English: There was a fall in income inequality between 2010/11 and 2011/12. This was driven partly by earnings falling for higher income households and partly by changes in taxes and benefits.

These changes include an increase in the income tax personal allowance and changes to National Insurance Contributions and Child Tax Credits.

Disposable incomes have fallen since the start of the economic downturn, with average equivalised income falling by £1,200 since 2007/08 in real terms. The fall in income has been largest for the richest fifth of households (6.8%). In contrast, after accounting for inflation and household composition, average income for the poorest fifth has grown over this period (6.9%).

Before taxes and benefits, the richest fifth of households had an average income of £78,300 in 2011/12, 14 times greater than the poorest fifth, who had an average income of £5,400.

Overall, taxes and benefits lead to income being shared more equally between households. After all taxes and benefits are taken into account, the ratio between the average incomes of the top and the bottom fifth of households (£57,300 per year and £15,800 respectively) is reduced to four-to-one.

The proportion of disposable income paid in indirect taxes increased across the income distribution in 2011/12 compared with the previous two years. This is largely explained by the increase in the standard rate of VAT in 2010 and 2011.

On average, households in the top two income quintiles paid more in taxes than they received in benefits, while households in the bottom three quintiles received more in benefits than they paid in taxes.