Growing number of people receive more in benefits than they pay in taxes

 The number of people receiving more in benefits than they pay in taxes could hit a record high under Labour.

Economists accused Sir Keir Starmer of presiding over a “high-transfer, low-growth economy”, with official figures showing almost 36 million people in Britain took more from the state than they contributed in the 2023-24 financial year.

This represents roughly 53.3pc of people living in the UK, according to the Office for National Statistics (ONS).

Dan Lilley, at the Centre for Social Justice, said an ageing population and Rachel Reeves’s recent welfare splurge could soon push the figure beyond the record 36.5 million seen in 2020, or 55pc of the population, when the Government subsidised 11.7 million jobs during Covid.

Mr Lilley said the Government was “burying its head in the sand” over “out of control” public spending.

He warned that Labour faced a stark choice.

“The Government can start to painfully turn the ship about, confronting hard questions around welfare, planning, immigration, and family”, he said. “Alternatively, we continue our drift to insolvency.”

The broad ONS measure, which looks at cash welfare and “in-kind” benefits including public services such as the NHS and schools, underscores the challenge facing the Chancellor as she grapples with a ballooning welfare bill and pressures from an ageing population.

The Government is expected to spend £333bn on welfare payments this year, according to the Office for Budget Responsibility, more than the £331bn raised in income tax in 2025.

The latest data for the 2023-24 financial year also does not include the decision by Jeremy Hunt, the former chancellor, to extend free childcare to working parents and increase the number of people eligible for child benefit.

The ONS has highlighted that the recent rise in net beneficiaries was partly driven by a 10.1pc increase in most welfare payments following Russia’s invasion of Ukraine.

This continued in 2024-25, when most working-age benefits rose by 6.7pc and the state pension increased by 8.5pc because of the triple lock – outstripping the pay rises of millions of workers in the private sector.

Ms Reeves has continued to preside over a bigger state, with record tax rises to fund higher public spending and an expansion of welfare.

Tom Werner, at the Institute for Fiscal Studies, noted that the share of people taking more from the state than they pay in had increased steadily since the 1970s.

He said: “Expansions of tax credits in the Blair and Brown governments led to substantial increases in benefits for lower-paid working families with children. This will have increased the share of working families’ incomes that came from benefits.”Mr Werner noted that George Osborne’s decision to cut welfare during the 2010s, including “real-terms cuts to many benefit rates, caps on housing support for private renters and the two-child limit partially reversed that expansion”.

While he said it was not certain that the overall share taking more from the state would surpass the 55pc mark seen during lockdown, he said the trend was certainly higher: “Since then a cut in the Universal Credit taper rate and the reversal of the two-child limit have increased income from benefits again.

“An ageing population and the triple lock on the state pension will also push up the share of pensioners’ incomes coming from benefits.”

Martin Beck at WPI Strategy said the figures provided grim reading. He said: “The prospect of the share of households receiving more in benefits than they pay in taxes approaching a record high points to the UK increasingly operating as a high-transfer, low-growth economy.

“Public services and state support are doing more of the work of sustaining living standards, while weak productivity growth and an ageing population are making that model progressively harder to finance.

“The challenge is that the UK cannot rely indefinitely on redistribution to generate prosperity.”

However, Andrew Wishart at Berenberg said a baby boom in the 2000s alongside years of stealth taxes meant “it was not certain” that a record share of people would be taking more out of the system than paying in by the end of the decade.

He added: “What isn’t in question is that the total amount the state is receiving in tax revenue and paying out in benefits is on the rise, dampening the incentive to work and start and grow businesses.

“The strong performance of Reform in the local elections shows that the main parties have lost support to the populist-right more than the populist-left, suggesting a larger state is not what voters want.”

A government spokesman said: “Our economic plan is the right one. We are getting debt and borrowing down, helping families with the cost of living and driving growth.

“Our welfare reforms will save around £2bn, fix perverse incentives in Universal Credit and help get more people into the workplace.”