150917 Taxes and benefits on household incomes
  • Arrgh! Dear me, you don’t want to know how much sweat and frustration went into the chart above – so I’ll spare you my grisly account of Microsoft Excel’s reluctance to allow stacked and clustered columns to exist together. Instead, let’s just concentrate on what it shows. Here are the average household incomes across ten deciles. The light blue bars represent their original incomes (from earnings, but also from things such as pensions and investments). The green bars are the benefits that are then added (in cash, but also in kind). The red bars are the taxes that are taken away (both direct and indirect). And it leaves us with the final incomes recorded by the dark blue bars.
  • A portrait of redistribution. The spread of taxes and benefits is pretty much as you’d expect. At the bottom of the scale, the original income of £3,738 has £12,601 of benefits added to it, and £4,290 of taxes taken away, to leave a final income of £12,049. At the top, the original income of £102,366 is amended by £7,563 of benefits and £36,247 of taxes, to leave a final income of £73,682. In between, with the exception of the second decile, the taxes accumulate whilst the benefits decline. It’s redistribution in picture form.
  • Introducing percentages. Another – and quite handy – way of expressing the final incomes is as a percentage of the original incomes. Here’s a table:
150917 Taxes and benefits on household incomes table
  • The crossover. One thing that stands out from the table is the point of crossover, when net subsidees become net subsidisers. In 2013-14, which is the latest year for which figures are available, this came between the sixth and seventh deciles. The former had a final income that was 105 per cent of original income, the latter had one of 93.3 per cent. But this crossover point moves over time, with changes in income levels, taxes and benefits. In 1977, the earliest year for which figures are available, it fell between the fourth and fifth declines. In 1997, it was between the fifth and sixth. The income distribution has been becoming kinder for middle-earners.
  • Middle-income gains. Of course, there have also been many pressures on middle-income earners – which is why politicians and think-tanks lavish so much attention on them. But, in this one respect at least, more and more of them are gaining, overall, from the state. To what extent should this continue? To what extent can it? Fiscally-minded politicians ought to give it some consideration.