4     1.6         1.5
    Men                                            0.7    0.6        0.7        0.7         0.6       0.7         0.6        0.7          0.5     0.8         0.6
    Women                                          0.8    0.9        0.9        0.9         0.9       0.8         0.8        0.8          0.9     0.8         0.9
  Children                                         0.1      -        0.1        0.0         0.0       0.0         0.0        0.0          0.0       -         0.0

Economically active people                         0.1    0.0        0.1        0.0         0.0       0.1         0.1        0.1          0.1     0.1         0.1
Retired people                                     1.3    1.4        1.4        1.4         1.4       1.4         1.4        1.3          1.3     1.5         1.4

People in full-time education                     0.07   0.01       0.06       0.02        0.01      0.01        0.02       0.01         0.02       -        0.02

Composition (percentages)

Household type

Retired

  1 adult                                           51    52         50          53         53         54         57          57          67       45         54
     1 adult men                                    16     7         14          18         15         17         16          22          14       20         16
     1 adult women                                  35    46         36          35         38         37         41          35          53       24         38
  2 or more adults                                  49    48         50          47         47         46         43          43          33       55         46

Household tenure

Rented                                              15    20         32          42         40         45         35          33          32        5         30

  Local authority rented                            11     8         18          22         16         23         16          12          13        2         14
  Housing association or RSL                         3     7         10          15         17         14         10          14          14        2         11
  Other rented unfurnished                           1     2          2           2          3          2          4           2           3        1          2
  Rented furnished                                   -     1          -           0          2          2          2           2           -        -          1
  Rent free                                          -     3          2           3          3          3          3           3           2        -          2

Owner occupied                                      85    80         68          58         60         55         65          67          68       95         70

   With mortgage                                     8     2          4           4          6          4          2           4           4       10          5
   Rental purchase                                   -     1          -           -          -          -          -           -           -        -          0
   Owned outright                                   76    76         64          54         54         51         62          63          64       85         65

Age of chief economic supporter

Under 25                                             -     -          -           -          -          -          -           -           -        -          -
Over 24 and under 35                                 2     -          -           -          -          -          -           -           -        -          0
Over 34 and under 45                                 1     -          -           -          -          -          -           -           -        -          0
Over 44 and under 55                                 2     1          -           2          -          -          1           1           -        1          1
Over 54 and under 65                                13     5          9          10         14         16         11           7          19       19         12
Over 64 and under 75                                36    35         37          43         41         46         37          42          30       38         39
Over 74                                             45    59         54          46         45         39         52          50          51       42         48

Employment status of chief economic supporter

Self-employed                                        -     -          -           -          1          -          -           -           0        -          0
Full-time employee                                   -     -          -           -          -          -          1           -           -        -          0
Part-time employee                                   -     -          1           -          1          0          1           -           -        -          0
Unemployed                                           3     -          -           -          -          1          -           -           -        -          0
Unoccupied and under minimum NI age                  9     3          4           6          7          6          4           7           7       15          7
Retired/unoccupied over minimum NI age              88    97         95          94         92         93         94          93          92       85         92




                                                                                                                          Office for National Statistics      23
The effects of taxes and benefits on household income, 2007/08


Table 19A (Appendix 1)
Household characteristics of quintile groups of RETIRED households, 2007/08
                                                     Quintile groups of retired households ranked by equivalised disposable income
                                                                                                                                                   All
                                                Bottom                2nd                  3rd                  4th                   Top   households
Average per household (number)

People                                             1.6                 1.6                 1.5                  1.5                   1.5          1.5

  Adults                                           1.5                 1.5                 1.5                  1.5                   1.5          1.5
    Men                                            0.6                 0.7                 0.6                  0.6                   0.6          0.6
    Women                                          0.9                 0.9                 0.9                  0.8                   0.9          0.9
  Children                                         0.0                 0.0                 0.0                  0.0                   0.0          0.0

Economically active people                         0.0                 0.0                 0.0                  0.1                   0.1          0.1
Retired people                                     1.4                 1.4                 1.4                  1.3                   1.4          1.4

People in full-time education                     0.04                0.04                0.01                 0.01                  0.01        0.02

Composition (percentages)

Household type

Retired

  1 adult                                          52                  52                   53                  57                    56           54
     1 adult men                                   11                  16                   16                  19                    17           16
     1 adult women                                 40                  36                   37                  38                    39           38
  2 or more adults                                 48                  48                   47                  43                    44           46

Household tenure

Rented                                             18                  37                   43                   34                   19           30

  Local authority rented                            9                  20                   20                   14                    7           14
  Housing association or RSL                        5                  13                   16                   12                    8           11
  Other rented unfurnished                          2                   2                    3                    3                    2            2
  Rented furnished                                  0                   0                    2                    2                    -            1
  Rent free                                         1                   2                    3                    3                    1            2

Owner occupied                                     82                  63                   57                   66                   81           70

  With mortgage                                     5                   4                    5                    3                    7            5
  Rental purchase                                   1                   -                    -                    -                    -            0
  Owned outright                                   76                  59                   52                   63                   74           65

Age of chief economic supporter

Under 25                                            -                   -                    -                   -                     -            -
Over 24 and under 35                                1                   -                    -                   -                     -            0
Over 34 and under 45                                1                   -                    -                   -                     -            0
Over 44 and under 55                                1                   1                    -                   1                     0            1
Over 54 and under 65                                9                   9                   15                   9                    19           12
Over 64 and under 75                               36                  40                   43                  39                    34           39
Over 74                                            52                  50                   42                  51                    46           48

Employment status of chief economic supporter

Self-employed                                       -                   -                    0                   -                     0            0
Full-time employee                                  -                   -                    -                   0                     -            0
Part-time employee                                  -                   0                    0                   1                     -            0
Unemployed                                          2                   -                    0                   -                     -            0
Unoccupied and under minimum NI age                 6                   5                    7                   6                    11            7
Retired/unoccupied over minimum NI age             93                  95                   92                  94                    88           92




24         Office for National Statistics
                                                                                                               The effects of taxes and benefits on household income, 2007/08


