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21 March 2012

Distributional impact of tax and welfare changes on households

The Government has taken steps to increase transparency and enable the effective scrutiny of policy-making. Budget 2012 builds on distributional analysis published at Budget 2011, June Budget 2010 and Spending Review 2010.

The following is a summary of the impact on households of personal tax changes, tax credits, benefits and indirect tax changes being implemented in 2013-14. 

The information below should be seen as an indicative guide as the analysis is necessarily simplified. The full analysis of the distributional impact of tax and welfare changes in Budget 2012, including analysis of the impact as a per cent of net income and by expenditure decile along with analysis of the combined impacts of all Government spending, can be found in the Budget document.

Impact of the tax and benefit system

• In the following analysis, households are ordered by their income and then divided into 10 equally sized groups called deciles.  The first decile contains the tenth of households with the lowest income while the top decile contains the tenth of households with the highest income.
• As households with more individuals require higher levels of household income to achieve the same standard of living, an internationally standard process of adjustment called equivalisation is used to ensure households are compared on an equal basis.
• This graph shows the impact of tax, tax credit and benefit changes as an absolute amount for each income decile. The highest income decile sees the largest absolute losses, more than twice as much as the ninth decile and more than ten times as much as the lowest decile.  

• Chart B.1 shows the cumulative impact of modelled tax, tax credit and benefit change si cash terms y income decile.  This analysis shows that in absolute terms the top decile sees the largest reduction in income.

Income Tax and National Insurance

The following table shows estimates of income tax and National Insurance Contributions paid for individuals under the age of 65 at different expenditure levels.  It shows the amounts paid in 2011-12 and 2012-13, and estimates for amounts in 2013-14 following the changes announced at the June Budget 2011 and changes at this Budget.

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