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Over half of UK households are net beneficiaries of the state

53.4% of UK households now receive more in benefits than they pay in taxes, says a latest Centre for Policy Studies report

by The Commentator on 7 October 2012 12:18

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According to a new Centre for Policy Studies (CPS) report, the past 30 years has seen an increasing proportion of the population of total households becoming overall net recipients of the state.

In The progressivity of UK taxes and transfers, published today, the Centre for Policy Studies has outlined that the trend over the past ten years has taken the UK over the 50 percent cliff.

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

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 percent of these households received more in benefits than they paid in taxes in 2010/11 compared to 31.7 percent in 1979 and 29.0 percent in 2000/01.

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.

Tim Knox, Director of the Centre for Policy Studies, comments:

“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.”

 

Read more on: taxes, benefits, benefits reform, CPS, Centre for Policy Studies, and Tim Knox
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