Table 20 (Appendix 1)
Average incomes, taxes and benefits by decile groups of NON-RETIRED households WITHOUT CHILDREN,
2007/08
                                                        Decile groups of non-retired households without children ranked by equivalised disposable income                                                                All
                                                                                                                                                                                                                     house-
                                                   Bottom             2nd              3rd              4th              5th              6th              7th              8th              9th              Top     holds
Average per household (£ per year)
Decile points (equivalised £)                               11 508           16 070           19 773           23 285           26 769           30 276           36 017           43 322           54 399
Number of households in the population (‘000s)      1 130            1 130            1 132            1 129            1 131            1 129            1 133            1 127            1 132            1 134   11 308
Original income
  Wages and salaries                                2 913         8 567           15 127           21 538           26 278           31 611           37 672           41 677           50 507           66 714      30 260
  Imputed income from benefits in kind                  -            12               55               75              141              193              315              423              904            1 487         360
  Self-employment income                              716         1 569            1 969            2 096            1 947            2 126            2 375            3 966            5 298           18 011       4 007
  Occupational pensions, annuities                    316           573            1 152            1 397            1 451            1 710            1 672            1 357            2 213            3 309       1 515
  Investment income                                   187           352              366              368              502              594              946            1 117            1 676            4 212       1 032
  Other income                                        386           144              363               80              102              268              158               70              125              132         183
  Total                                             4 518        11 216           19 032           25 555           30 421           36 504           43 138           48 610           60 722           93 864      37 358
Direct benefits in cash
   Contributory
     Retirement pension                               283             977             1 401             936             1 002            1 101             723              787              494              503      821
     Job seeker’s allowance (Contribution based)       79              63                55              13                 5                3               1                1                7                -       23
     Incapacity benefit                               573             756               637             327               186              164              40               16               52               24      278
     Widows’ benefits                                  34              74                28              23                18                -               -                -                2                -       18
     Statutory Maternity Pay/Allowance                  -               -                 -               -                 -                -               -                -                -                1        0
  Non-contributory
    Income support and pension credit                 561              714             524              344              386              125               48               19                3                -      272
    Child benefit                                       8               12              13               22               21               11               11                -               16                4       12
    Housing benefit                                   918            1 059             552              273              257              123               69               84                2               15      335
    Job seeker’s allowance (Income based)             218              144              15                3                2                -                -                -                -                -       38
    Carer’s allowance                                  41               44             113               66               29               31               13               12                2                -       35
    Attendance allowance                                -               13              47               24               14                -                -               11                -               12       12
    Disability living allowance                       276              350             599              421              451              319               94               84               16               15      263
    War pensions/War widows’ pensions                   -                7               -                -               74                4                5                -               19                -       11
    Severe disablement allowance                        3               66              26               90               38                7               18               11                5                -       26
    Industrial injury disablement benefit               -               11              46               52               20               15               38               19               37                -       24
    Student support                                    59              101             108               15               17               84               69                5                4                -       46
    Government training schemes                         9                2              17                2                3                -                -                2                -                1        4
    Tax credits1                                       49               60              86                6               40               10                -                -                -                -       25
    Other non-contributory benefits                    33              119             124               67              103               88               37               34               29               49       68
Total cash benefits                                 3 146            4 573            4 388            2 682            2 665            2 085            1 165            1 086             686              625     2 310
Gross income                                        7 664        15 788           23 420           28 237           33 086           38 589           44 304           49 696           61 409           94 489      39 668
Direct taxes and Employees’ NIC
   Income tax                                         370            1 301            2 424            3 372            3 999            5 309         6 574            7 682           10 233           19 208       6 047
      less: Tax credits2                               14               19               60               38               33               16             9                2               14                7          21
   Employees’ NI contributions                        148              552            1 005            1 504            1 905            2 372         2 904            3 326            3 825            3 738       2 128
   Council tax and Northern Ireland rates3            836              982            1 072            1 060            1 055            1 108         1 193            1 162            1 250            1 396       1 112
      less: Council tax benefit/Rates rebates         313              233              164               74               71               44             7                6                6                6          93
   Total                                            1 027            2 583            4 277            5 824            6 855            8 730        10 655           12 162           15 288           24 330       9 173
Disposable income                                   6 636        13 205           19 143           22 413           26 231           29 859           33 648           37 534           46 121           70 159      30 495
Equivalised disposable income                       7 204        13 879           18 071           21 652           24 984           28 354           32 912           39 462           48 428           79 376      31 432
Indirect taxes
   Taxes on final goods and services
      VAT                                           1 197            1 286            1 588            1 918            2 133            2 088            2 410            2 514            2 944            3 775    2 185
      Duty on tobacco                                 285              397              450              427              460              328              367              306              160              141      332
      Duty on beer and cider                          112              120              107              165              215              192              167              186              172              180      162
      Duty on wines & spirits                         146              115              146              160              245              221              199              269              261              339      210
      Duty on hydrocarbon oils                        213              374              451              536              617              650              656              602              670              621      539
      Vehicle excise duty                              77               98              125              148              146              169              190              166              194              184      150
      Television licences                             122              119              121              128              129              123              131              129              130              133      127
      Stamp duty on house purchase                     66              104               85              115              151              142              194              231              369              615      207
      Customs duties                                   21               20               23               27               28               28               30               32               35               45       29
      Betting taxes                                    24               26               49               46               44               62               48               32               35               27       39
      Insurance premium tax                            20               29               34               41               52               51               53               52               63               84       48
      Air passenger duty                               17               31               39               59               48               56               52               77               84              192       65
      Camelot National Lottery Fund                    33               44               71               70               71               61               57               56               46               28       54
      Other                                            18               20               16               10               31               19               16                2               21               43       19
  Intermediate taxes
     Commercial and industrial rates                  183             177              205              235              247              245              262              283              306              399      254
     Employers’ NI contributions                      341             330              383              438              461              457              488              528              570              745      474
     Duty on hydrocarbon oils                         115             111              129              147              155              154              164              178              192              251      160
     Vehicle excise duty                                9               9               10               12               12               12               13               14               15               20       13
     Other                                            187             181              211              241              253              251              268              290              313              409      260
Total indirect taxes                                3 185            3 591            4 243            4 921            5 500            5 307            5 764            5 948            6 580            8 230    5 327
Post-tax income                                     3 452            9 614       14 901           17 492           20 731           24 552           27 884           31 586           39 541           61 929       25 168
Benefits in kind
    Education                                       3 085              660              865              358              558              688              378                -               33               92      672
    National health service                         1 738            2 110            2 581            2 226            2 239            2 241            2 185            1 933            1 896            1 718    2 087
    Housing subsidy                                    36               27               26               14               19                7                5                5                3                1       14
    Rail travel subsidy                                20               28               24               25               41               42               53               56               93              170       55
    Bus travel subsidy                                 41               50               81               65               53               52               49               62               44              104       60
    School meals and welfare milk                       -                -                -                -                -                -                -                -                -                -        -
     Total                                          4 919            2 875            3 577            2 688            2 909            3 031            2 670            2 056            2 070            2 086    2 888
Final income                                        8 371        12 489           18 478           20 180           23 640           27 583           30 553           33 642           41 611           64 015      28 056

Notes:
1 Child tax credit and working tax credit.
2 Including tax relief at source on life assurance premiums.
3 Council tax and Northern Ireland rates after deducting discounts.



                                                                                                                                                                      Office for National Statistics                   25
The effects of taxes and benefits on household income, 2007/08


Table 21 (Appendix 1)
Average incomes, taxes and benefits by decile groups of NON-RETIRED households WITH CHILDREN, 2007/08
                                                            Decile groups of non-retired households with children ranked by equivalised disposable income                                                               All
                                                                                                                                                                                                                     house-
                                                   Bottom             2nd              3rd              4th              5th              6th              7th              8th              9th              Top     holds
Average per household (£ per year)
Decile points (equivalised £)                               10 510           13 074           15 617           18 259           20 447           23 308           26 822           32 043           42 576
Number of households in the population (‘000s)        733             732              733              735              734              735              734              734              732              736     7 338
Original income
  Wages and salaries                                3 616            7 271        13 257           20 562           26 340           32 190           38 573           44 977           53 802          91 082       33 167
  Imputed income from benefits in kind                  9               11            59               80              131              245              656              649              866           2 007          471
  Self-employment income                            1 315            1 232           820            2 749            2 079            2 895            2 087            4 533            6 328          18 115        4 215
  Occupational pensions, annuities                     84               81            85               99              194              386              348              313              185             458          223
  Investment income                                    53               27            83              222              321              442              462              827              999           4 413          785
  Other income                                        203              256           254              309              308              327              361              811              380             326          353
  Total                                             5 280            8 879        14 558           24 022           29 374           36 485           42 489           52 109           62 560         116 401       39 216
Direct benefits in cash
   Contributory
     Retirement pension                                48              57              208              100              219              124               67              146               72               70      111
     Job seeker’s allowance (Contribution based)      123              53                6               42               22                -                2                4                -                -       25
     Incapacity benefit                               395             360              200              311              250              248              122              126                -               10      202
     Widows’ benefits                                  95              23               26               41                -                -                -                -               14               53       25
     Statutory Maternity Pay/Allowance                 19               4               88               87              186               37              132              373              472              587      198
  Non-contributory
    Income support and pension credit               1 286            1 553            1 147              459              524              305               37                -               17                -      533
    Child benefit                                   1 454            1 511            1 457            1 398            1 354            1 330            1 234            1 257            1 254            1 268    1 352
    Housing benefit                                 1 499            1 785            1 493              544              793              301              194                -                -                5      662
    Job seeker’s allowance (Income based)             146               45              107               22               31                0                -                -                -                -       35
    Carer’s allowance                                  92               63              171              274               94              133              115                -               15               29       99
    Attendance allowance                                -                -               45                -                -                -                -                -                -                -        5
    Disability living allowance                       270              289              222              520              401              366              223              221              141               75      273
    War pensions/War widows’ pensions                   -                -                7                -                -                -               28                -               14                -        5
    Severe disablement allowance                        -                3               27               14                5               41                -               23                -                -       11
    Industrial injury disablement benefit               6                -                -                -                -                -               10               24                -                -        4
    Student support                                   153              179              290              190              155              144              108               42              126                7      139
    Government training schemes                         1                3               24               17                -                0                3                -                0                -        5
    Tax credits1                                    1 903            2 589            2 262            1 235              960              614              613              236              286               21    1 072
    Other non-contributory benefits                    41               77               35               35               73               39               47               32                4                9       39
Total cash benefits                                 7 531            8 596            7 816            5 290            5 064            3 682            2 937            2 484            2 415            2 135    4 795
Gross income                                       12 811        17 475           22 374           29 312           34 438           40 168           45 426           54 593           64 975         118 535       44 011
Direct taxes and Employees’ NIC
   Income tax                                         399              879            1 739            3 113            4 252            5 421            6 377         8 217           10 598           23 872       6 487
      less: Tax credits2                              123              377              604              877              624              622              624           579              346              201         498
   Employees’ NI contributions                        182              493              869            1 522            1 937            2 420            2 794         3 227            3 591            4 396       2 143
   Council tax and Northern Ireland rates3          1 027              980              997            1 118            1 122            1 183            1 220         1 311            1 388            1 698       1 205
      less: Council tax benefit/Rates rebates         401              404              279              108              127               46               15             2                6                3         139
   Total                                            1 085            1 571            2 720            4 768            6 562            8 356            9 752        12 175           15 225           29 764       9 198
Disposable income                                  11 726        15 904           19 653           24 544           27 876           31 812           35 674           42 418           49 749           88 772      34 813
Equivalised disposable income                       7 725        11 834           14 282           16 996           19 293           21 931           25 011           29 270           36 089           64 147      24 658
Indirect taxes
   Taxes on final goods and services
      VAT                                           1 602            1 430            1 741            2 035            2 258            2 473            2 680            3 234            3 832            4 432    2 572
      Duty on tobacco                                 435              393              500              435              402              433              313              231              209              188      354
      Duty on beer and cider                           45               76               63              105              125              141              107              126              171              142      110
      Duty on wines & spirits                          71               61               87              122              123              154              140              148              240              343      149
      Duty on hydrocarbon oils                        442              339              465              537              617              720              678              687              939              786      621
      Vehicle excise duty                              92               88              121              153              164              173              177              206              216              237      163
      Television licences                             128              134              135              137              134              134              133              133              133              134      134
      Stamp duty on house purchase                     91               71              108              164              169              204              248              311              456              896      272
      Customs duties                                   26               24               27               29               32               34               35               40               43               63       35
      Betting taxes                                    24               16               32               29               38               36               41               34               28               70       35
      Insurance premium tax                            29               27               31               41               48               55               53               64               69               95       51
      Air passenger duty                               10               32               33               27               23               53               31               77               66              114       47
      Camelot National Lottery Fund                    40               27               41               48               56               37               56               49               41               42       44
      Other                                            10               13                4                5               18               54               41               18               29               28       22
  Intermediate taxes
     Commercial and industrial rates                  232             210              238              253              285              299              312              350              383               558     312
     Employers’ NI contributions                      433             392              444              472              532              557              581              652              715             1 041     582
     Duty on hydrocarbon oils                         146             132              149              159              179              188              196              220              241               351     196
     Vehicle excise duty                               12              11               12               13               14               15               16               18               19                28      16
     Other                                            238             215              244              259              292              306              319              358              393               572     320
Total indirect taxes                                4 105            3 691            4 473            5 023            5 512            6 067            6 158            6 955            8 224       10 120        6 033
Post-tax income                                     7 620       12 213           15 180           19 520           22 364           25 746           29 516           35 463           41 525           78 652       28 780
Benefits in kind
    Education                                       9 441         7 731            7 393            7 714            6 847            7 426            7 090            6 631               5 563            4 952    7 079
    National health service                         4 112         3 537            3 946            3 668            4 037            3 385            3 485            3 996               4 126            4 493    3 879
    Housing subsidy                                    60            61               48               26               19               26                6                6                   1                3       25
    Rail travel subsidy                                21             6               17               33               36               20               63              100                  78              248       62
    Bus travel subsidy                                 69            35               61               46               45               46               45               28                  32               84       49
    School meals and welfare milk                     197           210              176               68               88               46               25               17                   7                3       84
     Total                                         13 901        11 581           11 640           11 555           11 072           10 950           10 714           10 779               9 807            9 783   11 178
Final income                                       21 521        23 794           26 820           31 075           33 436           36 696           40 230           46 242           51 332           88 435      39 958

