Income gap between rich and poor households closes

Cash benefits and direct taxes led to income being shared more equally between households, the ONS said.
Cash benefits and direct taxes led to income being shared more equally between households, the ONS said.

Income inequality fell last year as Government benefits and direct taxes helped narrow the gap between Britain’s richest and poorest households.

Figures released by the Office for National Statistics (ONS) showed that, while median disposable income for UK households was around £600 higher at £26,300 in 2015/16 when compared with a year earlier, and £1,000 higher than before the economic crisis, the most affluent earners took a hit.

Median disposable income for the richest fifth of the population fell by 1.9%, or £1,000, while their poorest counterparts saw that income rise by 5.1%, or £700.

Disposable income is defined as money available for spending and saving after direct taxes such as income tax and council tax, and includes earnings from employment, private pensions, investments and state benefits.

“Overall, cash benefits and direct taxes led to income being shared more equally between households,” the ONS said.

Original income - defined as earnings before direct tax and benefits - for the richest fifth of the population was around 12 times higher than their poorest counterparts, at £85,000 and £7,000, respectively.

But once taxes and benefits were applied, the difference in disposable income fell, with the richest earning about five times more than the worst-off workers, at £62,400 and £12,500 per year respectively.

The ONS noted a “gradual decline” in income inequality over the past decade, with current levels similar to those seen in the mid-to-late 1980s.