The problem with Britain’s benefits debate

A report claiming a majority of us receive more in benefits than we stump up in tax made headlines yesterday. The analysis produced by the think tank Civitas contends that 36 million Britons, or 54 per cent, live in households that get more out than they put in. This finding may well appeal to those who reckon the country consists of lazy, feckless scroungers on the take from hard-working people like them. 

At risk of spoiling the fun, the truth is a little more prosaic. For one, Civitas gets to its 54 per cent figure by counting not only pensions and welfare payments but ‘benefits in kind’, i.e. the ‘imputed value’ of the NHS treatment, state education and social care each household receives. Civitas volunteers this but most people do not consult the methodologies of think tank reports. Most people will give the word ‘benefits’ its commonly used construction: welfare payments to the unemployed, those unable to work for health reasons or families who struggle to meet housing or other costs. 

Those kinds of benefits are part of the Civitas calculation but they are unhelpfully conflated with public services that the average person would not think of as a benefit. The other problem with including ‘benefits in kind’ is that, by implication, families who rely more heavily on healthcare or education than others are somehow living off largesse paid for by their neighbours. Under the terms of the report, one of the reasons older people are determined to receive more benefits is because they make more use of the NHS. 

Speaking of pensioners, the data about this particular cohort have not grabbed quite so many headlines. The analysis finds that ‘the percentage of retired individuals receiving more in benefits than they pay in tax is high: 87.6 per cent’, reflecting the aforementioned NHS usage but also their triple-locked benefits in the form of the state pension, the most expensive item in welfare spending and second most expensive item in the entire UK budget. So much of the conversation about benefits in the UK is about desert – pensioners deserve their money, other benefit recipients don’t – and yet the public perception of spending on working-age benefits versus payments to retirees is starkly at odds with the actual figures. 

This is before we get to some of the language employed in the report and its ideological underpinnings. What the authors characterise as ‘dependency’ can just as easily be termed redistribution or the provision of social security and public services. If you regard benefits as handouts, then you probably would deem receipt of greater monetary (or in-kind) value than has been contributed a dependency, but if you think of these transfers as social security, designed to meet material needs, alleviate poverty, and lessen inequalities, then you might well think this is the state functioning as it ought to. 

The point about inequality is not mere socialist hand-wringing. As the report notes, the Gini coefficient measure of income inequality was lower in 2020/21 than in 14 of the previous 20 years of the 21st century. So when Civitas says the ‘net dependency ratio’ – the percentage of those benefiting more from state spending than they pay in taxes – is ‘the highest on record’, might that have something to do with the reduction in the Gini coefficient? 

This is not to say the report doesn’t supply some useful data. Take what it has to say about tax. Attention has focused on the statistic that the top ten per cent of households pay 53 per cent of income tax. Left-wingers might say in response: great, that’s how progressive taxation works. But this figure in fact highlights the limitations of income tax rates which see two-thirds of all revenue supplied by the wealthiest 20 per cent of individuals. If public services such as the NHS continue to produce mediocre outcomes with these levels of taxation, how much scope is there for simply raising rates or lowering thresholds and hoping for the best? Or should the top-heavy reliance on the highest earners prompt a debate on whether income tax has to be higher across the board? 

Then there is the finding that ‘the middle group of non-retired individuals on average now receive more from the state in cash benefits and benefits in kind than they pay in taxes’. We might ask whether this is a product of long-term stagnation in wages or increases in public spending on health or something else. Whatever the answer, the question underscores just how unsound the fundamentals of income distribution, and even the economy itself, are in the UK. A social security model that aims to include more middle-income households is a perfectly noble endeavour but one that does so unintentionally is in trouble.

Whether you consider the Civitas report an indictment of Benefits Britain or an imperfect measure of our social security system, what is unavoidable is that the UK does not enjoy the levels of economic growth needed either to make work pay and thus reduce welfare spending or to fund a comprehensive benefits regime that addresses the scale of the social and economic disparities Britain faces. This is a country more interested in arguing over how it divvies up its resources than in how might grow them.