Annual tax data revealed by HMRC

Date: 30th July 2009

The way in which government tax aid and other benefits affects households' income levels has been explored in a wide-ranging new survey from HM Revenue & Customs (HMRC).

According to the taxation authority, the typical household in the top 20 per cent of incomes earned a total of £72,600 over 2007/08, while the bottom 20 per cent earned £4,700.

After taxes and benefits were deducted, these averages stood at £52,400 versus £14,300 - a much smaller gap.

These differences in pre- and post-tax income are broadly similar to those of 2006/07 - suggesting that the "wealth gap" of unequal incomes is not being bridged by the government.

"During the 1990s and 2000s, there were periods of both rising and falling inequality, but the level of inequality remained high by historical standards - the large increase which took place in the second half of the 1980s has not been reversed," the report added.

The tax burden was revealed to still be proportionally lighter for low earners.

People in the top 25 per cent of earnings were found to pay 25 per cent of their income in direct taxes - while those in the bottom 25 per cent paid 11 per cent.

HMRC also revealed that certain demographic groups had done better than others due to government tax policies.

For example, single adults with children generally see a "net gain" on their income when taxes and benefits are taken into account - with final earnings rising from £11,000 to £22,900 a year.

"Most other non-retired households pay more in tax than they receive in benefits," HMRC said.

"However, households with children do relatively better than those without children due to the cash benefits and benefits in kind (including health and education services) received by these households."

Common cash benefits offered by the government include Income Support, Pension and Working Tax Credits and Incapacity Benefit.