The UK’s tax system does help to cut wealth inequality, according to a new report from the Institute for Fiscal Studies (IFS), although benefits continue to do the most to help the least wealthy.
According to the research, the top 20% of earners bring in an income that is 12 times that of the bottom 20% before taxes and benefits come into play. However, when taxes and benefits are factored in, the highest earning 20% in the UK earn five times more than the poorest 20%. It was found that benefits account for the majority of this reduction, but the UK’s tax system continues to play a significant part.
The report contradicts findings released last year by the Office for National Statistics, which warned that the tax system has a “negligible” effect on income equality. The IFS report stated that the ONS had been wrong to say that VAT and excise duty hit poorer households harder, contending that the effect is roughly equal.