Social Security and Welfare Reform

Taxing disability benefits is plain wrong

  • Published: Apr 20, 2015
  • Author: Adam Tinson
  • Category: Social Security and Welfare Reform

Noting that many disability benefit recipients are in the top half of the income distribution as a justification for taxing them betrays a misunderstanding of the purpose of these benefits and the nature of disability

Many of those in families receiving disability benefits (mainly DLA and AA) in 2012-13 had an above median income. Does this, as recently argued in the Spectator, make them members of ‘the sharp elbowed middle classes’, and therefore liable to have their disability benefits taxed as leaks suggest a future Conservative government may choose to do? The answer is no, for two reasons.

The first is that, if being a sharp elbowed member of the middle class is a function of being in the top half of the income distribution, then receiving DLA or AA is the reason why many disabled people are there to begin with. The graph below demonstrates: once disability benefits are excluded from income, 75% of people in these families are in the bottom 50% of the income distribution, compared to 58% when they are included (note this is over half). The proportion in the bottom decile goes from 6% to some 16%. The idea that most of these benefits are going to already well-off people is just not correct.



The second reason this proposal should be ditched is the nature of the costs associated with disability. As covered in our evidence review on disability and poverty for the Joseph Rowntree Foundation last year, disabled people and those with long-term conditions face both higher costs (such as higher heating bills and transport costs for those with mobility problems) and special costs (such as specialist medical equipment). What this means in practice is that these extra costs mean that a disabled person needs a higher level of income to achieve the same standard of living as a non-disabled person. The charity Scope recently set up the Extra Costs Commission to work out how to reduce these costs.

Multiple studies have tried to quantify these costs (as we summarise in our report), generally finding that these costs are well in excess of what people receive from disability benefits. The implications of this are that poverty rates among disabled people are understated, and that even disabled people who appear relatively well-off in terms of income are not doing as well as those statistics might suggest. In fact, the costs of disability tend to rise with income as more needs are able to be satisfied.

When introduced by the Major government, DLA was exempt from tax for good reasons and it should not be forgotten that people receiving disability benefits still pay tax if they earn enough. That it has been touted as something for the next Parliament is indicative that by now any low hanging fruit, and more besides, has already been axed from the social security budget. Further cuts won’t come without a lot of pain. Labour’s mini-manifesto on disability that was published today highlights that disabled people often have higher costs in terms of transport, heating, and housing. Let’s hope that they, or whoever is setting the next budget, remember this. 

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