Recession leaves £25bn shortfall in welfare bill

Published on Saturday 27 June 2009 19:44

THE state will pay £25 billion more in welfare than it raises in income tax this year, amid further evidence of the crushing effects of the recession.

The sums spent on unemployment and social protection will comfortably outweigh the tax paid on incomes, raising further fears about the long term sustainability of the government's coffers.

Only last year, income tax receipts outweighed benefits by 2bn, according to the analysis conducted by Schroder Investment Management.

But those figures have been dramatically overturned for 2009-10, with 140bn worth of income tax being dwarfed by the 164.7bn bill for social security benefits.

According to the analysis, this year is the first for a decade that benefits have cost more than income tax.

The governor of the Bank of England, Mervyn King, last week hit out the "truly extraordinary" deficits now being run up by the UK Government.

The International Monetary Fund has predicted that the UK's deficit is likely to hit 200bn. The total government debt has already exceeded 700bn, more than twice the figure it was in 1997.

Chancellor Alistair Darling is hoping tax receipts will climb as the country comes out of recession. But last week the OECD predicted the UK economy will shrink 4.3 per cent this year and stay flat in 2010.

On the massive rise of social security payouts, a Treasury spokesman said they would help the country see out the worst of the recession.

"The operation of automatic stabilisers in the social security system will help support the economy through the downturn. The government is committed to sustainable public finances and has announced plans to halve the deficit over four years," he said.