'Welfare dependency' or essential redistribution?

By Bernadette Meaden
August 20, 2016

The Centre for Policy Studies (CPS) has issued an Economic Bulletin 'The Independence Revolution Must Go On', based on figures from a recent Office for National Statistics publication 'The effects of taxes and benefits on household income'.

The ONS figures show that "over half of households received more in benefits (including  benefits in kind) than they paid in taxes for the  year 2014/15…It is estimated that 50.8 per cent of households are net dependents". The closer one looks at these figures, however, the more questions arise about how we define dependency, who actually benefits from benefits, and how we think about the redistribution of wealth.

The CPS views the ONS figures largely in terms of ‘welfare dependency’, concluding that, "The Government’s record in reducing dependency on the State is strong, but there is plenty more to do.’ It even takes the opportunity to mention that "children growing up in workless households …have, on average, lower cognitive ability." saying that, "This highlights the social cost of welfare dependency and need to reduce welfare dependency in society." Even ‘the so-called 'intergenerational transmission' of worklessness’ gets a mention.

But wait a minute – as the CPS itself has just pointed out, over half of UK households are classed as ‘dependent’ because they are deemed to receive more from the state than they pay in. ‘Worklessness’ is a factor in only a fraction of those households. There is much more going on here.

If we view the same ONS data from a different perspective, it is possible to draw very different conclusions, and to raise questions about how and why people are considered ‘dependent’ on the state. (The data used by the ONS can be found in Table 2 here )

Firstly it is interesting to note that the bottom quintile of households, with an average gross income of £13,841, pay 37 per cent of that income in taxes, whilst the top quintile, with an average gross income of £86,768 pay only 34 per cent. So it certainly isn’t all take and no give from those at the bottom of the income scale. Council Tax, and indirect taxes like VAT, take a far higher proportion of the incomes of the poorest than of the richest.  After paying direct and indirect taxes, the bottom quintile of households are left with a post-tax annual income of just £8,667. And remember, this is per household. And this is 20 per cent of households in the UK.

A closer look at the figures also reveals that whilst 88.7 per cent of retired households receive more in benefits than they pay in taxes, only 36.8 per cent of non-retired households do so, further reducing the impression of a working age population largely dependent on ‘welfare’ and which can be made independent by welfare reform – unless we are going to count pensioners as ‘welfare dependent’ and cut pensions. And remember, the benefits taken into account to arrive at these figures are not all cash benefits that people can spend, but include ‘benefits in kind’ like health and education.  

It is interesting to note that the ONS calculates that households at the top of the income scale receive less in ‘benefits in kind’, partly because they have fewer children, but also because they use private healthcare and private education. So it would seem that if you are on a lower income, your household’s use of the NHS and local schools could result in you being deemed ‘dependent’ on the State. This is not ‘welfare dependency’ as it is commonly understood.

It is also very interesting to see that when calculating what households receive in cash benefits, the ONS is scrupulous to include every benefit issued by the DWP.  Likewise for benefits in kind – even nursery milk is included. But aren’t there some benefits that more prosperous people can and do receive from the government but which are not included here?

Top of the list must be landowners, who receive payments simply for owning land. In 2013 George Monbiot wrote that this was "the most blatant transfer of money from the poor to the rich that has occurred in the era of universal suffrage". He went on to point out that "The minister responsible for cutting income support for the poor, Iain Duncan Smith, lives on an estate owned by his wife's family. During the last 10 years it has received €1.5m in income support from taxpayers. How much more obvious do these double standards have to be before we begin to notice?"

Yet it is not just landowners who can receive a very nice bonus from the government and not be deemed ‘dependent’. Take homebuyers, whom David Cameron was famously very keen to assist. The Help to Buy ISA website says, ‘for every £200 you save, receive a government bonus of £50. The maximum government bonus you can receive is £3,000… The accounts are available to each first time buyer, not each household. This means that if you are planning to buy with your partner, for example, you could receive a government bonus of up to £6,000 towards your first home.’ 

When it comes to calculating who receives most from government, housing is an intriguing area. Housing Benefit is shown by the ONS as a cash benefit going almost entirely to those on the bottom two quintiles of the income scale. Yet much Housing Benefit is paid direct to landlords and never even touches the bank account of the tenant. We know that in 2015 private landlords received £9.3 billion in Housing Benefit. In the ONS figures this will presumably be counted twice – first as a cash benefit to people in the lower quintiles of income, even if it never enters their bank account, and secondly as income for those in the higher quintiles who happen to be private landlords.  Indeed, the income of many private landlords in the upper quintiles of the income scale may be largely comprised of Housing Benefit paid to them directly.

Our dysfunctional housing market explains a large proportion of the ‘dependency’ which the CPS wants to see reduced. The latest English Housing Survey found that ‘tenants paid an average of 47 per cent of their net income in rent’. Meanwhile the CPS, in calling for the government to do more to reduce dependency, looks back nostalgically to 1979, when "the proportion of households in net dependency was just 43.1%". But surely this was almost entirely due to the fact that, as the IFS says (see figure 2.4b)  "Percentage of income spent on housing costs was around eight per cent for all tenures in 1979". Imagine if rents took just eight per cent of a tenant’s income today – the whole economy would be transformed.

It would seem that what the ONS figures tell us is not so much about ‘welfare dependency’, but about an economy in which large numbers of people are barely existing on pitifully low yet heavily taxed incomes, and the small but essential redistribution of wealth from the richest to the poorest is what enables them to survive. What we are looking at, what the ONS figures represent, is not welfare dependency, but the minimum amount of redistribution, without which many people would be starving on the streets.

Reducing ‘dependency’ via welfare reform threatens this redistribution and may tip people at the bottom of the income scale into deeper poverty. As the ONS says in another publication, "Most recently, the average cash benefit rate has fallen which, along with decreasing progressivity, means that the overall redistributive impact of cash benefits has been reduced."

More welfare reform, which will no doubt reduce this redistributive impact even further, seems destined to produce not independence, but increasing poverty and destitution.

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© Bernadette Meaden has written about political, religious and social issues for some years, and is strongly influenced by Christian Socialism, liberation theology and the Catholic Worker movement. She is an Ekklesia associate and regular contributor. You can follow her on Twitter: @BernaMeaden

 

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