Every year, 36% of adults receive more in benefits than they pay in taxes. That sounds awful. And it is. But it isn’t the whole picture.
In a very interesting report out last week the Institute for Fiscal Studies looked at the way the UK tax and benefits system distributes income across not years, but lifetimes. Look at taxes and benefits like this, and the percentage of the population that are net recipients falls to 7%.
The picture isn’t complete – it ignores business taxes (paid by consumers in the end) and it ignores the benefits everyone gets from public services. Add the latter in and the final number would obviously be greater than 7%.
But still, as the analysts at Baker Tilly point out, there is one key point to take away here: “The poor are not always poor and the rich are not always rich”.
The IFS suggests that, at any particular point in time, those in the bottom 10% will spend only 22% of their life there. Those in the richest 10% are there for an average of 35% of their life. They also spend around 20% of their lifetimes entitled to at least one of the main means-tested benefits.
We’ve written before that the numbers on income inequality make little sense when they aren’t adjusted for age (it is obvious that a 40 year-old is more likely to have a high income that a 21 year-old or a 75 year-old) and these numbers prove just that.
Income inequality across a whole lifetime is much lower than most people think. And “a lot of the inequality between individuals is temporary in nature, reflecting either the stage in life they are at or the transitory shocks they have experienced”.
This might all go some way to helping politicians understand why it is so hard to get voters to actually vote for (rather than temporarily support) those calling for higher individual tax rates despite the fact that the higher and additional rates are paid by a minority of the adult population every year.
It is because, over a lifetime, people move in and out of different income bands. And at some point they either are or expect to be in the higher rate band however briefly – one in six are in it on an annual basis. (No one seems to have an accurate number for how many people enter higher tax brackets at any point over a lifetime. All ideas on this welcome.)
So, given that people generally only vote for other people to pay higher taxes, why would they vote for higher taxes?