Average disposable household income fell in 2010/11

Overall, households paid £7,500 per year in direct taxes (such as income tax and council tax). The richest fifth paid 24 per cent of their gross income (£19,700), while the poorest fifth paid 10 per cent of gross household income (£1,300).

However, the lowest income groups pay a much higher share of their income in indirect taxes (such as VAT and duties on alcohol and fuel). The proportion of income paid in indirect taxes has increased for all groups between 2009/10 and 2010/11. The increase can largely be explained by the standard rate of VAT increasing from 15 per cent to 20 per cent over this period.

On average, the poorest fifth saw the biggest increase in the amount of their disposable income paid in indirect taxes (from 28 per cent to 31 per cent). The richest fifth saw the amount paid rise from 12 per cent to 13 per cent. The amount of indirect tax each household pays is determined by how much they spend on goods and services that attract these taxes.

The amount of cash cash benefits (such as tax credits, housing benefit and income support) received tends to be higher for poorer households than for richer households. The largest cash benefits were received by households in the second quintile group (£8,300 on average, compared with £7,000 for households in the bottom group). This is largely because more retired households are located in the second quintile group, compared with the bottom group, and in this analysis the state pension is classified as a cash benefit. The richest fifth only received £2,100 in cash benefits, with the main source being the state pension.

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