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The gap in final incomes between the UK’s richest and poorest households shrank in the year to last March, official figures show, despite popular concern over perceived rising inequality.

The average pre-tax income of the richest 20 per cent of households was £84,700 in the financial year ending 2016, 12 times higher than the income of the poorest 20 per cent.

Rising wages and employment levels for the poorest households helped to reduce this ratio from 14:1 the previous year, but the gap was significantly smaller after taxes and benefits were taken into account.

The ratio of final income for the richest 20 per cent compared to the poorest 20 per cent fell to less than 4 to 1, with the richest fifth receiving an average of £63,300 and the poorest fifth an average of £17,200.

The data – which include the impact of indirect taxes such as VAT as well as benefits in kind like education and healthcare – echo figures released in January which showed inequality falling to its lowest level since 1986 when measured by disposable income.

However, as the numbers cover only the period to last March, they do not yet show the impact of recent developments such as rising inflation and slowing wage growth.

Groups including the Resolution Foundation think-tank and the Institute for Fiscal Studies have predicted that low-income households will be hit harder by rising prices, with income inequality likely to increase during the next four years.

Just over half of households received more in benefits than they paid in taxes in the year to March 2016, though this figure includes recipients of state pensions. Households with a main earner between 25 and 64 paid more in taxes than they received in benefits.

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