Notes:
1 Child tax credit and working tax credit.
2 Including tax relief at source on life assurance premiums.
3 Council tax and Northern Ireland rates after deducting discounts.



26          Office for National Statistics
                                                                                       The effects of taxes and benefits on household income, 2007/08


Table 22 (Appendix 1)
Distribution of households1 by household type, 2007/08
                                                              Retired households                                           Non-Retired households

                                                                                              2 or
                                                1 adult      1 adult           All           more                   1 adult       1 adult                    All
                                                   Men       Women         1 adult          adults                     Men        Women                  1 adult
Decile groups of households ranked
  by equivalised disposable income

Number of households (‘000s)

  Bottom                                           125           321            446           445                       291           177                   467
  2nd                                              107           457            564           528                       192           142                   334
  3rd                                              179           371            550           486                       137           110                   247
  4th                                              162           378            540           462                       110            86                   196
  5th                                              172           318            490           361                       151           103                   254

  6th                                              101           277            378           236                       133           140                   273
  7th                                               67           216            283           146                       155           171                   326
  8th                                               38           106            144           216                       215           167                   383
  9th                                               45            63            108           122                       267           190                   458
  Top                                               60            18             78            63                       396           187                   583

  All households in population (‘000s)           1 055         2 525           3 580         3 063                    2 048         1 473                 3 521




                                                                                   Non-Retired households

                                                                                                                    2 adults    3 or more
                                                                3 or       1 adult        2 adults      2 adults      with 3        adults                  All
                                                               more           with           with         with 2    or more           with               house-
                                               2 adults       adults      children         1 child      children    children      children                holds
Decile groups of households ranked
  by equivalised disposable income

Number of households (‘000s)

  Bottom                                           331           126            236           130            115        106           127                 2 529
  2nd                                              206            80            349            96            142        128            97                 2 525
  3rd                                              325           139            240           125            176        117           125                 2 530
  4th                                              384           190            150           175            253         73           106                 2 530
  5th                                              369           209            164           143            261        106           171                 2 529

  6th                                              580           249             97           280            241         57           134                 2 525
  7th                                              726           323             63           220            258         52           136                 2 531
  8th                                              751           297             71           234            255         58           125                 2 532
  9th                                            1 003           232             43           228            244         30            60                 2 526
  Top                                            1 159           107             31           200            228         56            27                 2 532

  All households in population (‘000s)           5 834         1 953           1 445         1 830          2 172       784         1 107                25 289

Note:
1 See Appendix 2 for definitions of retired households, adults and children.




                                                                                                                        Office for National Statistics      27
The effects of taxes and benefits on household income, 2007/08


Table 23 (Appendix 1)
Summary of the effects of taxes and benefits, by household type1, 2007/08
                                                              Retired households                                             Non-Retired households

                                                                                               2 or
                                                1 adult      1 adult           All            more                    1 adult       1 adult               All
                                                   Men       Women         1 adult           adults                      Men        Women             1 adult
Average per household (£ per year)
Original income                                  7 201         4 211            5 092       13 095                     22 768        19 366           21 345
   plus Cash benefits                            7 339         7 929            7 755       10 336                      2 381         2 470            2 418
Gross income                                    14 541        12 139           12 847       23 431                     25 149        21 836           23 763
   less Direct taxes and employees’ NIC          1 838         1 219            1 402        3 522                      5 961         4 913            5 523
Disposable income                               12 702        10 920           11 445       19 909                     19 188        16 923           18 240

Equivalised disposable income                   20 703        17 875           18 709       19 162                     31 456        27 742           29 902

   less Indirect taxes                           2 113         1 751            1 858        4 196                      3 127         3 241            3 175
Post-tax income                                 10 589         9 169            9 588       15 714                     16 061        13 682           15 065
   plus Benefits in kind                         4 210         4 880            4 683        6 531                      1 129         1 281            1 192
Final income                                    14 799        14 049           14 270       22 244                     17 190        14 963           16 258




                                                                                    Non-Retired households

                                                                                                                      2 adults    3 or more
                                                                3 or       1 adult         2 adults      2 adults       with 3        adults             All
                                                               more           with            with         with 2     or more           with          house-
                                               2 adults       adults      children          1 child      children     children      children           holds
Average per household (£ per year)
Original income                                 43 156        48 908           11 038       40 861           51 449    40 483        48 391           30 390
   plus Cash benefits                            2 034         2 940            7 884        2 809            3 265     6 693         5 703            4 774
Gross income                                    45 190        51 848           18 921       43 669           54 714    47 176        54 094           35 164
   less Direct taxes and employees’ NIC         10 804        10 884            2 137        9 834           12 806     8 953        10 460            7 396
Disposable income                               34 387        40 965           16 784       33 835           41 908    38 224        43 634           27 769

Equivalised disposable income                   34 138        26 107           17 233       28 137           28 906    22 152        22 038           26 179

   less Indirect taxes                           5 739         7 975            3 515        5 779            6 871     6 261         7 935            4 904
Post-tax income                                 28 648        32 989           13 269       28 056           35 038    31 962        35 699           22 865
   plus Benefits in kind                         2 538         6 992            9 673        6 804           11 039    17 948        15 857            5 989
Final income                                    31 185        39 981           22 942       34 860           46 077    49 910        51 556           28 854

Note:
1 See Appendix 2 for definitions of retired households, adults and children.




