Category: Social security

This blog includes discussion of issues in British social security policy, along with new material to complement my book, How Social Security Works.

More evidence (if you needed it) that Universal Credit is failing

It’s not been a good month for Universal Credit.  Hard on the heels of the release of the Full Business Case, there has been a critical report from the National Audit Office and a troubling review of the operation of Universal Credit based on the experience of claimants.  Neither of them shows the system in a good light.  The NAO report casts doubt on the efficiency of service delivery and questions whether any of the claimed advantages of the reform can be realised.  They write:

We cannot be certain that Universal Credit will ever be cheaper to administer than the benefits it replaces.

There is no clear reason to suppose that the system will save money or that fraud and error will be reduced, and the impact on employment  is unknown and unknowable.  The review of the system’s operation finds that the system is complex, difficult to access and the support is inadequate.   Only half the claimants managed to claim without help, and the NAO found that rather less than half managed to get through the verification procedures online.  A quarter of claimants couldn’t submit a claim online at all. There were particular problems for older claimants and people with health conditions.  Then, after claiming. getting on for half the claimants were falling behind on bills or experiencing major difficulties.

One of the points that the NAO picks up on is timeliness in payment.  This little gem offers  the DWP’s reasons for late payments:

2.20  … The Department has told us that the performance had
declined because payment timeliness is sensitive to staff availability. It believes the lower performance can be attributed to:
• poor weather leading to office closures;
• February being a shorter month and therefore incorporating fewer working days to administer payments; and
• the Easter bank holidays.

Who could have guessed that there would be bad weather during the winter, that February would be shorter than other months, or that there would be a bank holiday at Easter?

Depressingly, the NAO  thinks we’re committed – this has gone on too long to be unwound again.  But there were still only 815,000 claimants in March, 325000 of them on ‘live service’ using legacy systems; that means that there are half a million people on full service, when the system is supposed to deal with 8.5 million.  It still makes sense to pause the rollout and fix what can be fixed.

Additional note, 15th June:  This is not so much an additional note as a reminder.  We’re being told, yet again, that Universal Credit was a great idea and everyone liked it.  I first objected to the ideas behind Universal Credit in October 2010, starting on the day that Iain Duncan Smith announced the scheme.  I argued then that the proposal was simplistic and impractical.  “There is no reason to believe that this scheme will increase incentives to work. There is no reason to suppose it will reduce fraud or error – quite the contrary. And there is no real basis for supposing it will make any difference in getting people to work instead. The government’s hopes for the new scheme look like wishful thinking.”  More than eight years later, there’s not a word of that I need to change.

 I might add, though, an objection to the fatuous argument that UC is a success because more people receiving Universal Credit are getting into work while on the benefit.  The Resolution Foundation comments on the basis that 110,000 more people are in work; the DWP says that 200,000 will be.  The NAO has already commented that we can’t know whether this has anything to do with benefits at all, but let’s assume for a moment that it’s true.  This is a scheme intended to cover eight and a half million people (the figure is on page 4 of the  NAO report).  If 200,000 more people work, that covers less than one person in 42.  If it’s 110,000, it’s one person in 77.  For every person who gets more work than before, there are something between 40 and 75 who don’t. Universal Credit is  a scheme that introduces confusion and hardship for  roughly  half of all claimants.  Does it really make sense to make twenty or thirty people suffer to get one of them into a job?  If governments seriously wanted to get people into work, it would be cheaper, fairer and easier to make jobs instead.

 

The DWP has published the Full Business Case for Universal Credit.

I have to confess to a weakness for fantasy fiction, but there are times when the willing suspension of disbelief doesn’t come easily.   The DWP’s Full Business Case for UC, Neil Couling’s entry for the Man Booker Prize for Fiction, scores well for imagination but lacks conviction.

There’s been a fairly dedicated attempt to avoid direct comparison with the equally unbelievable business case published in 2014.  At that time, the DWP was claiming that  Universal Credit would bring benefits of  £35.9 billion, consisting of  £9.1 bn for reduced worklessness, £21.1 bn in distributional improvements, higher takeup and entitlement, £1.5 bn in reduced fraud and error, £3.7 bn in reduced admin costs,  and £0.5 bn in improved health.  Now the claim is that UC will gain £24.5 bn in people choosing to work more, £10.5 bn in distributional improvements, and £9.1 billion in reduced fraud and error.

We’re being asked to believe that a system that has greatly reduced work allowances, and gets withdrawn much more rapidly than originally envisaged, will do vastly more to get people into work than was claimed last time.  And (given that the error figures have jumped across categories) we’re also supposed to believe that savings on fraud are six times greater than they were before, at a time when all the indications are that UC is more vulnerable to fraud than the previous system was.  What is supposed to make this plausible?

 

More evidence that means tests don’t work

A review of the effectiveness of proxy means tests by Brown, Ravallion and van de Walle finds that they are not an effective way of concentrating resources on the poor. The process is simply not accurate enough.

