More than 50% of households receive more from the State in the form of benefits than they pay in tax.
That’s the conclusion of the latest economic bulletin from think tank the Centre for Policy Studies, which analysed data from the Office for National Statistics. It revealed that 51.5% of households received more from the State in the form of cash benefits and benefits in-kind in the last tax year than they paid in taxes, both direct and indirect.
That figure is falling though – back in 2010/11 it stood at a peak of 53.5%. But while it has been reduced since then, this ‘net dependency on the State’ remains well above historic levels. For example in 1979 it stood at 43.1%, and by 2000/1 it had only increased marginally to 43.8%.
The Centre for Policy Studies warned that such dependency is “an economically destructive phenomenon which tears at Britain’s social fabric”, reducing the incentive to work and trapping people in a “cycle of low aspirations, low productivity and low pay”.
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Taxes and benefits
According to the Centre for Policy Studies, the average household paid £13,402 in taxes in 2013/14. Yet it received £12,939 in cash benefits and benefits in-kind, which the think tank argued demonstrates the “churn” taking place in the welfare system. People are taxed, their money goes through the Government’s administrative machine, and then it is paid back out to them in benefits.
“It is far more efficient to tax less and spend less in order to reduce this unnecessary recycling,” the report concluded.
However, more needs to be done to tackle the fact that the poorest households are paying very high taxes as a proportion of gross income. According to the report, the richest fifth of households paid £29,200 in tax in the last financial year, equating to an average tax rate of 34.8% of their gross incomes.
[SPOTLIGHT]Meanwhile the poorest fifth of households paid just £4,900 in taxes, in proportionate terms that works out at 37.8% of their gross incomes.
What needs to be done
The think tank wants to see the Government cut taxes, which it claims will “significantly improve the living standards of poorer households even without considering the potential dynamic benefits”.
It also urged the Government to press ahead with “deeper welfare reform” in order to tackle the net dependency on the State, stating: “Simply attempting to alleviate difficult economic conditions with welfare payments can only ever be a short term fix.”
The Chancellor George Osborne is expected to give more details on how he will deliver the promised £12 billion of savings in the welfare budget in the Summer Budget, taking place on 8th July. You can read more about his options in Which benefits will the Government cut?
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