Changes to the tax and benefit system over the last two decades have strengthened its ability to reduce inequalities in women's lifetime income, according to a new think-tank study. A life-cycle perspective was adopted on women's lives in order to see how the system affects work incentives and redistributes income.
- The single most important recent change has been the increase in work-contingent support for low-income families with children, beginning with the working families tax credit introduced in 1999 by the former Labour Government.
- The working families tax credit was especially powerful in reducing inequality among women in the low-education group. This was partly because it was targeted at those with low income: but also because it increased employment among a group with relatively low attachment to the labour market, thus reducing inequality in both gross and net income.
- Furthermore, because time out of the labour market can have permanent effects on future earnings, encouraging women to work when children are present can reduce lifetime inequalities as well as cross-sectional ones.
- The tax-benefit system is now 'particularly good' at ensuring that lone motherhood does not lead to persistent inequalities in lifetime income.
Source: Mike Brewer, Monica Costas Dias and Jonathan Shaw, A Dynamic Perspective on How the UK Personal Tax and Benefit System Affects Work Incentives and Redistributes Income, Briefing Note 132, Institute for Fiscal Studies
Link: Briefing Note