The declining generosity of the benefits system

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.

About Ben Baumberg

I am currently a Lecturer in Sociology and Social Policy at the School of Social Policy, Sociology and Social Research (SSPSSR) at the University of Kent. I also helped set up the collaborative research blog Inequalities, where I regularly write articles and short blog posts. I have a wide range of (too many...) research interests, at the moment focusing on disability, the workplace, inequality, deservingness and the future of the benefits system, and the relationship between evidence and policy. You can find out more about me at http://www.benbaumberg.com
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7 Responses to The declining generosity of the benefits system

  1. As ever, a really useful thought-provoking piece. Ben, would you mind if I ‘re-blogged’ the post so that my small but loyal band of followers are alerted to it. Please feel free to say no if you’d rather I didn’t but you do get credit /signposting etc.
    Regards,
    Steve

  2. Charlotte Cavaille says:

    two thoughts:

    1) even in the absolute income (constant price) graph , we can see a decrease in generosity for those at the bottom. Someone who earned 10 k in 1998, would have 70 % of his income coming from the government. The decreased to 60 % means that if the other source of income (non-benefits) did not change, this person either saw her income decrease in 2008, or would have had to find an extra 10 % of her revenue somewhere else.
    Help increased for those “close to the bottom but not there yet” which we know often happens when benefits conditional on work are central to state redistribution.

    2) regarding the relative income graph: I wonder what the graph looks like if you take the income growth at the very top out….the growth rate up there was so important that one cannot blame the government for not keeping up with it !

    • Ben Baumberg says:

      V quickly
      1) True, I hadn’t paid much attention to that. It’s where it gets hard to tell what’s going on though, as there seem to be problems with income data when you get that far down the distribution (for example, a proportion of these people actually spend quite a lot of money, suggesting we’re missing something about their situation).

      2) The graph is in percentiles, so it’s not too sensitive to the very top (the graph doesn’t pay attention to the top30%). But this is always something we need to pay attention to (the RF are pretty good on this actually. And I should realyl blog about the High Pay Commission at some point…)

  3. Reblogged this on North East Child Poverty and commented:
    A very timely and informative post from Ben Baumberg on the ‘Inequalities’ Blog which he has kindly given us permission to ‘re-blog’.

  4. John says:

    The benefits system as is essentially punishes any family that earns less than £40k as their earnings increase, with those at the low end being hit hardest, my family income recently rose by £18.10 per week (before tax) due to my wife changing job and as a result we lost £66.50 per week of housing benefit. I worked out (using calculations provided to me by a benefits officer) that in order to reach a point where the benefits being taken away didn’t substantially outweigh any additional earned income a couple would have to work over 120 hours per week between them on a typical (£6.50 p/h) wage in my local area. Basically unless a couple can earn £40k or more between them they are substantially better off (at least financially) either entirely on benefits or in employment earning as little as possible. If my wife had a pay-cut to minimum wage we would actually be over £3000 per year better off due to a massive increase in housing benefit and qualifying for council tax benefit, it’s completely crazy.

  5. Pingback: Healing the economy by making it more equal | Inequalities

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