Half of households get more in benefits than they pay in tax

More than half of households in the UK receive more from the state in welfare payments and pensions than they pay in tax, according to a new report.

The 51.5% of households taking in more than they contribute in 2013/14 is down from a peak of 53.5% in 2010/11, but remains well above the 43.8% recorded in 2000/01, said the report published by the Centre for Policy Studies think tank.

Co-author Adam Memon said that the figures displayed levels of "welfare dependency" which were too high. He urged the Government - which is planning a further £12 billion in cuts to working-age benefits - to press ahead with deeper welfare reform.

But the TUC dismissed the analysis as "extremely misleading", because it included retired households who receive pensions after a lifetime of paying taxes.

TUC general secretary Frances O'Grady described the report it as "a blatant attempt to give the Government political cover to slash public services and in-work benefits".

The CPS report found that the poorest fifth of households received an average £9,982 more from the state than they paid in taxes, while the middle fifth received £3,517 more than they contributed. The richest fifth paid £20,777 per household more than they received.

Partly as a result of the redistributive effect of these payments, levels of inequality in the UK were lower in 2013/14 than in any year under the previous Labour government, and the lowest since 1986, said the report.

The report highlighted the level of "churn" in the social security system, under which the average household paid £13,402 in taxes to receive £12,939 in cash benefits and benefits in kind in 2013/14.

Mr Memon said: "Welfare dependency is an economically destructive phenomenon which tears at Britain's social fabric. It reduces the incentive to work and earn more whilst keeping people trapped in a cycle of low aspirations, low productivity and low pay. The welfare state must protect the vulnerable and encourage self-reliance, but for too many households it has become a permanent trap.

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"Net dependency at 51.5% is still too high. Simply attempting to alleviate difficult economic conditions with welfare payments can only ever be a short term fix. Indeed, the case for making a further £12 billion of savings in the welfare budget rests not only on the need to reduce the budget deficit, but also on the need to reform welfare to boost employment and encourage growth in real wages. The Government must press ahead with deeper welfare reform."

CPS director and report co-author Tim Knox added: "These new data demonstrate the success of the last government's reforms. Dependency is falling, inequality is lower than at any time under New Labour and disposable income is increasing for all. So the policy implication for the new Government is simple: go further, faster on both welfare and employment reforms."

But Ms O'Grady said: "The report's claim that over half of UK households receive more from the state than they pay in taxes is only true if you include retired households – who no longer pay income tax but have contributed to the system all their working lives.

"The number of working-age people who receive more in support is around one in three and the vast majority of these are low-paid families. But why let facts get in the way of spin?"