Definition of Dependency Culture. This refers to a system of social welfare that encourages people to stay on benefits rather than work.
It suggests the tax and benefit system is designed to give little incentive for getting off benefits and into work.
A dependency culture may arise out of a desire to reduce relative poverty, through means tested benefits and a progressive tax system. For example, if a person is out of work with several children, they may be entitled to:
- Unemployment benefit
- Housing Benefit
- Means tested child tax credits
- Free prescriptions e.t.c
If they chose to work, they may lose these benefits and also pay more income tax and national insurance. Their net take home pay may be little different to that income received whilst not working.
A dependency culture also suggests that people make efforts to maximise welfare benefit income.
Dependency Culture in Britain
In the UK, unemployment benefits have been index linked since the 1980s. This means that income from unemployment benefits has fallen behind average wages. However, some people still find themselves in a situation with a 100% marginal tax rate. This is particularly true for parents with children, who are entitled to means tested benefits.
- The poverty trap – When there is no incentive to get a better paid job.
- Better off on Benefits? – A Look at dependency culture in UK
Dependency Culture in US
This graph shows how tax and benefits create an effective 100% marginal tax rate for incomes between $20,000 and $40,000.