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A time series look at household net contributions/receipt from government

    My piece in City AM today looks at how the proportion of households who are net recipients of the state (defined as those who receive more in benefits and benefits-in-kind than they pay in taxes) has changed since 1979.

    As the chart below shows, this has historically troughed at around 43-44 per cent, rising after recessions, but then gradually returning to this level. However, between 2000/01 and 2007/08, there was a clear upward trend even prior to the crisis, such that the proportion of net recipients was around the same level in 2007/08 as after the early 1990s recession in 1993. Looking at the components of what drives this, it’s clear that increased government spending on benefits and benefits-in-kind for middle income households was key.

    Unsurprisingly, the financial crisis and subsequent recession pushed this net recipient level to much higher levels than had previously been seen. Between 2000/01 and 2010/11, the proportion rose from 43.8 per cent to 53.5 per cent, a rise of over 3 million households. This has fallen over the last year, but still has a hell of a long way to go to get back to historic levels.

    Of course, in an ideal world you’d also like to include public sector employment into the net recipients of government figures, since payment of government employees acts very much like a transfer. You’d also like to think of some way of accounting for other government provision, like defence and policing. Unfortunately, there is no combined dataset as yet that makes this calculation possible. But the time series nature of the data means they are still instructive.

    Why are these figures interesting? A country with a welfare state will naturally redistribute by providing money and services to the less well-off. But what this shows is that even in the good years, the last government was increasing spending on middle-income households without corresponding increases in their tax burden. Naturally, over time, people become accustomed to these provisions, making it a) very difficult for governments to row back on their ‘promises’, b) making it very easy for people to demand that others pay for their provisions.

    Or as Thomas Sowell’s article put it last week on politicians: “Nothing is easier…than being "understanding" and "compassionate" at someone else's expense”.

    Ryan joined the Centre for Policy Studies in January 2011, having previously worked for a year at the economic consultancy firm Frontier Economics.

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