28          Office for National Statistics
                                                                                                               The effects of taxes and benefits on household income, 2007/08


Table 24 (Appendix 1)
Average incomes, taxes and benefits by decile groups of ALL households (ranked by UNADJUSTED disposable
income), 2007/08
                                                                                                                                                                                                                        All
                                                                         Decile groups of all households ranked by UNADJUSTED disposable income
                                                                                                                                                                                                                     house-
                                                   Bottom             2nd              3rd              4th              5th              6th              7th              8th              9th              Top     holds
Average per household (£ per year)

Decile points (£)                                           8 433            11 531           14 682           18 052           22 349           26 929           32 377           40 091           51 699
Number of households in the population (‘000s)      2 528            2 528            2 530            2 527            2 529            2 530            2 529            2 525            2 531            2 531   25 289
Original income
  Wages and salaries                                  831            1 605            4 190         6 868           13 142           21 220           26 948           35 649           47 266          74 919       23 264
  Imputed income from benefits in kind                  -                -                7            41               46              116              243              324              763           1 442          298
  Self-employment income                              279              346              460           967            1 239            1 712            2 529            2 781            4 510          15 407        3 023
  Occupational pensions, annuities                    588            1 335            2 150         2 764            2 977            2 687            2 997            3 177            2 309           3 200        2 419
  Investment income                                   251              324              454           565              761              519              986            1 291            1 703           4 931        1 179
  Other income                                         93              128              203           183              190              270              158              329              292             238          208
  Total                                             2 043            3 738            7 464        11 387           18 354           26 523           33 862           43 552           56 842         100 138       30 390
Direct benefits in cash
   Contributory
     Retirement pension                             2 463            3 636            3 717            3 388            2 631            1 587            1 416            1 077             834              690     2 144
     Job seeker’s allowance (Contribution based)       61               19               25               16               13               15               24               10               4                9        20
     Incapacity benefit                               268              286              266              386              223              174              150              166              96               62       208
     Widows’ benefits                                  59               42               30               18               41               12                7               20               -                7        24
     Statutory Maternity Pay/Allowance                  3                2                1               33               22               21               62               76             148              207        58
  Non-contributory
    Income support and pension credit                 468              934             808               786             415              239              189              116               87               34      408
    Child benefit                                      87              188             264               317             421              498              512              532              591              592      400
    Housing benefit                                   650            1 229             942             1 019             559              288              210               71               48               11      503
    Job seeker’s allowance (Income based)             100               44              34                16              30               20               23               14                7                -       29
    Carer’s allowance                                   9               17              65                89             107               75               68               82               26               21       56
    Attendance allowance                                7               57             100                91              51               30               61               17               25               11       45
    Disability living allowance                       144              275             402               543             434              325              358              287              156              131      306
    War pensions/War widows’ pensions                  11               46              50               122              53                6               12                2               11               12       33
    Severe disablement allowance                        2                6              61                21              40               31               47                -                4               23       23
    Industrial injury disablement benefit               -                7              31                16              46               20               32                8               15               23       20
    Student support                                    26               29              27                86              49               79              161               40               80               42       62
    Government training schemes                         3                1               1                 6               8                4                5                1                0                2        3
    Tax credits1                                       73              303             437               561             705              559              254              172              136               48      325
    Other non-contributory benefits                   158              165             170               188             120              109               65               54               44               34      111
Total cash benefits                                 4 592            7 287            7 431            7 702            5 969            4 093            3 656            2 743            2 310            1 958    4 774
Gross income                                        6 635           11 025        14 896           19 089           24 323           30 615           37 518           46 295           59 153         102 095       35 164
Direct taxes and Employees’ NIC
   Income tax                                         190              368              905            1 504            2 500            3 701            5 106         6 637            9 183           19 659       4 975
      less: Tax credits2                                4               10               42              121              219              282              284           274              230               79         154
   Employees’ NI contributions                         44               90              270              491              938            1 568            2 044         2 644            3 421            4 295       1 580
   Council tax and Northern Ireland rates3            909              920              970            1 049            1 101            1 120            1 187         1 266            1 313            1 578       1 141
      less: Council tax benefit/Rates rebates         283              367              290              249              120               73               42            24               13               10         147
   Total                                              856            1 001            1 814            2 674            4 199            6 034            8 011        10 248           13 675           25 442       7 396
Disposable income                                   5 779           10 024        13 082           16 415           20 124           24 581           29 507           36 047           45 478           76 653      27 769
Indirect taxes
   Taxes on final goods and services
      VAT                                             851             844             1 102            1 348            1 795            1 962            2 217            2 784            3 140            4 422    2 046
      Duty on tobacco                                 188             222               255              292              347              440              289              298              345              253      293
      Duty on beer and cider                           52              39                68               85               99              113              133              189              194              198      117
      Duty on wines & spirits                          72              83                81              131              120              158              176              232              228              386      167
      Duty on hydrocarbon oils                        168             154               238              310              459              527              594              679              805              862      480
      Vehicle excise duty                              60              61                82               96              136              141              162              188              210              248      138
      Television licences                              86              86                92              104              122              124              121              127              130              130      112
      Stamp duty on house purchase                     78              53                64               97              128              164              203              256              294              643      198
      Customs duties                                   15              15                18               21               26               27               30               35               38               55       28
      Betting taxes                                    17              28                26               38               36               37               42               45               40               49       36
      Insurance premium tax                            20              18                24               30               45               44               53               60               66               99       46
      Air passenger duty                                9              17                18               35               41               44               54               70               74              168       53
      Camelot National Lottery Fund                    26              38                45               46               57               58               60               62               49               47       49
      Other                                             7               3                 6                6               18               10               31               25               25               36       17
  Intermediate taxes
     Commercial and industrial rates                  129             134              156              185              225              240              264              309              333              489      246
     Employers’ NI contributions                      241             249              290              344              420              447              492              577              621              912      459
     Duty on hydrocarbon oils                          81              84               98              116              142              151              166              194              209              307      155
     Vehicle excise duty                                6               7                8                9               11               12               13               16               17               25       12
     Other                                            132             137              160              189              231              246              270              317              341              501      252
Total indirect taxes                                2 236            2 273            2 828            3 481            4 457            4 944            5 368            6 462            7 158            9 829    4 904
Post-tax income                                     3 542            7 751       10 253           12 934           15 666           19 638           24 139           29 584           38 320           66 825       22 865
Benefits in kind
    Education                                       1 048            1 060            1 452            1 920            2 343            2 656            2 902            3 381            3 900            3 220    2 388
    National health service                         3 166            3 638            3 891            3 758            3 527            3 101            3 259            3 208            3 407            3 457    3 441
    Housing subsidy                                    28               40               35               33               24               17               10                9                7                2       20
    Rail travel subsidy                                 7                9                7               16               19               40               39               48               76              186       45
    Bus travel subsidy                                 59               77               83               74               76               60               56               66               60               87       70
    School meals and welfare milk                       7               30               36               39               37               34               15               20               23                6       25
    Total                                           4 314            4 854            5 503            5 839            6 025            5 908            6 281            6 733            7 473            6 958    5 989
Final income                                        7 857           12 605        15 757           18 773           21 692           25 546           30 420           36 317           45 793           73 783      28 854

Notes:
1 Child tax credit and working tax credit.
2 Including tax relief at source on life assurance premiums.
3 Council tax and Northern Ireland rates after deducting discounts.




                                                                                                                                                                      Office for National Statistics                   29
The effects of taxes and benefits on household income, 2007/08


Table 25 (Appendix 1)
Cross-tabulation of households ranked by disposable income, unadjusted and equivalised, 2007/08
(i) Quintile groups                                               Quintile groups of equivalised disposable income                                    All
                                                                                                                                                   house-
                                                 Bottom            2nd                     3rd                    4th               Top             holds
Number of households in the population (‘000s)

Quintile groups of unadjusted
  disposable income
  Bottom                                          3 391           1 573                      92                     -                  -            5 056
  2nd                                             1 241           1 707                   1 384                   726                  -            5 057
  3rd                                               392           1 312                   1 971                   912                472            5 059
  4th                                                22             436                   1 307                 2 176              1 113            5 054
  Top                                                 8              31                     300                 1 250              3 473            5 062

  All households                                  5 054           5 060                   5 054                 5 063              5 058           25 289




(ii) Decile groups                                                        Decile groups of equivalised disposable income                              All
                                                                                                                                                   house-
                                                 Bottom    2nd     3rd          4th        5th         6th        7th       8th     9th     Top     holds
Number of households in the population (‘000s)

Decile groups of unadjusted
  disposable income
  Bottom                                          1 524    882     122            -          -          -           -         -       -        -    2 528
  2nd                                               610    374     715          736         92          -           -         -       -        -    2 528
  3rd                                               186    676     452           32        650        534           -         -       -        -    2 530
  4th                                               103    276     563          661         71        129         609       117       -        -    2 527
  5th                                                63    194     336          398        776        253          15       415      80        -    2 529

  6th                                                28    107     190          389        226        716         456        26     392        -    2 530
  7th                                                 7      6     129          183        401        332         563       601      94      212    2 529
  8th                                                 -      9      13          111        236        337         470       542     568      239    2 525
  9th                                                 8      -      11           20         70        214         328       569     867      444    2 531
  Top                                                 -      -       -            -          7         10          90       262     526    1 636    2 531

  All households                                  2 529   2 525   2 530       2 530      2 529       2 525      2 531      2 532   2 526   2 532   25 289




30         Office for National Statistics
                                                                                   The effects of taxes and benefits on household income, 2007/08


Table 26 (Appendix 1)
Percentage shares of equivalised total original, gross, disposable and post-tax incomes by quintile groups for
ALL households1, 1985 to 2007/082
                                  1985      1986       1987      1988      1989       1990      1991      1992       1993   1993-94     1994-95      1995-96

