Nine in ten pay more tax than they receive in benefits
Politicians should stop distinguishing between working and non-working families as over a lifetime more than nine out of ten people pay more in tax than they receive in benefits, a respected think-tank has said.
The Institute for Fiscal Studies (IFS) said 93% of adults pay more to the state in tax than they take out in social security, meaning the distinction between in-work and out-of-work households in policy debates is “not especially useful”.
Over a lifetime very few individuals are permanently out of work, the poor do not always stay poor and to a lesser extent the rich do not stay rich, the IFS said.
Its report took into account most personal taxes and benefits but not business taxes or benefits from public service spending.
The figure, taken from an analysis of the “baby boomers” born between 1945 and 1954, was in marked contrast to a single year snapshot, which shows that 64% of UK individuals pay more in taxes than they receive in social security.
Research economist Barra Roantree, one of the authors of the Redistribution from a Lifetime Perspective report, said: “The sharp distinction often made in policy debates between ‘working’ and ‘non-working’ families is not especially useful.
“In reality very few individuals are permanently out of work, the poor are not always poor and, albeit to a lesser extent, the rich are not always rich.”
The report also found that income inequality is much lower when seen over a lifetime rather than a single year, with the Gini coefficient for gross income – a common measure of inequality – at 0.49 in a single year compared with 0.28 across the whole of adult life.
In addition, more than half of the redistribution achieved by the tax and benefit system is effectively across different periods of life rather than between different people, as it takes from individuals at one age and gives back to the same individual at another.
The report found that tax credit cuts introduced by the Tory Government are still regressive over the period of a lifetime but some richer individuals will also suffer losses as they will claim this benefit at some point in life, even if only briefly.
According to the IFS, changing the higher rate of income tax effectively targets the “lifetime rich”, while the effect of increasing VAT is “close to neutral” over a lifetime.
Senior research economist Jonathan Shaw, another author of the report, said: “The existing tax and benefit system, assessed largely against circumstances in the current year, doesn’t do especially well at redistributing resources towards the lifetime poor.
“Targeting lifetime redistribution more effectively may require new policies that take longer-run circumstances into account.”