“Standard PMTs help filter out the non-poor, but exclude many poor people, thus diminishing the impact on poverty. … The prevailing methods are particularly deficient in reaching the poorest.  … The most widely-used form of PMT in practice does only slightly better on average than an untargeted universal basic income scheme, in which everyone gets the same transfer, whatever their characteristics. Even under seemingly ideal conditions, the “high-tech” solutions to the targeting problem with imperfect information do not do much better than age-old methods using state-contingent transfers or even simpler basic income schemes.”

Proxy means tests are being used because poor countries just don’t have the quality of information to make fuller assessments work.  As many critics of means testing have pointed out, richer countries don’t have the capacity to do it either.  People’s incomes fluctuate, boundary problems are intrinsic, people don’t understand what should be included and what should not be, and take-up is consistently poor.

There is however one large reservation to make about this study’s findings.  There have to be doubts as to whether any country, rich or poor, really has the capacity to produce the kind of information that detailed quantitative studies of this kind call for.  This study points to the difficulty that any test has in determining whether or not specific individuals are poor.  The standard they use to verify the connections, household consumption, is not absolute proof of poverty; it’s an indicator.  It’s probably more valid than some other indicators, but it isn’t perfect and it is just as difficult to collect as income.  I happen to agree with the paper’s conclusions about proxy means tests, because they happily coincide with my own judgment, but nothing can be supposed to be proved beyond doubt; the core information that the analysis is built on is not good enough, and it cannot be.

A consultation on the claimant count

The DWP has issued a consultation about changes to the claimant count.   Once upon a time, we used to have a count of the numbers of people who were unemployed.  That count was persistently too high, despite a long series of downward revisions.  In the 1980s the government started to use the ‘claimant count’ instead, focusing on benefit receipt and excluding many people who were looking for jobs but who weren’t claiming benefit.  The claimant count series goes back to 1971; it correlates with unemployment figures, but it is usually lower. Now, all too predictably, the claimant count has been rising.  It’s happened because the rules of JSA, ESA and Universal Credit demand that people are treated as looking for work.  The two options in the consultation are both intended to massage the figures so that things don’t look quite so bad.

There is another option, of course.  The ONS already keeps figures from the Labour Froce Survey, which counts unemployment in the terms of the international definition used by the ILO.  The series goes back to 1984, when the government dropped the old count of unemployment.  It has also stopped using the claimant count from its Labour Market Statistics, because it’s meaningless as an economic indicator.   Indicators are not particularly useful when the conditions they’re kept under change.  So why are we using the claimant count at all?

Experiments with Basic Income were never going to settle the arguments

Many advocates of Basic Income will be disappointed at the decision in Finland to discontinue the experiments.  The decision seems to have far more to do with a change in the political climate than with any concern about how Basic Income operates; but moral judgments about rewards or disincentives are not the sort of issue that can be resolved with a proof of concept.

The experiments were always likely to be inconclusive. There are things that tests can show – for example, whether there are issues in the mechanisms of payment – and things they can’t, such as the impact of basic income over a person’s life cycle.  If anyone imagined that two years of Basic Income would resolve arguments about work incentives, they haven’t been paying attention.  In the first place, Basic Income is designed to be neutral as to whether or not people work; in the second place, previous income experiments have generally shown incentive effects to be feeble (and the economists who are convinced there have to be such effects have had to work hard to isolate them).  There’s a more substantial problem.  We know, from the introduction of pensions after 1908, that pensions have materially changed the way that older people engage in the labour market; but we also know that the effects took seventy or eighty years fully to materialise.  What that demonstrates, in economic terms, is that not that labour supply is something that responds directly to economic stimuli, but rather that, over time that the curves are liable to shift, reflecting changing patterns of behaviour, norms, expectations and the economic context.   (Two world wars and a health service might have had something to do with it, too.)   A two year programme can’t possibly replicate or predict such effects.

I’ve not seen any evidence to  support the view that Basic Income materially changes work incentives; while there is reason to think that some people will take the opportunity to disengage from work, there will be others who will be encouraged into casual work or self-employment.   The principal concerns I have about BI are quite different – related to the distributive implications and the relationship to existing benefits.  Those issues won’t clearly be addressed by experiments, either.

How selective benefits affect people who are not being targeted

A technical study for the World Bank challenges one of the central arguments for ‘targeting’ the poorest – as well as posing a major challenge to conventional economic theory.  The report is snappily titled General equilibrium effects of targeted cash transfers: nutrition impacts on non-beneficiary children.   The first effect of cash benefits to selected poor people was substantially to improve the extent to which their children were able to get protein rich foods.  There were marked improvements in nutrition, particularly on stunting – the effect that malnutrition has over time, in limiting children’s growth.

