From the TUC

Social security definitely does succeed in reducing poverty

02 Aug 2010, by in Society & Welfare

One of the claims in Iain Duncan Smith’s Twenty-first Century Welfare really annoyed me when I first read it, and it has been niggling away at me ever since:

“The welfare system has failed to tackle intergenerational disadvantage and poverty.”

I suppose the reason I find this statement so annoying is that you come across it so often – after a century of social security, we still have poverty and inequality. So obviously social security/the welfare state is a failure.

This is a claim that fails to take into account what would happen if we didn’t have the welfare state.

If you divide the population into ‘deciles’ (tenths) by how much income, the poorest get far more than the richest in both cash benefits and benefits in kind:

How much different income groups get from the welfare state, 2008/9 (£ p.a.)

Bottom 2nd 3rd 4th 5th 6th 7th 8th 9th Top
Cash benefits 5,267 7,536 7,807 7,794 6,255 5,107 4,128 2,964 1,982 1,627
Benefits in kind 5,874 6,748 6,072 6,061 6,208 6,075 5,022 4,889 4,452 3,727

Each income group receives a significant amount from the welfare state, but – on the whole – lower income groups receive more than higher. The end result is that we have much less poverty and inequality than we would have without the welfare state.

The next table uses the same decile groups, and looks at their average “original income” (including wages, pensions, investment income and other sources) and the ratio between the bottom decile and the top. The next row looks at their “gross income” – including cash benefits. The third category is “post tax income” – we add the direct and indirect taxes people have paid to the mix. The last row, “final income” takes into account the value of benefits in kind, mainly education and the NHS.

The effect of the welfare state on the incomes of different groups and ratio between the top and bottom, 2008/9 (£ p.a.)

Bottom 2nd 3rd 4th 5th 6th 7th 8th 9th Top
Original income 3,120 5,979 8,274 12,896 19,451 27,225 33,160 43,309 56,542 94,897
Gross income 8,386 13,515 16,081 20,690 25,705 32,333 37,289 46,273 58,523 96,524
Post-tax income 4,659 9,408 11,184 14,407 17,320 21,752 24,668 30,190 37,789 64,753
Final income 10,533 16,156 17,257 20,468 23,528 27,827 29,689 35,080 42,241 68,480

Ratio between the top and bottom deciles

Original income 30.4
Gross income 11.5
Post-tax income 13.9
Final income 6.5

As you can see, the welfare state triples the income of the bottom two deciles and cuts the ratio between the top and the bottom from more than 30:1 to less than 7:1. Yes, we could and should be doing more – ten and a half thousand pounds a year is very little to live on – but it simply isn’t true that the welfare state fails to make a difference – we need more welfare state, not less.

Note for fellow-wonks: the figures are for average incomes by decile groups (ranked by equivalised disposable income, using the modified OECD scale) of all households in 2008/09. I’ve used Office for National Statistics data for the article “The effects of taxes and benefits on household income”, 2008/9”, specifically table OECD 14 from Appendix 1.

2 Responses to Social security definitely does succeed in reducing poverty

  1. susan capps-jenner
    Aug 2nd 2010, 10:51 am

    I disagree I exist on social security because of being disabled and it so not covering the basic bills . I have not got any life at all I say if you can live on 400 pounds a month an d keep up a decent living with bills of round about 90 pounds for utilities and other bills as high then you can talk not until.

  2. Richard Exell

    Aug 2nd 2010, 10:55 am

    Dear Susan,

    I entirely agree that social security rates are not high enough – my point was that, without social security and the rest of the welfare state we would have much more poverty and inequality. People who want to cut or abolish the welfare state often argue that we still have poverty and inequality, and their proposals therefore wouldn’t do any harm. My headline is that social security +reduces+ poverty and inequality, not that it abolishes it.