Original income
Bottom                               2         3          2         2          2          2         2         2         2          2          2            3
2nd                                  7         7          7         7          7          7         7         6         6          6          6            7
3rd                                 17        16         16        16         16         15        16        15        15         14         15           15
4th                                 27        26         25        26         26         25        26        26        25         25         25           25
Top                                 47        49         50        50         49         51        50        50        52         52         51           50

All households                     100       100        100       100        100        100       100       100       100        100        100          100

Gross income
Bottom                               8         8          7         7          7          7         7         7         7          7          7            7
2nd                                 12        11         11        11         11         10        10        11        11         11         11           11
3rd                                 17        16         16        16         16         16        16        16        16         16         16           16
4th                                 24        23         23        23         23         23        23        23        23         23         23           23
Top                                 40        41         43        43         42         44        44        43        44         44         43           43

All households                     100       100        100       100        100        100       100       100       100        100        100          100

Disposable income
Bottom                               9         9          8         8          8          7         7         7         8          8          8            8
2nd                                 13        12         12        11         12         11        11        11        12         12         12           12
3rd                                 17        17         16        16         17         16        16        16        16         16         16           17
4th                                 23        23         23        23         23         23        23        23        23         23         23           23
Top                                 38        40         41        42         41         43        42        42        42         42         41           40

All households                     100       100        100       100        100        100       100       100       100        100        100          100

Post-tax income
Bottom                               9         8          8         7          7          6         7         7         7          7          7            7
2nd                                 13        12         12        11         11         10        11        11        11         11         11           12
3rd                                 17        16         16        16         16         15        16        16        16         16         16           16
4th                                 23        22         22        22         23         23        23        23        22         22         22           23
Top                                 39        41         43        44         43         45        44        44        44         44         43           43

All households                     100       100        100       100        100        100       100       100       100        100        100          100




                               1996/97   1997/98    1998/99   1999/00    2000/01    2001/02   2002/03   2003/04   2004/05    2005/06    2006/07      2007/08

Original income
Bottom                               2         2          3         2          2          3         3         3         3          3          3            3
2nd                                  7         7          7         7          7          7         7         7         8          7          7            8
3rd                                 15        15         15        15         15         14        15        15        15         15         15           14
4th                                 25        25         25        25         25         24        25        24        24         24         24           24
Top                                 51        51         52        52         50         52        50        51        50         51         51           51
All households                     100       100        100       100        100        100       100       100       100        100        100          100

Gross income
Bottom                               7         7          7         7          6          6         7         7         7          7          7            7
2nd                                 11        11         11        11         11         11        11        11        11         11         11           11
3rd                                 16        16         16        16         16         15        16        16        16         16         16           16
4th                                 23        23         23        23         23         22        23        22        23         23         23           22
Top                                 44        44         44        44         44         45        43        44        43         44         44           44

All households                     100       100        100       100        100        100       100       100       100        100        100          100

Disposable income
Bottom                               8         8          7         7          7          7         8         8         8          8          7            7
2nd                                 12        12         12        12         12         12        12        12        13         12         12           12
3rd                                 16        16         16        16         16         16        17        17        17         16         16           16
4th                                 23        23         23        23         23         22        23        22        22         22         22           22
Top                                 42        42         42        42         42         43        41        42        41         41         42           42

All households                     100       100        100       100        100        100       100       100       100        100        100          100

Post-tax income
Bottom                               7         7          6         6          6          6         6         7         7          7          6            6
2nd                                 11        11         11        11         11         11        12        12        12         12         11           12
3rd                                 16        16         16        16         16         15        16        16        16         16         16           16
4th                                 22        22         22        22         22         22        23        22        22         22         22           22
Top                                 44        44         45        45         44         46        43        44        43         43         44           44

All households                     100       100        100       100        100        100       100       100       100        100        100          100

Notes:
1 Ranked by equivalised disposable income.
2 From 1990 this includes company car benefit and beneficial house purchase loans from employers. From 1996–97 values are based on estimates for the
  sample grossed up to population totals.




                                                                                                                    Office for National Statistics       31
The effects of taxes and benefits on household income, 2007/08


Table 27 (Appendix 1)
Gini coefficients for the distribution of income at each stage of the tax-benefit system and P90/P10 and
P75/P251 ratios for disposable income for all households, 1980 to 2007/082
                                                                Gini coefficients (per cent)                                   Ratios for disposable income

                                                                   Equivalised income

                                            Original             Gross            Disposable        Post-tax                   P90/P10             P75/P25

1980                                             44                 31                     28            30                         3.5                 2.0
1981                                             46                 31                     28            31                         3.4                 2.0
1982                                             47                 31                     28            31                         3.3                 2.0
1983                                             48                 32                     28            31                         3.3                 1.9
1984                                             49                 31                     28            30                         3.3                 2.0

1985                                             49                 32                     29            32                         3.5                 2.1
1986                                             50                 34                     31            35                         3.7                 2.1
1987                                             51                 36                     33            36                         4.1                 2.2
1988                                             51                 37                     35            38                         4.4                 2.4
1989                                             50                 36                     34            37                         4.5                 2.4

1990                                             52                 38                     36            40                         4.9                 2.5
1991                                             51                 37                     35            39                         4.8                 2.5
1992                                             52                 37                     34            38                         4.6                 2.4
1993                                             53                 38                     35            38                         4.5                 2.3
1993/94                                          54                 37                     34            38                         4.5                 2.3

1994/95                                          53                 37                     33            37                         4.5                 2.3
1995/96                                          52                 36                     33            37                         4.2                 2.2
1996/97                                          53                 37                     34            38                         4.4                 2.3
1997/98                                          53                 37                     34            38                         4.5                 2.3
1998/99                                          53                 38                     35            39                         4.5                 2.3

1999/00                                          53                 38                     35            40                         4.6                 2.4
2000/01                                          51                 38                     35            39                         4.5                 2.3
2001/02                                          53                 39                     36            40                         4.5                 2.3
2002/03                                          51                 37                     33            37                         4.3                 2.2
2003/04                                          52                 37                     34            38                         4.1                 2.1

2004/05                                          51                 36                     32            36                         4.1                 2.1
2005/06                                          52                 37                     34            37                         4.2                 2.1
2006/07                                          52                 38                     34            39                         4.4                 2.2
2007/08                                          52                 38                     34            38                         4.4                 2.1

Notes:
1 P90/P10 is the ratio of the income at the 90th percentile to the 10th; P75/P25 is the ratio of the income at the 75th percentile to the 25th.
2 From 1990 this includes company car benefit and beneficial house purchase loans from employers. From 1996-97 values are based on estimates for the
  sample grossed to population totals.




32        Office for National Statistics
                                                                              The effects of taxes and benefits on household income, 2007/08




Appendix 2
Methodology and Definitions                      where appropriate, about income (including       non-response weights were derived using
The allocation of government                     cash benefits received from the state) and       2001 Census‑linked data (for further details
expenditure and its financing                    payments of income tax. Information on           see Family Spending 2008, Appendix B). The
1. There are considerable difficulties in        age, occupation, education received, family      non‑response weights were then calibrated,
moving from the aggregates of government         composition and housing tenure is also           again using 2001 Census based population
expenditure and financing published in           obtained. The survey covers the whole            projections, so that weighted totals matched
the UK National Accounts – the ONS               12‑month period.                                 population totals, for males and females in
Blue Book – to apportioning taxes and                                                             different age groups and for regions.
benefits to individual households. We            3. Family Spending 2008, published on the
can obtain information about the types of        ONS web site in November 2008, shows             6. The EFS is designed primarily as a survey
household that receive cash benefits and         detailed results on expenditure and income       of expenditure on goods and services by
pay direct taxes through surveys such as the     from the 2007 survey, and how they vary          households. It has been developed to gather
Expenditure and Food Survey (EFS). From          with household characteristics. The report       information about the income of household
the replies respondents give to questions on     also includes an outline of the survey           members, and is an important and detailed
their expenditure, we can take into account      design.                                          source of income data. However, no
their payments of indirect taxes, and from                                                        information is collected that would enable
information they supply about such factors       4. The number of households in Great             a balance sheet of income and expenditure
as their ages and number of children             Britain responding to the EFS in 2007 was        to be drawn up for a household over any
in the household, we can estimate the            5,545 (about 1 in every 4,600 households).       particular period. Much expenditure relates
average costs of providing them with social      The response rate was 53 per cent. An            to the two‑week period after the interview,
services, such as health and education. But      additional sample of 572 households              whereas many income components refer to
there are other kinds of financing, such as      covers Northern Ireland. To count as a           a much longer period (such as investment
corporation tax and government receipts          co‑operating household, all members aged         income over the previous 12 months). EFS
from public corporations: no attempt is          16 and over must fill in the diaries for both    income does not include proceeds from
made in this analysis to apportion them          weeks and give full details of income. The       the sale of assets (for example, a car) or
to households because it would be too            available evidence suggests that households      windfalls such as inheritances. But recorded
difficult. Similarly, there are other items of   containing a couple with non‑dependent           expenditure might reflect these items, as
government expenditure, such as capital          children, those where the Household              well as the effects of living off savings, using
expenditure and expenditure on defence           Reference Person (HRP) is self‑employed,         capital or borrowing money. Hence, there
and on the maintenance of law and order,         and those where the HRP was born outside         is no reason why income and expenditure
for which there is no clear conceptual           the UK are less likely to co‑operate than        should balance either for an individual
basis for allocation, or for which we do         others (see A comparison of the Census           household or even averaged over a group of
not have sufficient information to make an       characteristics of respondents and non-          households. Indeed, for many households in
allocation.                                      respondents to the 1991 Family Expenditure       the bottom part of the income distribution,
                                                 Survey by Kate Foster, Survey Methodology        measured expenditure exceeds measured
Expenditure and Food Survey (EFS)                Bulletin, ONS, No 38, Jan 1996). In              income. Moreover, the difference between
2. The estimates in this analysis are based      addition, response in Greater London is          income and expenditure is not necessarily
mainly on data derived from the EFS, which       noticeably lower than in other areas.            a measure of savings or dis‑savings (where
replaced the Family Expenditure Survey                                                            expenditure is greater than income).
(FES) from 2001/02. The EFS is an annual         5. The results in the analysis are grossed
survey of the expenditure and income of          up so that totals reflect the total population   Unit of analysis
private households. People living in hotels,     in private households in the UK (that is         7. The basic unit of analysis used is the
lodging houses, and in institutions such         excluding those in institutions such as          household, and not the family, individual
as old peoples’ homes are excluded. Each         residential homes for the elderly). The          or benefit unit. A household is defined
person aged 16 and over keeps a full record      weighting process was comprehensively            in terms of the harmonised definition as
of payments made during 14 consecutive           updated using data from the 2001 Census          used in the Census and nearly all other
days and answers questions about hire            (estimates in the 2006/07 report used data       government household surveys since 1981.
purchase and other payments; children aged       from the 1991 Census). Households were           This is one person, or a group of persons,
seven to 15 keep a simplified diary. The         assigned different initial weights based on      who have the accommodation as their
respondents also give detailed information,      the non‑response in the 2001 FES. These          only or main residence and (for a group)


