A quick research-based post today (following by a similarly quick research-based post tomorrow). As I’ve said before, the Resolution Foundation are the UK think-tank to watch – their work is research-heavy, politically-potent, and is setting the agenda about declining living standards. But it’s a graph about the benefits system that recently caught my eye.
A more generous benefits system…
In their wide-ranging report Growth Without Gain, they look at how much support the benefits/tax credits system provides for people throughout the income distribution, and how this has changed 1988 to 1998 to 2008. Their first graph (below) looks at the % of income you get from the benefits system from a given income in £, and shows two things:
- As you would expect, people earning less money get more of their income from the benefits system than people earning more money.
- Over time, though, it looks the state has generally become more generous - particularly for people earning about £12.5k to £35k. When I first looked at this, I thought this was the predictable consequence of the introduction of tax credits, which were designed to help people in low-wage jobs.
…or a less generous one?
However, if you cut up the numbers a different way then you get a very different picture. The next figure, below, shows how much support people get at different points in the income distribution - so rather than showing a constant sum of money, it shows e.g. the 10th percentile (where 90% of people earn more and 10% earn less).
This shows the opposite finding - that the state has become less generous over time, rather than more. Between 1988 and 1998 this can be seen over virtually the whole income distribution, but 1998 to 2008 it’s only at the bottom end; for lower-middle incomes and above (from about the 25th percentile), there was little change over the most recent decade.
What does this all mean?
As the Resolution Foundation correctly say, this strange pattern is because earnings have grown faster than benefits payments/tax credits. So while the support for someone on £15k has grown, if you earn £15k you are relatively much poorer in 2008 than you were in 1988. So the support for (say) the poorest 10% is actually less generous than it used to be in relative terms. Or put another way, “people at any position on the income spectrum now earn a higher percentage of their income themselves” (RF p40).
What’s really striking about this, though, is the impact of tax credits. Gordon Brown spoke about ‘progressive universalism’ as Chancellor, where most people get something but the poorest get the most. This is opposed by those on the right as the growth of benefits payments so that increasing numbers are ‘locked into benefit dependency’.
But despite this whole debate, the erosion of other (universal/contributory) benefits means that tax credits simply meant that the state didn’t whither away yet further; it definitely did not seem to have extended state support further up the income distribution, compared to the situation in 1988 after almost a decade of Thatcher.
All of which I found surprising.