By Marcus Leach

An Office for National Statistics (ONS) analysis of the effects of taxes and benefits on inequality over 30 years has shown that taxes overall made little difference to income inequality.

Although direct taxes reduce inequality, indirect taxes increase inequality by roughly the same amount.

However, cash benefits play the largest part in reducing income inequality. These benefits included income support, child benefit and housing benefits.
Indirect taxes consist of taxes paid on spending, such as VAT, duties on alcohol and tobacco and fuel and taxes which are passed on to customers through the prices of good and services.

The effects of taxes and benefits on income inequality, 1980-2009/10, published today, shows that although richer households pay a larger proportion of their income on indirect taxes, indirect taxes in the UK have been regressive over the last 30 years and therefore increase income inequality.

Inequality of disposable income for retired households remained higher in the late 1990s and 2000s than it was in the early 1980s.

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