An unbearable burden on the state

More people in Britain take more from services and benefits than they pay for in taxes. It's a situation that cannot continue, says Merryn Somerset Webb.

Are you a contributor to or a burden on the nation's finances? Ed Monk asked the question in The Daily Mail a few weeks agowhen a new study came out from the Centre for Policy Studies (CPS) showing that some 53% of households took in more in benefits than they paid in tax in 2010/11. In 1979 that number was 43.1%.

The numbers in question are all averages of course, but using them, it seems that you have to get into the top two quintiles of income in order to be paying out more than you take in. If you are in the top 20-40%, you are paying in around £4,000 more than you get back. If you are in the top 20% you are paying in an extra £20,000. And if you are in the bottom 20%? You are getting out £10,000 more than you put in.

This was an argument picked up by Ruth Davidson, leader of the Scottish Tories last week. She told a fringe event at the party conference that only 12% of households in Scotland are net contributors in that "the taxes they pay outweigh the benefits they receive through public spending".That didn't go down particularly well.

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The opposition and some in her own party jumped on her for having something of a 'Romney moment' (two weeks ago MittRomney claimed 47% of Americans were benefit junkies for whom he could do nothing). Her numbers were also put under some keen scrutiny. But while you carp here and there at her use of data (and many have) the basic point stands.

The UK and Scotland are fast becoming client states in which the majority of people receive services for which both they and someone else pays. People don't necessarily want to take more than they contribute: they get services whether they (or the person making up the difference in tax) want them or not. And that matters.

As Gillian Bowditch points out in the Scottish edition of the Sunday Times, " it is not free money which government largesse dispenses to tax payers in a series of treats, which is how the Scottish government somehow portrays it it is hard-earned cash taken from people struggling to make ends meet to feed the growing demands of the state". How big the state should be is a question that all governments will grapple with for ever more, but right now the answer seems pretty clear not this big.

Whatever your ideology, it is hard to argue with the fact that a country in which more people (voluntarily or not) are financial takers than givers and in which the state accounts for more than 50% of GDP is just not sustainable. As Bowditch says, "we may not like the message, but shooting the messenger isn't going to make it disappear".

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.