                                                                                                            Office for National Statistics    33
The effects of taxes and benefits on household income, 2007/08


share the living accommodation, that is          financially to the household’s upkeep. These   of income from cash benefits (see paragraph
a living or sitting room, or share meals         contributions would be picked up as part       20), this annualised estimate has to be
together or have common housekeeping.            of the household’s original income. Also,      ‘abated’ for the number of weeks likely to
Up until 1999–2000, the definition was           it is likely that some households will have    be lost due to unemployment, sickness,
based on the pre‑1981 Census definition          changed their composition during the year.     etc. This figure is taken as the number of
and required members to share eating and                                                        weeks so lost in the 12 months prior to
budgeting arrangements as well as shared         12. Economically active people comprise        interview. It should be noted that regardless
living accommodation. The definition of a        persons aged 16 or over who, at the time of    of whether the respondent is currently
household comprised people who lived at          interview, were:                               working or unemployed the treatment is
the same address and who shared common                                                          essentially the same, i.e. normal gross wage
catering for at least one meal a day. The        ■   employees at work                          or salary expressed at an annual rate abated
effect of the change was fairly small, but       ■   employees temporarily away from            as required.
not negligible. Spending on many items,              work, for example through illness,
particularly on food, housing, fuel and light,       temporary lay‑off or industrial action     16. In all of this, the crucial determining
is largely joint spending by the members of      ■   on government training programmes          role of current employment status should
the household. Without further information       ■   self‑employed                              also be noted. Thus, no employment income
or assumptions it is difficult to apportion      ■   not in employment but who had sought       would be assigned to a respondent whose
indirect taxes between individuals or other          work within the last four weeks, or were   employment status had recently become
sub‑divisions of households.                         waiting to start a job already obtained    retired or unemployed even though he
                                                                                                or she may have worked for most of the
8. In classifying the households into            Income: redistributive stages                  12 months prior to interview.
various types, a child (i.e. a dependent) is     13. Stage one:
defined as:                                        Original income plus cash benefits =         17. About 98 per cent of original income
                                                   Gross income.                                comes from earnings, occupational
■    either aged under 16                                                                       pensions (including annuities) and
■    or aged 16, 17 or 18 not married, and       Stage two:                                     investment income. The tiny bit remaining
     receiving full‑time non‑advanced              Gross income minus income tax,               comes from a variety of sources: trade
     further education                             employees’ National Insurance                union benefits, income of children under
                                                   contributions and Council tax and            16, private scholarships, earnings as a mail
Most of the ‘extra’ adults in households with      Northern Ireland rates (see paragraph 24     order agent or baby‑sitter, regular allowance
at least three adults are sons or daughters        below) = Disposable income.                  from a non‑spouse, allowance from an
of the Household Reference Person rather                                                        absent spouse and the imputed value of
than retired people.                             Stage three:                                   rent‑free accommodation. Households
                                                   Disposable income minus indirect taxes =     living in rent‑free dwellings are each
9. A retired household is defined as one           Post‑tax income.                             assigned an imputed income (although this
where the combined income of retired                                                            is counted as employment income if the
members amounts to at least half the total       Stage four:                                    tenancy depends on the job).
gross income of the household, where a             Post‑tax income plus ‘benefits in kind’ =
retired person is defined as anyone who            Final income.                                18. In addition to salary, many employees
describes themselves as ‘retired’ or anyone                                                     receive as part of their income fringe
over minimum NI pension age describing           14. The starting point of the analysis is      benefits such as company cars, private
themselves as ‘unoccupied’ or ‘sick or           original income. This is the annualised        medical insurance and beneficial loans.
injured but not intending to seek work’.         income in cash of all members of the           The company car benefit, together with the
                                                 household before the deduction of taxes        benefit from fuel for personal use, has been
10. By no means all retired people are           or the addition of any state benefits.         included in the analysis since 1990. This
in retired households: about one in five         It includes income from employment,            is by far the most important fringe benefit
households comprising three or more adults       self‑employment, investment income,            accounting for around 60 per cent of total
contains retired people, for example, and        occupational pensions and annuities. The       taxable benefits according to HM Revenue
households comprising one retired and one        term ‘annualised’ rather than ‘annual’ is      and Customs’ (HMRC) statistics. The
non‑retired adult are often classified as non‑   used advisedly. For instance, annualised       imputed income allocated to households
retired.                                         income from a respondent’s ‘main job’ is not   is the taxable value of the benefit in
                                                 the current wage or salary multiplied up to    accordance with HMRC rules. Although,
11. The sample households have been              an annual value, nor is it the sum of income   for those earning below £8,500 per year the
classified according to their compositions at    from this source in the 12 month period        benefit is not taxable, here the benefit has
the time of the interview. This classification   prior to interview. Rather it is an estimate   been allocated to all those with a company
is sensible for the vast majority of             of such income expressed at an annual rate     car regardless of the level of earnings.
households, but it can be misleading for         based on the respondent’s assessment of        Information collected about company cars
the very small number of cases where a           his ‘normal’ wage or salary subject to his     in the EFS is used to impute the benefit.
spouse is absent from the household at           current employment status.
the time of interview. The absent spouse                                                        19. The benefit of subsidised loans from
may well be working away from home,              15. Furthermore, to avoid double counting      employers for house purchase has been
or living separately – but contributing          and to make it consistent with the estimate    allocated, since the 1992 analysis. The


34       Office for National Statistics
                                                                             The effects of taxes and benefits on household income, 2007/08


