Chris Hamnett: Who wins most from the benefits system?

There is a geography of welfare spending which acts as a form of indirect regional policy

Social Security and welfare benefits form a major component of government expenditure in most developed Western countries.

Social Security and welfare benefits form a major component of government expenditure in most developed Western countries. According to the OECD, government social spending in the European Union as a percentage of GDP rose from about 20 per cent in 1980 to a peak of 27 per cent in 1994 in the aftermath of the recession, falling back to 24 per cent in 1998. It has increasingly become a focus of political debate in recent years, within Britain and abroad, as governments have wrestled with the issue of balancing welfare provision versus taxation.

What few realise is that there is a geography of welfare spending which acts as a form of indirect regional policy. Mostly it benefits the poorer regions, but sometimes it benefits London.

Leaving aside spending on the NHS, education and housing, total government benefit expenditure in the UK at current prices rose from £69bn (11.6 per cent of GDP) in 1991-92 to £106bn (10.6 per cent of GDP) in 2001-02. This includes retirement pensions, unemployment benefits, sickness and invalidity benefits, maternity benefits and a wide range of non-contributory benefits such as family, child and one-parent benefit, various disability and mobility allowances, income support and housing benefit.

The cost of these benefits (and their share of total expenditure) has varied over time, with by far the largest share being that of retirement pensions, which has grown from £25.7bn in 1991-92 (37 per cent of total benefit expenditure) to £43bn (41 per cent) in 2001-02. This is a result of the growth of the retired population and an increase in pension levels, notwithstanding the indexation of pensions to inflation rather than incomes.

The second largest component is income support, which fell from a peak of £17bn (20 per cent of total benefit expenditure) in 1993-94 in the recession of the early 1990s to £12bn (13 per cent) in 1998-99 at the peak of the late 1990s economic boom. It fluctuates with the state of the economy. The third largest component is housing benefit, which increased from £6bn (9 per cent) in 1991-92 to £11.7bn (11 per cent) in 2001-02.

The extensive redistributive role of the welfare state is shown by the fact that almost 70 per cent of households in Britain were in receipt of benefits of some kind in 2001-02. Almost equal proportions (29 per cent) of households received pensions or child benefit, 17 per cent received family credit or income support, 15 per cent housing benefit, 20 per cent got council tax benefit and 15 per cent were given incapacity or disability benefit (left-hand chart). The recipients of many of these benefits overlap and there is a group of poorer households who receive multiple income related benefits.

Although the geographical distribution of some benefit expenditure such as pensions and child benefit is relatively even across regions, simply reflecting the distribution of people of retirement age and the numbers of children, the distribution of unemployment benefit, income support and sickness and invalidity benefits is much more geographically uneven, with a major concentration in the older industrial regions, reflecting underlying variations in economic history and conditions. This acts as a form of indirect regional policy.

For example, the proportion of households receiving incapacity or disability benefits varies from lows of 10-11 per cent in London, the South-east and East regions, to highs of 20- 26 per cent in Scotland, the North-east and Wales. This is broadly paralleled by the distribution of family credit or income support for low- income households. They range from 10-12 per cent of households in the South-east, East and South-west, to 17-22 per cent in London and the older industrial regions. The proportion of households receiving council tax benefit ranges from lows of 13-14 per cent in the East and South-west to a peak of 29 per cent in the North-east.

Not surprisingly, there are major variations in the proportion of total weekly household income received from benefits. For the UK as a whole, just 8 per cent of incomes come from social security and disability benefits and a further 8 per cent from state retirement pensions. But the former figure varies from 15 per cent in the North-east to 5 per cent in the East region and just 4 per cent in the South-east. Clearly, there is a significant degree of regional redistribution of many income related welfare benefits towards the older, poorer, former industrial areas.

There is one benefit, however, which works in reverse, directing a very large amount of government spending towards London. Housing benefit was introduced in 1982 as an explicit subsidy to low-income households for the cost of housing. Its cost has doubled since 1991-92 and now stands at about £12bn a year, even though the number of recipients has fallen from 4.54 million in 1997 to 3.8 million in 2002.

Significantly, the proportion of council tenants receiving housing benefit has fallen in recent years while the proportion in other rented tenures has risen. This reflects the decline in the size of the local authority sector, and the growth of housing associations and the buy to let market.

The distribution of housing benefit expenditure by region is remarkable. London stands out with just under 13 per cent of Britain's households but almost 23 per cent of housing benefit expenditure - a ratio of 1.8:1. On the other hand, the East Midlands, East, South-east and South-west all have a lower share of national housing benefit expenditure than their share of households. Out of a national total of almost £12bn, London accounts for £2.6bn. Greater Manchester and the West Midlands Metropolitan Counties trail far behind with £614m and £597m respectively.

The distribution of housing benefit expenditure for local authorities is also remarkable. Of the 22 authorities with housing benefit expenditure of more than £90m in 2002, two-thirds (15) were London boroughs. Several of the capital's boroughs have individual housing benefit expenditure well in excess of major cities outside London (right-hand chart).

It can be argued that this shows that the housing benefit system is working in distributing support to people on low incomes in areas of high housing cost. The average housing benefit allowance varies from about £46-£50 a week in the old industrial regions to £81 in London, where rents are much higher. Nonetheless, this is a form of indirect reverse regional policy which in part subsidises private landlords catering to low-income tenants. What is surprising is how little political and policy debate there has been over the geography of benefit expenditure.

Chris Hamnett is Professor of Geography, King's College London. He is the author of Unequal City: London in the Global Arena, published by Routledge.