Income gap narrows between rich and poor households, statistics show

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Income inequality fell last year as Government benefits and direct taxes helped narrow the gap between Britain's richest and poorest households.

Figures released by the Office for National Statistics (ONS) showed that, while median disposable income for UK households was around £600 higher at £26,300 in 2015/16 when compared with a year earlier, and £1,000 higher than before the economic crisis, the most affluent earners took a hit.

Median disposable income for the richest fifth of the population fell by 1.9%, or £1,000, while their poorest counterparts saw that income rise by 5.1%, or £700. 

Disposable income is defined as money available for spending and saving after direct taxes such as income tax and council tax, and includes earnings from employment, private pensions, investments and state benefits.

"Overall, cash benefits and direct taxes led to income being shared more equally between households," the ONS said.

Original income - defined as earnings before direct tax and benefits - for the richest fifth of the population was around 12 times higher than their poorest counterparts, at £85,000 and £7,000, respectively.

But once taxes and benefits were applied, the difference in disposable income fell, with the richest earning about five times more than the worst-off workers, at £62,400 and £12,500 per year respectively.

The ONS noted a "gradual decline" in income inequality over the past decade, with current levels similar to those seen in the mid-to-late 1980s.

Chancellor of the Exchequer Philip Hammond said: "Our reforms to the tax system mean hard-working people are keeping more of what they earn.

"Increases to the personal allowance have taken millions out of income tax altogether and reduced tax bills for some of the lowest earners by £1,000 a year."

However, the report noted that working households were still lagging behind retirees who saw their median income rise by 3.1% last year. 

Working household income was "broadly unchanged" last year and was still 1.2% lower pre-downturn levels in 2007/08.

That is compared with retirees who saw their income rise by 13% over the same period. 

ONS head of household income and expenditure analysis Claudia Wells said: "Household incomes are above their pre-downturn peak overall, but not everyone is better off.

"While retired households' incomes have soared in recent years, non-retired households still have less money, on average, than before the crash."

Shadow Chancellor Susan Kramer said: "Even though the economic crash has now receded into memory, its aftershocks are still being felt by many working people. They are struggling from pay cheque to pay cheque.

Referring to the government acronym Jams, which means "just about managing" families, Ms Kramer said: "The Prime Minister, for all her talks on 'Jams', is in a pickle and needs to grasp the nettle (to) do much more to help the squeezed middle."