benefit is taken to be the difference between    and self‑employed National Insurance            ■   Value Added Tax (VAT);
the interest payments on such loans              contributions are then deducted to give         ■   Customs (import) duties;
as reported in the EFS and the interest          disposable income. Taxes on capital, such       ■   Motor vehicle duties;
payments that would have been payable at         as capital gains tax and inheritance tax, are   ■   Air passenger duty;
the ruling market rate of interest.              not included in these deductions because        ■   Insurance premium tax;
                                                 there is no clear conceptual basis for doing    ■   Driving licenses;
20. The next stage of the analysis is to add     so, and the relevant data are not available     ■   Television licenses;
cash benefits and tax credits to original        from the EFS.                                   ■   Stamp duties;
income to obtain gross income. This is                                                           ■   Camelot: payments to National Lottery
slightly different from the ‘gross normal        25. Income tax is shown after the deduction         Distribution Fund.
weekly income’ used in the EFS report.           of those tax credit payments which are
Cash benefits and tax credits include:           regarded as negative income tax.                30. Taxes levied on final goods and services
                                                                                                 are assumed to be fully incident on the
Contributory:                                    26. The figures for council tax and             consumer, and can be imputed from a
Retirement pension, part of job seeker’s         Northern Ireland rates include council          household’s EFS expenditure record. For
allowance, incapacity benefit, widows’           tax (for households in Great Britain),          example, the amount of VAT that is paid
benefits, and statutory maternity pay.           and domestic rates (for households in           by the household is calculated from the
                                                 Northern Ireland). Council tax is shown         household’s total expenditure on goods and
Non‑contributory:                                after discounts to reduce or remove             services subject to VAT.
Income support, part of job seeker’s             the personal element of the tax (e.g.
allowance, child benefit, housing benefit        the discount of 25 per cent for single          31. VAT affects the prices of second‑
(council tax benefit and rates rebates           person households). All council tax and         hand cars and is therefore assumed to be
are treated as deductions from council           Northern Ireland rates are shown after          incident on the purchasers of such cars as
tax and Northern Ireland rates), carer’s         the deduction of council tax benefit and        well as on the purchasers of new cars. In
allowance, attendance allowance, disability      rate rebates. This is in line with National     allocating taxes, expenditures recorded
living allowance, war pensions, severe           Accounts which treats such rebates as           in the EFS on alcoholic drink, tobacco,
disablement allowance, industrial injury         revenue foregone. Up to, and including,         ice cream, soft drinks and confectionery
disablement benefits, child tax credit and       1995/96 these rebates were included as part     are grossed up to allow for the known
working tax credit, pension credit, over 80      of housing benefits.                            under‑recording of these items in the
pension, Christmas bonus for pensioners,                                                         sample. The true expenditure in each
government training scheme allowances,           27. Up until 2001/02 the figures for local      case is assumed to be proportional to the
student support, and winter fuel payments.       taxes included council tax, Northern            recorded expenditure. This approach has its
                                                 Ireland rates and charges made by water         drawbacks because there is some evidence
21. Statutory maternity pay is classified as a   authorities for water, environmental and        to suggest that heavy drinkers, for example,
cash benefit even though it is paid through      sewerage services. From 2002/03, charges        are under‑represented in the EFS.
the employer. From 2005/06 student               made by water authorities were treated as
support included the new educational             charges for a service rather than a tax, so     32. The incidence of stamp duty on
maintenance allowance as well as other           the figures for council tax and Northern        house purchase on an owner‑occupying
education grants. Winter fuel payments are       Ireland rates from 2002/03 onwards are          household has been taken as the product
included within the category ‘other non‑         not strictly comparable with those for local    of the hypothetical duty payable on buying
contributory benefits’.                          taxes up to 2001/02.                            their current dwelling (estimated from
                                                                                                 valuations given in the EFS) and the
22. Child tax credit (CTC) and working           28. The tax estimates are based on the          probability of a household of that type
tax credit (WTC) are more complicated.           amount deducted from the last payments          moving in a given year (estimated from the
They are classified as negative income tax,      of employment income and pensions, and          General Household Survey).
but only to the extent that income tax less      on the amount paid in the last 12 months in
tax credits, remains greater than or equal       respect of income from self‑employment,         33. Indirect taxes on intermediate goods
to zero for each family. So for households       interest, dividends and rent. The income        and services include:
paying relatively little or no income tax,       tax payments recorded will therefore take
tax credit payments are regarded either          account of a household’s tax allowances,        ■   Rates on commercial and industrial
partially or wholly, as cash benefits.           with the exception of tax credits and               property;
                                                 life assurance premium relief. Where            ■   Motor vehicle duties;
23. Income from short‑term benefits is           households are eligible for either of these     ■   Duties on hydrocarbon oils;
taken as the product of the last weekly          reliefs deductions are made from recorded       ■   Employers’ contributions to National
payment and the number of weeks the              income tax payments.                                Insurance, the National Health Service,
benefit was received in the 12 months                                                                the industrial injuries fund and the
prior to interview. Income from long‑term        29. The next step is to deduct indirect taxes       redundancy payments scheme;
benefits, and from housing benefits, is based    to give post-tax income. Indirect tax on        ■   Customs (import) duties;
on current rates.                                final consumer goods and services include:      ■   Stamp duties;
                                                                                                 ■   VAT;
24. Income tax, council tax and                  ■   Duties on alcoholic drinks, tobacco,        ■   Independent Commission franchise
Northern Ireland rates, and employees’               petrol, oil, betting, etc;                      payments;


                                                                                                           Office for National Statistics   35
The effects of taxes and benefits on household income, 2007/08


■    Landfill tax;                              necessary but not items such as lump            government to the housing revenue
■    Consumer Credit Act fees.                  sum capital payments in line with the           accounts of local authorities, and grants
                                                exclusion of capital gains and windfalls        paid to Scottish Homes, the NIHE,
34. These are taxes that fall on goods and      from income.                                    housing associations and Registered Social
services purchased by industry. Only the                                                        Landlords. Within Greater London, the rest
elements attributable to the production         37. Finally, we add those notional benefits     of England, Wales, Scotland and Northern
of subsequent goods and services for final      in kind provided to households by               Ireland each public sector tenant has
consumption by the UK personal sector are       government for which there is a reasonable      been allocated a share of the region’s total
allocated in the analysis, being assumed to     basis for allocation to households, to obtain   relevant subsidy based on the council tax
be fully shifted to the consumer. Their         final income. The benefits in kind allocated    band of the dwelling. Housing subsidy does
allocations between different categories of     are:                                            not include, rent rebates and allowances or
consumers’ expenditure are based on the                                                         local tax rebates.
relation between intermediate production        ■   State education;
and final consumption using estimated           ■   School meals and welfare milk;              42. The rail travel subsidies allocated are
input‑output techniques. This process is not    ■   National Health Service;                    the support payments made to the train
an exact science, and many assumptions          ■   Housing subsidy;                            operating companies. The subsidy to
have to be made. Some analyses, such as         ■   Railway travel subsidy;                     London and South East services is allocated
that by Dilnot, Kay and Keen Allocating         ■   Bus travel subsidy (including               to households living in the area and
Taxes to Households: A Methodology,                 concessionary fares schemes).               subsidies to other services to households
suggest that the taxes could be progressive                                                     living outside the South East, in proportion
rather than regressive if different incidence   38. Education benefit is estimated from         to households’ expenditure on rail fares
assumptions were to be used.                    information provided by the Department          as recorded in the EFS. In making these
                                                for Education and Skills of the cost per        allocations, allowances are made for the use
35. For Tables 3 and 9 of the main              pupil or student in special schools, primary    of rail travel by the business sector, tourists
analysis, we have constructed a measure         and secondary schools, universities, and        and the institutional part of the personal
of expenditure on goods and services            other further education establishments.         sector.
from data from the EFS. Indirect taxes are      The value of the benefits attributed to a
shown as a proportion both of disposable        household depends on the number of              43. In this analysis, bus travel subsidy
income and of expenditure. One drawback         people in the household recorded in the EFS     covers both the cost of concessionary travel
of comparing the incidence of indirect          as receiving each kind of state education       schemes for senior citizens and others, and
taxes on households at different levels         (students away from the household are           subsidies to operators. Separate allocations
of income is that, by whatever measure          excluded). No benefit is allocated for pupils   are made for Greater London, the other
used, on average, recorded expenditure          attending private schools.                      metropolitan areas and the rest of the UK.
exceeds income apparently available for it                                                      The subsidy is divided between households
by significant amounts at the bottom of the     39. The value of school meals and other         according to recorded expenditure on
distribution. Thus, it has been argued that     welfare foods is based on their costs to the    bus travel and the types of concessionary
for many households, where, for instance,       public authorities.                             passes held.
income fluctuates widely or where it is
difficult to measure accurately, a measure      40. Data are available on the average cost      44. We must emphasise that the analysis
based on regular household outgoings            to the Exchequer of providing the various       provides only a rough guide to the
would be a far better indicator of resources    types of health care – hospital inpatient/      kinds of household which benefit from
available to the household and therefore        outpatient care, GP consultations, dental       government expenditure, and by how
give a better picture of the incidence of       services, etc. Each individual in the EFS       much, and to those which finance it.
indirect taxes.                                 is allocated a benefit from the National        Apart from the fact that large parts of
                                                Health Service according to the estimated       expenditure and receipts are not allocated,
36. This measure of expenditure has             average use made of these various types of      the criteria used both to allocate taxes
been customised to be analogous to the          health service by people of the same age        and to value and apportion benefits to
definition of disposable income used in         and sex, and according to the total cost of     individual households could be regarded as
the analysis in order to facilitate these       providing those services. The benefit from      too simplistic.
comparisons. For instance, because the          maternity services is assigned separately
imputed benefit of company cars and             to those households containing children         45. For example, the lack of data forces us
beneficial loans will have boosted the          under the age of 12 months. No allowance        to assume that the incidence of direct taxes
figure for disposable income, these items       is made for the use of private health care      falls on the individual from whose income
have had to be added to this expenditure        services.                                       the tax is deducted. This implies that the
measure. Expenditure on alcohol, tobacco                                                        benefit of tax relief for a life assurance
and confectionery have been grossed             41. In this analysis, public sector tenants     premium, for example, accrues directly
up for under‑recording in line with the         are defined to include the tenants of local     to the taxpayer rather than to some other
treatment of the indirect taxes on these        authorities, Scottish Homes, Northern           party, for instance, the seller of the policy.
items. Payments deemed to be made out           Ireland Housing Executive (NIHE),               It also implies that the working population
of income such as superannuation, regular       housing associations and Registered Social      is not able to pass the cost of the direct tax
savings, mortgage repayments and so on,         Landlords. The total housing subsidy            back to employers through lower profits, or
have been included and adjusted where           includes the contribution from central          to consumers through higher prices.


