Helping all – UK’s distribution of public funding

by Choripan | Sep 11, 2016 | consumption, economics, Europe, income, public funding, social issues, social security, tax

Redistribution of funds through tax can happen in one of two main ways:

you collect more from the rich than the poor and give everyone an equal share, or

you collect the same amount from everyone and distribute more to those in most need.

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But how much is the UK doing of either?

In short, relatively nothing on the first type of distribution, and not a lot on the second.

I say relatively nothing as households across the UK pay roughly the same percentage of their income on tax, no matter what their income. Obviously, those with higher incomes pay larger amounts, but as a proportion, it is not greater than what the poor pay.

On the second type, while the Government does provide greater benefits to the poorer sections of the community, the difference between benefits to the poor and rich is not way near as large as many would have you believe.

Collecting more from the rich

As discussed in a previous post, the amount of tax paid across the community is pretty much the same, relative to their income. So, while the rich contribute the most, they contribute the same percentage of their income that the poor do (when including income tax and indirect taxes).

Are we distributing more to the poor?

According to the latest UK Budget papers, the UK Government will spend roughly “£772 billion in 2016-17”[1].

The budget gets spent as follows:

£517 (67%) on services consumed by individuals, e.g. health, education, social security
£168 (22%) on untargeted national stuff, e.g. defence, paying debts, public order
£87 (11%) on services which may or may not support some over others, but it’s harder to ascertain its distribution, e.g. agriculture, industry, employment, transport

For the purposes of this post, I will ignore the 11%, as I can’t find reasonable distribution analysis, and what’s 11% anyway.

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So, how do targeted services get dispersed across the income groups?

Health

Health accounts for 19% of all UK Government expenditure, with the average household in 2013/14 consuming around £4,200 in services. While obviously not every household consumes the same amount, the difference across income groups is surprisingly small.

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That’s to say, households from across the various income groups in the UK consume just over £4,000 worth of health services. Those with the lowest and highest incomes appear to consume slightly smaller amounts.

Education

Consumption of education services does vary. In 2013/14, the poorest 3 deciles consumed just over double what the richest 10% of households did. This difference, however, appears to be largely driven by the number of students in the house, rather than their income. Students (from primary school to university) are twice more likely to live in the poorest 30% of households than in the richest 10%. After adjusting for number of students per household, education expenditure is remarkably similar across the income ranges.

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(As student estimates are rounded to 1 decimal place, the estimates graphed include an unrounded range, e.g.: the poorest households have 0.7 students per house, but are graphed from 0.65 to 0.75)

Social Protection & Personal social services

Unlike health and education, social protection and personal services are targeted based on income. But even these payments are possibly less lopsided than is expected.

The poorest half of the community receives 80% more than the bottom half. While the average household receives £6,000, the 2^nd and 3^rd poorest received the most, at £9,000. The richest and second richest deciles, on the other hand, received £2,400 and £3,500 per year respectively.

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When you add it all up

Other than social security, which is mostly targeted at the lower middle class, the majority of government spending is spread out quite evenly across the income groups. The end product, being one that while leaning towards supporting the lower middle class, provides a relatively equal distribution.

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