Distributional impact of tax and welfare changes on households
The Government is committed to greater transparency around policymaking, as it is vital that policy decisions are properly scrutinised. This page summarises the impact on households of personal tax changes, tax credits, benefits and indirect tax changes being implemented in 2012-13.
The information below should be seen as an indicative guide as the analysis is necessarily simplified. Further details on the distributional impact of tax and welfare changes in the Budget, including analysis of the impact as a proportion of net income, can be found in the Budget document.
- The impact of modelled direct tax, indirect tax, and benefit and tax credit changes in cash terms by 2012-13 is set by income decile in the chart below. The top income decile sees the largest absolute losses, while, on average, the bottom three income deciles experience the lowest losses.
- All but the top two deciles see cash gains from direct tax changes. Households in the bottom two deciles are on average gainers from changes to benefits and tax credits. The increase in the standard rate of VAT is the most significant change to indirect taxes.
- As a percentage of net income, the overall impact is spread more evenly across the income distribution. However, those in the top decile pay more as a percentage of income than those in the bottom decile.
- The impact of the changes to VAT and duties by expenditure distribution is shown in the chart below. The changes in VAT and duties are progressive on this basis. The chart shows that those with the greatest expenditure lose almost 15 times more, in absolute cash terms, than those with the lowest level of expenditure from changes in indirect taxes.
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- As a percentage of net income, the overall impact of indirect taxes on household income confirms this pattern.
- The overall impact of all modelled Budget changes on child poverty in 2012-13 is statistically insignificant, and the combination of freezing Child Benefit and above indexation increases in Child Tax Credit has a progressive effect.
- Changes to the uprating rules for the basic State Pension will benefit 11 million pensioners in the UK.