36       Office for National Statistics
                                                                              The effects of taxes and benefits on household income, 2007/08


46. In allocating indirect taxes we              2nd (or more)                                      Diagram 2
assume that the part of the tax falling          additional adult              0.36 (per adult)
                                                                                                    Lorenz curve for a typical
on consumers’ expenditure is borne by
                                                                                                    income distribution
the households which buy the item or             Single Household
                                                                                                             100
the service taxed, whereas in reality the        Reference Person
incidence of the tax is spread by pricing        (adult)                       0.61                 Cumulative
                                                                                                    income
policies and probably falls in varying                                                              share (%)
proportions on the producers of a good or        1st additional adult          0.46
service, on their employees, on the buyer,       2nd additional adult          0.42
and on the producers and consumers of            3rd (or more) additional
other goods and services.                        adult                         0.36 (per adult)

                                                                                                                  0                                100
47. Another example is that we know only         Child aged:                                                                Population share (%)
an estimate of the total financial cost of       16–18                         0.36
providing benefits such as education, and so     13–15                         0.27
we have to treat that cost as if it measured     11–12                         0.25
                                                                                                  of income) is represented by a curve
the benefit which accrues to recipients of       8–10                          0.23
                                                                                                  comprising the horizontal axis and the
the service. In fact, the value the recipients   5–7                           0.21
                                                                                                  right‑hand vertical axis (see Diagram 3).
themselves place on the service may be           2–4                           0.18
                                                                                                  The area between the Lorenz curve and
very different to the cost of providing it.      Under 2                       0.09
                                                                                                  the diagonal line of complete equality,
Moreover, there may be households in
                                                                                                  as a proportion of the triangular area
the community, other than the immediate          50. The values for each household
                                                                                                  between the curves of complete equality
beneficiaries, who receive a benefit             member are added together to give
                                                                                                  and inequality, gives the value of the Gini
indirectly from the general provision of the     the total equivalence number for that
                                                                                                  coefficient. Thus, a distribution of perfectly
service.                                         household. This number is then divided
                                                                                                  equal incomes has a Gini coefficient of
                                                 into the disposable income for that
                                                                                                  zero, as inequality increases (and the
Equivalence scale                                household to give equivalised disposable
                                                                                                  Lorenz curve bellies out), so does the Gini
48. The equivalence scale used in this           income. For example, a household has a
                                                                                                  coefficient until, with complete inequality,
analysis is the McClements scale (before         married couple with two children (aged
                                                                                                  it reaches its maximum value of 1 (or
housing costs are deducted). The scales          six and nine) plus one adult lodger.
                                                                                                  100 per cent).
(separate ones for before and after              The household’s equivalence number
housing costs) were developed by Dr              is 1.00 + 0.21 + 0.23 + 0.42 = 1.86. The
                                                                                                  54. To calculate the Gini coefficient for an
L D McClements at the Department of              household’s disposable income is £20,000,
                                                                                                  income distribution, the first step is to rank
Health and Social Security (DHSS) in the         and so its equivalised disposable income is
                                                                                                  that distribution in ascending order. All
mid‑1970s, based on expenditure data from        £10,753 (=£20,000/1.86).
                                                                                                  the Gini coefficients shown in this analysis
the 1971 and 1972 FES. They were based on
                                                                                                  are based on distributions of equivalised
the assumption that it is possible to estimate   51. This quantity is used to produce the
                                                                                                  income, in that the coefficient for original
equivalence scales from people’s spending        single ranking used in all the tables in this
                                                                                                  income is calculated after dividing the
behaviour as recorded in the EFS without         analysis (apart from the Gini coefficients
                                                                                                  original income for all the households by
making any specific assumption about the         which have to be ranked afresh for each
                                                                                                  their appropriate equivalence values.
criteria for equivalence. These scales are       different definition of income).
in regular use and an analysis by Banks
                                                                                                  55. Strictly speaking, it could be argued
and Johnson (Children and Household              52. It is important to note that most
                                                                                                  that the equivalence scales used here are
Living Standards, IFS, 1993) suggests that       monetary values shown in the analysis are
                                                                                                  only applicable to disposable income
the scales are as valid as when they were        ordinary (i.e. un‑equivalised) £ per year, not
                                                                                                  because this is the only income measure
developed. The scales are regarded as            equivalised £ per year. Where equivalised
                                                                                                  relating directly to spending power. Since
plausible and they are well within the range     values do appear (e.g. the quintile points in
                                                                                                  the scales are often applied, in practice,
of equivalence scales developed at different     Table 16A of Appendix 1), they are shown
times in a number of countries. Hence, their     in italics.
use is fully justified for broad statistical
                                                                                                    Diagram 3
standardisation.                                 Gini coefficient
                                                 53. The Gini coefficient is the most widely
                                                                                                    Complete income equality
                                                                                                             100
49. The equivalence values are given below:      used summary measure of the degree
                                                 of inequality in an income distribution.           Cumulative
                                                                                                    income
Type of household               Equivalence      It can more easily be understood by
                                                                                                    share (%)
member                          value            considering a Lorenz curve of the income
Married Household                                distribution, (see Diagram 2) i.e. a graph
Reference Person                                 of the cumulative income share against
(such as a married or                            the cumulative share of households. The
cohabiting couple)              1.00             curve representing complete equality
                                                 of income is thus a diagonal line while                          0                                100
                                                                                                                            Population share (%)
1st additional adult            0.42             complete inequality (with only one recipient


                                                                                                                 Office for National Statistics      37
The effects of taxes and benefits on household income, 2007/08


to other income measures, we are content      Sampling errors and reliability                 easy, particularly where the complexities of
to use them to equivalise original, gross     57. As the EFS is a sample survey, data         the tax and benefit system are concerned.
and post‑tax income for the purpose of        from it will differ in varying degrees          Consequently there will also be a significant
producing Gini coefficients (and in the       from those of all households in the UK.         amount of non‑sampling error attached to
tables giving percentage shares of total      The degree of difference will depend            some estimates.
income). However, we do not think it is       on how widely particular categories of
appropriate to equivalise the final income    income and expenditure vary between             Previous analyses
measure because this contains notional        households. This ‘sampling error’ is smallest   61. This analysis is the latest in an annual
income from benefits in kind (such as state   in relation to large groups of households       series covering the years from 1957
education): the equivalence scales used in    and measures that do not vary greatly           onwards. From 1987 onwards, the analyses
this analysis are based on actual household   between households. Conversely, it is largest   have used a very different methodology, in
spending and do not, therefore, apply to      for small groups of households, and for         particular households are ranked by their
such items as notional income.                measures that vary considerably between         equivalised disposable income. Hence, the
                                              households. A broad numerical measure of        results are completely incompatible with
Impact of population weighting                the amount of variability is provided by the    earlier years. Last year the analysis was
56. The survey results have been              quantity known as the standard error.           published on the internet in June. A list of
re‑weighted and grossed so that the                                                           the previous articles was included in the
population totals reflect the whole           58. To give some idea of sampling               article published in March 1997.
household population, a process described     variability, the percentage standard error
as population weighting. Different            for average gross household income for all      62. The results in all analyses are intended
weights are applied to different types of     households is approximately 1.4 per cent,       to be free standing: they were not designed
households in order to correct for over       which implies a 95 per cent confidence          for direct comparison with other years
and under‑representation of these groups      interval of ±2.8 per cent                       except where some limited comparisons
in the responding sample of the EFS.                                                          were made in them. Such comparisons are
Population weighting raises the quality of    59. There will be greater sampling              difficult because of changes in definitions,
the estimates by making the population        variability associated with estimates           however, some broader measures like the
more representative and by improving the      for decile and quintile groups, and for         Gini coefficients are relatively robust and
allocation of national accounts aggregates    particular household types mainly because       will stand comparison with other years:
to individual households. Estimates based     the sample sizes are smaller. For decile and    this year’s analysis gives such a comparison
on the population‑weighted data set are       quintile groups of given household types,       for the years 1982 to 2007/08. However, in
different from estimates based on the         the sample sizes are of course smaller still,   December 2008 a relatively consistent time
sample. Indeed, if they were not, there       which will increase sampling variability        series was published for the period 1977
would be little point in the weighting. The   further.                                        to 2006/07. This series, and its associated
effect of weighting on some of the major                                                      articles, provided analysis of how income
variables used in the analysis was given in   60. Aside from sampling error, recording        distribution and income redistribution has
the 1997/98 analysis.                         household income through a survey is not        changed over time.




38      Office for National Statistics

								
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