Benefits make up over half of incomes for poorest


The average income of the poorest fifth of society rises from £7,200 to £17,200 after benefits, according to the Office for National Statistics (ONS).

Before benefits and direct taxes, the average incomes of the richest fifth and poorest fifth are at a ratio of 12:1; this is down from 14:1 in the previous year. However, after benefits and direct taxes the ratio is bought down to 5:1.

The latest figures show that the difference in income between richer and poorer households is reduced, when effects of benefits and taxes are included

The ONS report also shows that just over half of the population receive more in benefits than they do in taxes. 50.5% of all households gain more in welfare benefits, tax credits and benefits-in-kind (health and education), than they pay in indirect and direct taxes. This is equivalent to 13.7 million households.

However, households where the main earner is aged between 25 and 64 pay more in taxes than they received in benefits, whilst the reverse is true for those aged 65 and over.

If benefits-in-kind are not included, only 37% of households receive more in benefits than they pay in taxes. Furthermore only 22% of non-retired households gain more in benefits than they contribute in taxes, while 78.7% of retired households receive more in benefits.

The report also shows that indirect taxes cause an increase in income inequality and the poorest households paid more of their disposable income on things like Value Added Tax (VAT). While the richest only spend 14.4% of their income on indirect taxes, the poorest spend 27.0%.

Interestingly, it is not the poorest fifth of society whom receive the most in benefits; it is the second poorest fifth, whom on average receive £2,000 more a year. This is largely due to retired households receiving state pensions.

Despite being less progressive than many of the other benefits, the state pension has consistently made the largest contribution to the overall progressiveness of cash benefits over the past 22 years.

Source: Office for National Statistics: Effects of taxes and benefits on UK household income: financial year ending 2016