Tax and benefit changes: winners and losers

Published on 20 April 2005

This note looks at the distributional impact of changes to the tax and benefit system since 1997.

Tax and benefit changes implemented by Labour since 1997 will have a net cost to the exchequer of around 2.2 billion in 200506. The average (mean) impact of this small net giveaway is to raise household disposable incomes by 1.69 a week or 0.4%. The biggest proportionate gains are in the 2nd poorest tenth of the population, whose disposable incomes are increased by 11.4%, while the richest tenth fare worst, with a cut in income of 3.7%.
Tax and benefit reforms since 1997 have clearly been progressive, benefiting the less well-off relative to the better-off. Reforms in the second term while less generous on average were more progressive than those in the first, with the poorest faring better.
Increases in council tax above inflation since 1997 will raise 5.8 billion in 200506, net of council tax benefit. This outweighs the giveaway by central government, and leaves households overall 2.85 a week worse off on average, equivalent to 0.6% of their disposable incomes. The increase in council tax is regressive, except for the poorest fifth of the population, who are partially protected from the rises by council tax benefit.

Authors

Matthew Wakefield

Matthew Wakefield

Research Associate University of Bologna

Matthew is Associate Professor at the University of Bologna focusing on consumption and savings choices and how policy affects them.

Mike Brewer

Mike Brewer

Stuart Adam

Senior Economist

Stuart is a Senior Economist working in the Tax sector, and focuses on analysing the design of the tax and benefit system.