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End Tax and Benefit Churning: Let People Keep Their Own Money

Many middle-income families receive almost exactly the same amount in benefits and public services as they pay in taxes, according to a new report from independent think-tank Civitas.

In Individualists Who Co-operate, David Green argues that instead of taking away with one hand and giving back with another, the Government should let us keep our hard-earned income and make our own arrangements with our own money.

If you earn slightly above the average income of £25,000, you will have to pay taxes of just over £10,000 and find that you get back cash benefits and public services (like health and education) worth slightly more – an extra £141 to be exact. Most of us earn enough not only to pay for all the benefits we receive, including the NHS, schools and universities, but also to cover the cost of providing for less fortunate members of society.

But by taxing us at source we are put in a weak position. The vast majority of people gladly pay into a common fund to ensure that everyone receives good health care and education. But our determination to guarantee access for everyone has been confused with a desire for absolute political control. And the result has been to suppress the most effective method of maintaining high standards – competition. Most of us have earned the right to choose the doctors and schools we believe to be best.

If the only way to provide guarantees for the least fortunate Britons inevitably involved lower standards for the others, there might still be a majority in favour of the status quo. But no such claim holds water. Indeed, in education it is children from poor backgrounds who are now being failed by state monopoly. The majority of hard-working taxpayers need to be granted independence from state control for the sake of their least fortunate neighbours, not in spite of them.


In Individualists Who Co-operate: Education and Welfare Reform Befitting a Free People, David Green argues that there is nothing wrong with the original ideal of a national standard below which no one should be allowed to fall, but he claims that we have chosen inadequate methods of achieving it.

It was right to aim to provide a guaranteed income to every person who fell upon hard times, but we have chosen ineffective and sometimes counter-productive methods of achieving this high ideal that tend to discourage self-sufficiency in two main ways:

    • Working tax credits encourage part-time work instead of full-time work;
    • The system penalises the formation of couples – some parents can be over 20% worse off if they live together. (p. 43)

Full-time work is the best way of avoiding low income; and marriage combined with full-time work is the best way out of poverty for couples with children. (p. 45)


It was right to guarantee a high standard of education to every citizen, but there is more than one way of achieving the goal and other countries have found better methods. Current education provision has failed to meet its primary aim of providing for the poorest children. And it has suppressed competition that has been shown to be the best way to raise standards for all. (p. 96)

The idea that higher spending is the key to improving standards has been tested to destruction since 1997. The underlying problem is not that any particular leader or political party has failed but that the state has strayed beyond the capabilities of any system of central administration.


Dependency has deepened:

  • In 1949/50 all social security benefits cost 4.7% of GDP. In 1960 the figure was still only 5.5%. The cost of ‘social protection’ in HM Treasury’s Public Expenditure Statistical Analyses was 13.4% in 2006/07. (p. 47)
  • In 2008-09 45% of families in the UK received more in cash benefits and tax credits (all cash benefits, tax credits, SERPS and S2P) than they paid in personal taxes (income tax, national insurance and council tax). In 1979 the figure was 35%. (p.41)

As a people we have always had a sense of solidarity, but during the twentieth century we opted for a counter-productive form of it. There is a difference between ‘philanthropic solidarity’ and ‘reciprocal solidarity’. The philanthropic variety derived from the tradition of poor relief, which rested on the idea of a benighted group of poor people in permanent need of help. But this is not an attitude befitting a free people. It carries implications of dependence on the largesse of a social superior. Reciprocal solidarity assumes that any one of us may need help from time to time and that there is no shame in it so long as the assistance is aimed at restoring independence. Reciprocal solidarity is the only sustainable basis for a kindly welfare system.


Individualists Who Co-operate proposes a number of reforms to welfare based on the guiding principle that:

The aim should be not that ‘no one should ever be poor’ but that ‘no one who works hard should ever be poor’. (p. 69)

David Green argues that we should think of ourselves as part of a ‘membership state’. All assistance should be unfailing and unstinting but aimed at restoring independence:

  • End the taxation of interest on savings.
  • Make welfare conditional by putting systems for supporting people out of work but capable of working on a more personal footing. At present, and despite recent policy shifts following the Freud report, they are primarily income maintenance systems. Instead they should become personalised services for the restoration of independence.
  • Scrap working tax credit and replace it with a hard-work top-up. (p. 69)
  • Replace income tax allowances with a system of income splitting that takes account of dependent children and allows couples to share caring and working or to reverse roles. (p. 70)
  • Simplify state provision for old age so that the state’s role is only to provide a national minimum. (p. 72)
  • Create family trust funds to help families provide for lifecycle events, such as having children and becoming older. (p. 76)


The prevailing attitude to parents who want the best for their children is a prime example of the Government’s failure to respect people who are vital to the success of any society. A parent who provides a supportive home is likely to be denounced as a ‘pushy’ parent or merely described with a bit of a sneer as ‘middle class’. Invariably the parents who are condemned as middle class or pushy have done no more than to provide supportive homes and to try to find the best school available locally. Any morally justifiable reform should harness and build upon the energy and commitment of such parents.

So long as it is easy to establish new schools the efforts of supportive parents to seek out the best for their children will benefit everyone, as studies of Wisconsin, US charter schools and Sweden have demonstrated. It is only when the power of the state is used to restrict school places that competition becomes a zero-sum game.

Public policy for education should have three main aims:

  • 1. Guarantee access for all to a high minimum standard of education. The government should ensure that all children are educated and ensure that parents’ income is not a barrier to a good standard of education. A voucher scheme would be a step in the right direction but a tax allowance would be better still. (p. 104)
  • 2. All schools should be independent of direct political control. To that end the government should transfer the ownership of state schools to non-profit community trusts, partly to encourage competition and partly to create outlets for the rejuvenation of public spirit. (p. 105)
  • 3. The government should de-regulate the supply side to encourage the founding of new schools and create still more outlets for social entrepreneurs and opportunities for people to serve the common good. (p. 107)

David Green argues that the current economic downturn has increased the urgency of the need to reform welfare:

People who work hard and pay their taxes are the backbone of society. When political parties praise ‘hard-working families’, as they now all do, they acknowledge this basic reality. However, the continued willingness of hard-working people to go on paying taxes depends on an implicit contract between them and the recipients of welfare benefits. There must be reciprocity. (p.vii)

Notes for Editors

i. Churning: On average the original income (wages, salaries, interest and dividends) of the sixth decile in 2006/07 was £25,104. Each household received from the government average cash benefits of £4,363, but also paid direct taxes (income tax, national insurance and council tax) of £5,620. Each household also paid on average indirect taxes (such as VAT and duties on alcohol, petrol and tobacco) of £4,742 and also received state services (benefits in kind such as the NHS and education) valued at £6,140.

In total, each household paid average taxes of £10,362 and received state benefits in cash or kind of £10,503. The average final income, after taking into account churning, was £25,245 – £141 more than their market income. (Source: Jones, F., ‘The effects of taxes and benefits on household income, 2006/07’, Economic & Labour Market Review, vol 2 no 7, London: ONS, July 2008.)

ii.Civitas is an independent social policy think-tank. It receives no state funding either directly or indirectly and has no links to any political party.

iii. ‘Individualists Who Co-operate: Education and Welfare Reform Befitting a Free People’, by David G. Green is available from Civitas, 77 Great Peter Street, London SW1P 2EZ (tel. 020 7799 6677) for £12.25 inc. pp.

For more information contact:

David Green on 020 7799 6677 (w)


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