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Household Incomes, Taxes and Benefits

    Yesterday we published an Economic Bulletin which examined new ONS data on household incomes, taxes and benefits. Amongst other things, the ONS data showed that 51.5% of households are receiving more from the State (in cash benefits and benefits-in kind) than they are paying in taxes. Cash benefits of course include things like JSA and tax credits and benefits in-kind include health and education spending for example. The ONS is quite clear about those definitions and we have discussed it before. Indeed, the ONS does sometimes use “benefits” to describe both cash benefits and benefits in-kind. Examples are here and here and it tweeted yesterday that “51.5% of households received more in benefits than they paid in taxes in 2013/14.”

    89.3% of retired households (in 2012/13) received more from the State than they paid in taxes. However, even excluding retired households, the growth in the proportion of non-retired households receiving more from the State than they pay in taxes has also being rising as shown in the graph below. In 2000/01, the figure was 29% and by 2010/11 this had increased to 39.7%. This fell to 37.9% in 2012/13. So, even excluding retired households net dependency grew quite sharply between 2000 and 2010. We can debate about what this means and what to do about it but it is still an interesting fact in itself.

    If we want to exclude benefits in-kind and focus purely on cash benefits, then there is again a similar picture. The trend over recent decades is for an increasing proportion of households to receive more in cash benefits than they pay in taxes. This is the case both for retired and non-retired households. Although both have seen declines over the last few years. It is also worth pointing out that 56% of non-retired households with children receive more from the State compared to only 25.6% of non-retired households without children. Michael O'Connor has also tweeted out a number of other interesting charts reflecting the fact that net dependency is largely experienced by the young and the old. The crucial fact though is that it increased between 2000 and 2010 quite sharply and is now falling.

    The median disposable income of retired households grew by 7.3% in real terms since 2007/08 compared to a fall of 5.5% for non-retired households. Policies such as the triple-lock on the state pension mean that retired households have seen the real value (of at least some) of their benefits protected from inflation.

    At the same time, working households have seen a sustained weakness in their wages because of the immediate impact of the financial crisis and a longer term productivity weakness. It is essential that the Government implements a series of policies in next week’s Budget to increase productivity and help working households see stronger real incomes.

    UPDATE:

    I originally wrote that only the headline net dependency figure had been released. However, via Twitter I have come across some figures for non-retired households for 2013/14. Hopefully tomorrow I will be able to go through the full breakdown provided by the ONS.

    Adam joined the Centre for Policy Studies as Head of Economic Research in January 2014. 

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