Welfare costs as a proportion of total government spending

This blog looks at how much UK basic-rate tax payers contribute towards the cost of welfare benefits, excluding pensions and pension-related payments.

Looking at all welfare benefits, excluding pensions, in 2010/11, a basic-rate tax payer would have paid a 2.6% income tax rate towards all welfare benefits, including job-seekers' benefit, income support, welfare benefits, disability-related benefits and housing benefit. This rate is paid only after the tax-free allowance has been earned.

In 2010/11 welfare and disability benefits (excluding pensions and housing benefit) were roughly 5.4% of national expenditure. And housing benefit was roughly an additional 3.1%, making the total for welfare benefits and housing benefit 8.5% of national expenditure.

For the sake of illustration, if we make an assumption that the government's budget is balanced, and that government spending equates to the total tax intake, then a basic-rate tax payer, in 2010-2011, would have paid a 2.6% income tax rate (including NI payments) towards all welfare benefits and housing benefit, after the tax free allowance was earned.

(To calculate the 2.6% figure, I have used a tax rate of 20% plus a NI rate of 11% for 2010-11, making a total of 31% tax. I have made an allowance for the tax free-allowance, so the 2.6% tax rate would only be paid after a tax-free allowance. The 2.6% tax rate equates to 8.5% of total tax and NI payments paid by a basic-rate tax payer. 8.5% being the total percentage of national expenditure that is paid towards benefits.) 

So, a 2.6% income tax payment is the cost of keeping all of our nation housed and fed, and keeping us all out of poverty, including protecting all citizens who are ill or have disabilities. Of course, this cost (2.6% income tax) includes insuring ourselves for any possible future illnesses, or disability. (Remember that many benefit claimants paid national insurance contributions prior to their need to claim benefits. And many benefit recipients also work and pay various taxes.)

If we disregard the tax free allowance to calculate the percentage of income paid, then an average earner, in 2010-11 (median income = £19600), would have paid 1.8% of their total income (or £7 out of £377 per week) towards all welfare benefits.



Here is a helpful Guardian interactive graphic that outlines government expenditure for each government department in the years 2010/2011:
http://www.guardian.co.uk/news/datablog/2011/oct/26/government-spending-department-2010-11

Below, I have listed welfare benefit spending, not including pensions or pension-related payments. (The percentages given are the percentage of total government spending.)
Figures are for 2010-2011.

Total government spending, 2010-2011 = £691.67bn

Jobseekers allowance    £4.5bn     (0.7%)

Income Support                £7.8bn     (1.1%)

Total Jobseekers Allowance + Income Support:

£12.3bn  = 1.8% of government expenditure

Now to add housing benefit:

  

Jobseekers allowance         £4.5bn     (0.7%)

Income Support                     £7.8bn     (1.1%)

Housing Benefit                    £21.6bn    (3.1%)

Total Jobseekers Allowance + Income Support + Housing Benefit:

= £33.9bn = 4.9% of government expenditure

Now to add Incapacity Benefit / ESA:

Jobseekers allowance         £4.5bn     (0.7%)

Income Support                     £7.8bn     (1.1%)

Housing Benefit                    £21.6bn    (3.1%)

Incapacity benefit + ESA     £7.8bn      (1.1%)

Total welfare + housing benefit spending:

 = £41.7bn  (6% of government expenditure)

So, spending on all welfare benefits, including housing benefit (but not including DLA), is roughly 6% of total government expenditure.

Now to add Disability Living Allowance (DLA) / Disability Attendance Allowance (DAA):

Jobseekers allowance         £4.5bn      (0.7%)

Income Support                     £7.8bn      (1.1%)

Housing Benefit                     £21.6bn    (3.1%)

Incapacity benefit + ESA      £7.8bn      (1.1%)

DLA / DAA                                £17.2bn    (2.5%)

Total welfare + housing benefit + DLA/DAA spending:

 = £58.9bn  (8.5% of government expenditure)

So, spending on all welfare benefits, even including housing benefit, and all disability-related payments, is roughly 8.5% of total government expenditure.

(Note that I have only included spending by the DWP, so HMRC expenditure on tax credits, child benefit, tax rebates and tax allowances, is excluded. I haven't included council tax benefit, as it's not a benefit payment, but it's a lower tax payment. I also haven't added statutory maternity pay, as it's a one-off payment in specific circumstances, and not an ongoing benefit. I've also not taken into account the various taxes that benefit recipients pay while receiving benefits, such as NI, income tax, VAT and council tax. If tax credits (£28.1bn) were added to the above figures, then the total expenditure would be (£58.9bn + £28.1bn) = £87bn. This was 12.6% of total government expenditure in 2010/2011, which was equivalent to a 3.9% tax rate for a basic rate tax payer.)

And here is some other government expenditure, for comparison:

State pensions    £70bn     (10.1%)

Health                    £105bn   (15.2%)

Defence                £40bn      (5.8%)

Education            £58bn      (8.4%)

Total government spending is £692bn

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