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Ian Stewart, Chief Economist, Deloitte

One way to think about the range of incomes is to allocate individuals to 100 equally-sized groups or percentiles according to their income.  In the middle of this distribution, at the 50th percentile, incomes stand at £21,400 this year according to HMRC data. This is lower, but more representative of what most people earn, than the average income which is £30,100.

At the top 1 per cent of the income distribution - a section of the population which encompasses many professionals as well as the super-rich - average incomes stand at £150,000. In the bottom one per cent of the distribution, incomes are £8,430 and consist mainly of state benefits. This skewed income distribution means that the top 10 per cent of taxpayers receive a third of income and the top half account for three quarters of all income.

Of course the tax and benefits system redistribute incomes on a large scale. In 2012/13 taxpayers in the top half of the income distribution are forecast to pay 89 per cent of all taxes. Meanwhile, the bottom 40 per cent of households derive almost half of their income from various state benefits.

The burden of tax on those on the highest incomes has risen, with the share of the UK's total tax take financed by the highest one per cent of earners rising by a quarter in the last 10 years.

A more limited redistribution occurs through the provision of public services. The value of services from the NHS, state education along with bus and rail subsidies, does not vary much, at around £7,600 a year, for households from the bottom of the income distribution to those in the 70 per cent percentile.

At higher household incomes, above about £45,000, the value of these services tails off, in part because richer households make greater independent provision for health and education. Nonetheless, even the richest 10 per cent of households receive, on average, £5,643 worth of services through state health care, education and travel subsidies. Interestingly, households in the top 10 per cent of households receive 13 times as much from rail subsidies as households in the bottom 10 per cent.

One obvious implication of the UK's skewed income distribution is that the majority of consumer spending power comes from those on above average earnings.

A combination of tax rises, high inflation and modest growth in earnings has hit consumers across the income spectrum in the last 5 years. But most of the planned tax rises have taken effect, inflation is expected to ease and earnings are likely to edge up. The worst is probably past for incomes in the UK.


If you'd like to see where you belong in the UK income distribution, you can work it out with the Institute for Fiscal Studies' ready reckoner.


This article appeared in this week’s Monday Briefing note,  produced by accountancy giant Deloitte. See The author, Ian Stewart, writes in a personal capacity.