53.4% OF UK HOUSEHOLDS NOW RECEIVE MORE IN BENEFITS THAN THEY PAY IN TAXES
The past 30 years has seen an increasing proportion of the population of total households becoming overall net recipients of the state, writes Ryan Bourne in The progressivity of UK taxes and transfers.
This has been particularly marked in the past ten years:
- in 1979, 43.1 per cent of total households received more in benefits (including state spending on benefits in kind, such as the NHS and state education) than they paid in taxes (including direct taxes such as income tax and indirect taxes such as VAT, fuel and alcohol duties)
- in 2000/01, this figure was 43.8 per cent
- in 2010/11, this figure was 53.4 per cent
Around three million more households were net recipients of the state in 2010/11 than just ten years earlier
Over this period, middle-income households have also moved from being significant net contributors to the state to significant net recipients.
- twenty years ago, in 1990, the middle quintile of households faced an effective tax rate of 8.2 per cent. But by 2010/11 this had reversed: their effective tax rate was -20.4 per cent. In other words, the average household in the middle quintile used to pay £1,673 more in tax than it received in benefits and benefits in kind
- in 2010/11 received £4,589 more in benefits than it paid in taxation. If the average household in the middle income group faced the same net effective tax rate in 2010/11 as in 1990, then they would be making a net contribution £6,425 higher today.
In 2010/11, households in the highest quintile effectively financed the great majority of net transfer to all other households.
- Lowest quintile: received £10,153 more in benefits than paid in taxes
- Second quintile: received £9,655 more in benefits than paid in taxes
- Middle quintile: received £4,589 more in benefits than paid in taxes
- Fourth quintile: paid £4,113 more in taxes than received in benefits
- Highest quintile: paid £20,125 more in taxes than received in benefits
At least part of this change in effective tax rates is down to changing demographics, with an increasing proportion of retired households in the middle three quintiles.
But similar trends are also observed when purely examining non-retired households. 39.6 per cent of these households received more in benefits than they paid in taxes in 2010/11 compared to 31.7 per cent in 1979 and 29.0 per cent in 2000/01.
In addition, the ONS produced new data on request from the CPS to show that the proportion of non-retired households receiving a cash benefit other than child benefit rose from 40.3 per cent in 2000/01 to 44.6 per cent in 2010/11 – an increase of over a million households.
Tim Knox, Director of the Centre for Policy Studies, commented:
“These trends are unsustainable – particularly given the ageing profile of the UK population. Reversing the trend will require implementation of tough policies to get more people into work; to continue the reform of public services; to restrain increases in the cost of benefits payment; and to ensure that enterprise has the freedom to flourish, leading to more growth, more employment and higher wages and salaries.”
Ryan Bourne, Head of Economics at the Centre for Policy Studies, commented:
“These data show that even before the financial crisis, the Labour government was ramping up spending on cash benefits and benefits in kind without corresponding increases in taxation. This was not redistribution from rich to poor, but redistribution from the future to the present. It felt good at the time, but given the government doesn’t have its own money, was unsustainable.”
“But forget about Mr Osborne's speech. Something far more interesting happened yesterday. While the Chancellor was doing his TV and radio interviews to publicise his supposedly tough stance on welfare and scroungers, [the Centre for Policy Studies] was distributing copies of its latest report, with the title: "The progressivity of UK taxes and transfers."
THAT might sound like a technical read. Trust me on this: the message within it is the single most important fact in British politics. Because the report shows that the majority of UK households now take from the state more than they put in. Or, to be specific: 53.4 per cent of households now receive more in benefits than they pay in taxes.”
“The centre, a think tank with Thatcherite origins, has based its conclusions on an analysis by the Office for National Statistics of household income data since 1979. “If you look over a number of years you can see it hasn’t always been this way; there has been a large jump in the number of people who are net recipients. Basically, it is being driven by deficit spending and an increase in cash benefits,” said Ryan Bourne, head of economic research at the think tank.
The findings are likely to prove highly controversial for politicians as the Tory party conference begins this weekend.”
“The UK Office for National Statistics produced new data on request from the CPS to show that the proportion of non-retired households receiving a cash benefit other than child benefit rose from 40.3 per cent in 2000/01 to 44.6 per cent in 2010/11 – an increase of over a million households.”
“The imbalance, with people’s taxes not covering use of services such as free schooling and the NHS, will become ‘unsustainable,’ it warned, blaming Labour.”
“MORE than half of Britain’s homes claim more from the state than they put in, shock figures revealed yesterday.”
“The Centre for Policy Studies, which compiled the report, said the situation was ‘unsustainable’.
The think-tank says benefits will have to be slashed, and the pension age increased, to balance the books.”