Median household income higher rather than lower after taxes & benefits

[GreenestValley]

just spotted this on another thread

”the median household income in the UK before taxes and benefits was £34,000, increasing to £37,600 after taxes and benefits”

I was initially baffled at how the median income could be higher after taxes, but i guess it just goes to show the volume of households paying tax vs claiming benefits?

ie anyone on more than 12k will be paying 20% tax and anything over 50k 40% tax.

even with all the middle earners paying say 4k tax a year on a salary of 30k, the benefits being paid out still takes the median to a net positive.

this isnt intended to be judgmental in any way, but found it surprising. Possibly it is a little worrying in terms of balancing the books, with more going out of the state coffers than coming in

Interesting. Wonder what happens with the mean.

The data comes from an ONS report for the year ending March 2021.

The bullet points were:

1) In the financial year ending (FYE) 2021, which covered the first year of the coronavirus pandemic, the median household income in the UK before taxes and benefits was £34,000, increasing to £37,600 after taxes and benefits.

2) The richest fifth of people’s average household income before taxes and benefits (£107,600) was 13 times larger than the poorest fifth (£8,200); however, this reduced to 4 times larger (£79,200 and £21,400, respectively) after taxes and benefits.

3) Over the 10-year period leading up to FYE 2021, the richest fifth of people’s average household income after taxes, benefits and price inflation increased by an average of 1.7% per year, compared with the poorest fifth, which increased by an average of 1.5% per year.

4) Income inequality decreased by 1.0 percentage point after all taxes and benefits between FYE 2020 and FYE 2021, following a 10-year period of relative stability.

5) Indirect taxes made income inequality rise by 3.8 percentage points; the poorest fifth of people paid 22.9% on indirect taxes such as Value Added Tax (VAT) compared with 9.1% for the richest fifth of people in FYE 2021.

6) Reductions in indirect taxes and increased benefits-in-kind, largely in response to the coronavirus (COVID-19) pandemic, drove the proportion of individuals receiving more in benefits than they paid in taxes increased from 47.5% to 54.2% in FYE 2021, the largest annual increase since records began in 1977.

Some of the results may seem surprising, especially if you have been brainwashed by various political party dogma that is frequently trotted out, but you have to remember that taxes are designed to take money from the "rich" and benefits are designed to give money to the "poor" and the data shows this is what they are doing.

The shocking figure for me is the last one - 54.2% of individuals receive more in benefits than they pay in taxes.

In FYE 2021 a lot of people were on Furlough and SEISS, and the benefits bill was massive as a result.
Not sure you can draw any meaningful long term conclusions from that anomalous year.

Also, whenever the Govt says "benefits bill" they tend to include spending on pensions, but when they talk about getting the benefits bill down they only mean working age benefits.

Interesting thread. Don’t points 4 and 5 contradict each other @jcyclops ?

They are talking about on the very same day, if you look at the income without benefits, it was 34k, but with benefits, it was over 37k. They are not talking about two points in time, but rather, two calculations. One excluding benefits and one including.

You often see the line about the rich getting richer and poor getting poorer but the figures show the factual case especially point 4.

Many have a political narrative in their heads which is more feelings than facts

It's obvious when you think about it.

Lower income households, especially those with children, have their income topped up with benefits. If you have two low paid working parents each earning £12.5k pa, they'll pay no tax, but will receive top up benefits, so their income will probably be more than £25k, probably more like £30 to £35k, depending on what help they get with childcare and housing costs.

Higher income households are entitled to little or nothing in benefits and pay a disproportionately higher percentage of their income in tax. Two earners on £50k each will each take home just over £3k pm, so about £75k pa.

So before taxes they earn about four times as much, but after taxes, more like three times as much. So affects the average across the whole population.

@RBKB i think you may have misunderstood - its the fact that income goes up after accounting for both tax + benefit - showing that on a macro level, people are taking more in benefits than they are paying in taxes.

@BarbaraofSeville
of course i understand that when comparing a case of high earners with low income benefits there will be a transfer of wealth… but i think its the ratio of receivers vs givers which surprises me.

that a seemingly ever smaller group of people are supporting a growing group of people -to @jcyclops final point - really interesting fact, thanks for sharing

will be interesting to see how this corrects as there surely is some sort of covid effect