IDEAS home Printed from https://ideas.repec.org/a/oup/oxford/v41y2025i1p140-152..html
   My bibliography  Save this article

Programme interactions and fiscal drag in the UK tax-and-benefit system: effects on income inequality

Author

Listed:
  • Victoria Prowse

Abstract

This paper provides a comprehensive quantitative analysis of the UK tax-and-benefit system in 2023, focusing on its impact on income inequality. Using a microsimulation model and Family Resources Survey data, we find that the system reduced income inequality by 27.6 per cent, as measured by the Gini coefficient. While substantial, this effect falls short compared to some other OECD countries, such as Ireland and France. Both non-means-tested and means-tested benefits play important roles in addressing inequality. Fiscal drag, a form of stealth taxation that arises when inflation is not accompanied by corresponding increases in tax thresholds, is shown to be a substantially less equitable method of raising revenue than adjusting tax rates, since it imposes regressive effects, particularly on individuals near tax thresholds. Furthermore, increasing the Universal Credit standard allowance proves more effective at reducing inequality than lowering the taper rate, as it provides more targeted support to low-income households. Finally, we emphasize the influence of programme interactions, especially between non-means-tested and means-tested benefits, on income distribution.

Suggested Citation

  • Victoria Prowse, 2025. "Programme interactions and fiscal drag in the UK tax-and-benefit system: effects on income inequality," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 41(1), pages 140-152.
  • Handle: RePEc:oup:oxford:v:41:y:2025:i:1:p:140-152.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/oxrep/graf010
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:oxford:v:41:y:2025:i:1:p:140-152.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/oxrep .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.