However, the policy also had a side-effect: the relative price of that kind of food increased. That, in turn, had a further effect: it reduced the access of other children, children in families who were not getting benefits, to protein-rich foods.  The effect was clearest in poorer villages where more people were getting benefits.  “We find that weight-for-age is significantly lower and the likelihood of being underweight significantly higher in program villages that have high rates of saturation. Average height-for-age is also lower and stunting rates higher …”

There are two major implications.  The first is about targeting.  One of the key problems with selectivity has always been that a line has to be drawn somewhere: the effect is that people a little above the line are not necessarily being treated fairly relative to those who are just below it.  The way to avoid this is to make the benefits universal – which is what has been happening with basic health care and universal primary education.

The second implication is about one of the received principles of economic theory, ‘Pareto optimality’.  Most economic analyses about of suppose that welfare is increased if at least one person is made better off, and no-one is worse off.  I’ve argued in previous work (for example, my book Reclaiming individualism) that this cannot happen, because prices are relative to resources.  This  study demonstrates the effect very clearly.

The Scotsman comes around to the idea of a universal benefit

I made a case, last December, for the removal of fees for burials and cremations. The Scotsman has just offered an editorial accepting that argument in relation to children, at least.

The majority of Scotland’s councils have scrapped burial fees for children. … Unfortunately, nine of Scotland’s 32 local authorities continue to charge bereaved parents fees of up to £800 for burials. We are not always convinced by arguments for universality. … But surely there is no debate to be had about the abolition of burial fees for children?

It’s pleasing that they’ve gone that far. I do wonder, however, that we don’t extend the argument a little further. Funerals are almost always a difficult experience, the expense of a funeral is (after a house and car) one of the largest that most people will ever have to incur, the present system for helping people in difficulties is riddled with anomalies, and there is no risk or incentive arguments that would mean it was not appropriate to offer people some help with costs. “We Scots”, the Scotsman argues, “have a good conceit of ourselves as a compassionate, humane lot.” So why stop at children?

Universal Credit: more complexity for self-employed people

Five years ago, I was writing about the unsuitability of the Universal Credit scheme for the circumstances of self-employed people.  Lots of self-employment is fictitious – a fraud by employers – but there’s real self-employment, too.  Income from genuine self-employment tends to be lumpy – unevenly distributed, and slow to match either with costs or the time when the work is actually done.  In the short term, it can be difficult to tell what one’s income actually is. I’ve just had a quick look at my own accounts – fortunately, I don’t have to rely on Universal Credit.  Last year I received self-employed income in five months, got nothing in five more, and paid out in two others.  That last bit is not at all unusual – tax is usually due in January and July.

We are shortly due to have another change in the way that self-employed income is calculated.  The system began with the idea that everyone would have their benefit calculated in ‘real time’, and then, for self-employed people, that they would have their circumstances calculated monthly on the basis of a notional “minimum income floor”, even if they had none – or if, like me, their costs happen to exceed their income in that month.  The new system will  take larger income payments and distribute any nominal surplus to later months.   What it won’t do, as far as I can tell, is to take proper account of losses and liabilities, because the minimum income floor still applies  to loss-making months.  Nor will it be geared to the tax system, because while HMRC has started routinely taking six-monthly payments on account, self-employed people’s liability to tax still typically gets settled well after the event.

The Scottish Social Security Bill, now amended

The second stage of the Scottish Social Security Bill is complete.  Unusually, most of the issues raised as amendments have been incorporated, a clear sign that the legislators have taken comments seriously; there will be a Scottish Social Security Commission to review legislation and regulations, the rules on overpayments have been considerably qualified, and I was particularly gratified to see two new clauses on alienability (48A and 48B).  Mandatory reconsideration is still there before a claimant can appeal, in a piece of macho drafting depending on multiple cross-references to determine what can be appealed and what can’t.  The Bill is not perfect, then, but it is much better for the amendments.

Unemployment benefits are being reformed in France

The government of President Macron has proposed a series of changes to unemployment benefits.  The context is very different to the UK.   Unemployment benefits are not run by the government, but by Unédic, a formal consortium of employers and trades unions.  The benefits are contributory and related to previous income (which makes them generous by comparison with UK benefits); they get reduced for longer periods of unemployment.

The proposed reform makes three substantial changes.  First, it will extend unemployment benefits for the first time to the self-employed.  Second, employees will not longer be excluded from  claiming if they have given up their previous work voluntarily.  The government is justifying this by suggesting that it offers people the opportunity to start a business.  At this stage, it’s not clear whether that will be a formal condition; if it’s not, there are others who may find different uses for it.   (The Thatcher government in the UK used to have a separate system of support for small business start ups, and one person I knew at the time was funded to become a successful writer of comedy.)

Third, there will be new sanctions; a person who refuses two reasonable offers of employment will have benefits halved.  That’s a little more leeway than claimants in the UK get, where claimants are driven to destitution for missing an appointment.    A report yesterday gives two examples of people having benefits stopped for the serious offence of being in hospital at the wrong time.