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.
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?
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, 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.
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.
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?
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 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.
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.
The House of Commons Work and Pensions Committee has been reviewing the Project Assessment Reviews of Universal Credit, and their report was published yesterday. In a nutshell, the plans are gobbledegook, there is no evidence, but the DWP assures us it is on track and that things have greatly improved. The press coverage picks out some of the critical comments, but to my mind the report is remarkably restrained. The project was, and remains, years behind schedule. With billions spent, it still has not submitted its business case. The management documents that have found their way into the public domain substantially fail to relate to the task in hand – see John Slater’s comments on my blog. The Committee has had clear evidence that they were deliberately misled about previous progress. Universal Credit was, and is, a national scandal.