Julian Jessop

Have we become too dependent on the state?

I have to tip my hat to Civitas. The ‘Tufton Street’ think tank made quite a splash on Monday, including bagging the front page of the Daily Mail, with two striking claims.

One was that more than half of UK households now receive more in benefits from the government than they pay in tax. The other is that the top 10 per cent of earners pay more than half of all income tax.

Both headlines are correct, but a bit more analysis is needed to interpret these figures properly.

For a start, this is not new information. The Civitas report acknowledges that it is simply repackaging data which was first published by the Office for National Statistics (ONS) in July last year. The ONS revealed that the proportion of individuals receiving more in benefits than they paid in taxes jumped from 47.5 per cent in the fiscal year 2019–20 to 54.2 per cent in 2020–21.

Crucially, these figures are heavily influenced by the pandemic. The accompanying recession led to a fall in tax revenues and an increase in welfare payments, thus increasing the proportion of working-age households who received more in benefits than they paid in tax. As the economy recovers, this proportion should fall back.

Second, it is important to understand that the definition of ‘benefits’ here includes state education and healthcare, as well as cash payments such as Universal Credit and the state pension. The spike in government spending on health in response to the pandemic therefore also helps to explain the jump in the figure for 2020–21.

Third, this is another issue which is largely about different generations. The ‘winners’ are mainly younger households with children in state schools, and older households receiving the state pension and making more use of the NHS.

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