Falling Dependency But Still Too High

The latest ONS data release on the effects of taxes and benefits on household income show that 52% of households are receiving more in benefits than they pay in taxes. Whilst this means that there has been a welcome fall of 1.5 percentage points in net dependency on the state since 2011, it is still 8.2 percentage points higher than in 2000. Overall, this means that approximately 13.8 million households are receiving more from the state in benefits than they are paying in taxes.

The latest figure of 52% over 2012/13 is also 7 percentage points higher than the long term average of 45% between 1977 and 2000. Since 2000 the proportion of households who receive more in benefits than they pay in tax rose rapidly from 43.8% in 2000 to a peak of 53.5% in 2011.

For non-retired households the percentage of those that are net dependent on the state has fallen by 1.8 percentage points from 39.7% in 2011 to 37.9% in 2013.

This small fall in net dependency on the state is of course welcome but the fact that over half of all households receive more in benefits than they pay in taxes is still shocking. There is still much more to do before we get back to the long term average of 45%.

Breaking the households down into quintiles shows that each fifth apart from the second bottom quintile has seen a fall in their net dependency on the state. Net dependency is the balance of total cash benefits and benefits in kind received and the total direct and indirect taxes paid. In 2010/11, the poorest 20% received £10,200 more than they paid and in 2012/13 this had fallen to £10,056.

The middle quintile saw an average reduction in their net dependency of 17% over the same time period receiving £3,999 in 2012/13 compared to £4,820 in 2010/11. To a great extent, this fall in net dependency seems to have come from a fall in benefits in kind with quite substantial falls in the value of health and education expenditure. The middle households also paid an extra £100 in tax in 2012/13 compared to 2010/11.

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Tim Knox, Adam Memon - Friday, 27th June, 2014