Tagged: universality

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?

The IMF takes steps to scupper universal benefits

A  report from Stephen Kidd about Mongolia and Kyrgyzstan tells us that the IMF have been forcing governments to limit the scope of universal benefits for children.  At a time when the evidence for universal programmes in less developed countries has rarely been stronger – see, for example, S Davala, R Jhabvala, G Standing, S Mehta, 2015, Basic Income –  this is deeply depressing.

I discuss the issues about targeting briefly on my social policy website.  If “targeting” means that there’s a choice of group (for example, payments to pensioners or nursing mothers), it can work.  Targeting “the poor” is much vaguer and more difficult to do effectively.  The process is complex and hard to do with any precision; some favoured methods, such as geographical selection, really don’t work well.  A report by Australian Aid,  Targeting the poorest, found that for poor people the process could seemed bizarrely random, with outcomes that they attributed to luck or divine judgment.  The evidence suggests that selectivity is rather more effective at stopping people from getting benefits than it is at getting them to the people who need them most.  By contrast, universal benefits work.  Arguing to scrap benefits that work and replace them with rules that don’t makes very little sense.

A report on Universal Basic Services

The Institute for Global Prosperity has produced a report proposing the introduction of a range of universal basic services.  The principle is the same as the principle of the National Health Service, education in schools, or the road network: providing universal services would offer a foundation for everyone in the society.  The fields in which they are proposing basic services are shelter, food, transport and “information”, which includes phone, television and the internet.

The schemes are not all worked out in the same way.  The proposals that would be genuinely universal are for public transport (extending the equivalent of pensioners’ bus passes to everyone) and communications.  The food service they propose is essentially a residual network for poorer families, replacing food banks and soup kitchens; the model for housing is an extension of existing social housing stock.  Neither would be universal.

They also compare the costs of their scheme with Universal Basic Income.   It’s not a completely fair comparison, because the provision they are proposing for housing and food is not provision for everyone; if they were genuinely offering either of those on a universal basis, the costings would look a lot different.  It is fair, however, to remind people of the alternative to Universal Basic Income.  People need an income so as to buy goods and services on the private market; it may be possible to take those services out of the market altogether.

Both the universal schemes they propose, and the underlying arguments, are interesting and thought-provoking.  I’m persuaded by the ideas of the universal bus pass and a universal infrastructure for the internet; I think others may need more work; but it’s a debate that’s well worth engaging in.

 

 

Why the Daily Record is wrong about universal benefits

Universal benefits, the Daily Record complains, favour the better off.  That’s a common misconception.  Some universal benefits do: free university tuition, for example, favoured the better off because there were far more better off students than poor ones.  Some universal benefits don’t:  universal primary education tends to favour lower income families more, because younger families, and larger families with young children, tend to be worse off.

When it comes to benefits, it makes sense to think of universal and residual benefits as different ways of paying for the same service.  The benefits have to be paid for, by tax or contributions.  People might have a tax threshold, or it might be converted into a cash benefit.  (Child Benefit was created from the fusion of two different benefits – a child tax allowance and the family allowance.)   Mathematically speaking, tax allowances and benefits boil down to the same thing,  but in the first case people don’t get the money until after the tax calculation, and in the second case they get the money before the tax calculation.  Superficially the first option seems to keep tax rates lower, but that’s only a matter of appearances.  (It may also look as if richer people aren’t getting a benefit – but as they’re paying less tax, that’s all down to smoke and mirrors.)  The catch is that the first option doesn’t get the benefits to everyone, and there has to be an extra means test to make up for the gap – so poorer people get two means tests when richer people only get one.  It also means, unfortunately, that lots of poorer people don’t actually get the benefits.

That doesn’t mean that the Record is completely wrong.  The council tax freeze – which is not a universal benefit at all – is favouring the better off.  However, ‘free’ personal care for older people – which is actually highly selective – no more favours the rich than the health service does.  The central problem with some of the universal benefits in Scotland is not that they’re universal: it’s that they’re not being paid for by higher tax.

 

Arguments about Citizens Income

The proponents of a Citizens Income are getting a rough ride at the moment.  Natalie Bennett, the Green Party leader, is supposed to support the idea, but her truly awful interview with Andrew Neil showed up her reluctance to engage with the core arguments.  She just wasn’t ready to say that much of the funding comes from replacing existing benefits, scrapping basic tax allowances and wiping out Tax Credits.  Now the Joseph Rowntree Foundation has published a sceptical report by Donald Hirsch, complaining that the scheme would cost too much, that people wouldn’t approve of it, and that it’s never been done.  Well, it doesn’t have to be paid for entirely in direct taxation – why would you want to do that?  – and as for practical experience, the precedent already exists in Child Benefit.

I’d question many of the arguments made for Citizens Income, and I detailed some of the problems in a previous post.  Any Citizens Income would need to be partial – that’s not a bad thing – and introduced to cover segments of the population.  Pensions can’t be left out; I’m not sure it makes sense to leave out Housing Benefit either.   The main problem with a Citizens Income is common to any scheme that over-simplifies; if you’re replacing complicated benefits with simpler ones, you will have to be ready to cut benefits to some people with complex special needs.   That doesn’t  mean, however,  that the system is either unworkable or unaffordable.  The question is whether we should do anything like it, and if so how far it should go.

Labour and the Liberal Democrats put themselves on the wrong side of the argument about means-testing

In the run-up to the election,  the argument for means-testing pensioner benefits has resurfaced.  Many people don’t see the point of these benefits – but that’s because they don’t see what would have to happen if they were means-tested instead.  Both Labour and Liberal Democrats have said they would means-test several benefits, so that rich people don’t get them.

One of the frustrations of writing a blog about policy is that the same arguments come round again and again, and it gets rather difficult to find anything new to say about them.  I’ve made the case repeatedly.  The argument from principle is in the Reid Foundation report I co-authored, The case for universalism.  The practical argument is here, in a blog from two years ago.  Means testing every benefit one by one is more costly, more intrusive and more error prone than paying for it through the tax system.   My interview on the BBC is here.

Arguing for universal benefits

In an article in Scotland on Sunday, Dani Garavelli considers the arguments for free school meals as a universalist measure.   I contributed some points, which the article refers to, but my contribution is immediately followed by comments from  John McTernan, a former political secretary to Tony Blair.  He said this:

“There’s not a single person in the country who believes everyone should get a housing allowance, no-one believes everyone should get tax credits – everyone believes those benefits should be means-tested because that’s the way you focus the most help to those in the most need.  The state pension is universal and that’s correct. But anti-poverty measures have always been targeted at those who need them most.”

Stuff and nonsense.   There are loads of people who do think that all our basic benefits should be universal:  you can find them at the Citizens Income Trust or the Basic Income Earth Network.  The state pension is contributory, not universal, and consequently it fails to provide sufficient support for more than two million pensioners who are entitled to Pension Credit.   Anti-poverty measures  take many forms, some of which are targeted on those on lowest income, and some – like early years intervention – which aren’t.

I don’t agree wholly with the arguments of people who argue for a Citizens Income, for just the same reason that I don’t agree with those who argue that all our benefits should be means-tested:  our benefits systems have to deal with multiple objectives and complex circumstances, and one size can’t be expected to fit every case.  Universal benefits have to be combined with lots of others, including some contributory benefits, some means testing and some discretionary provision,  so as to provide people with a stable income in an unpredictable environment.    But within that framework,  I’d certainly like to see both a universal housing allowance, and a universal benefit rather than  tax credits – so that’s one person, at least, who thinks so.

France embraces means testing (apparently)

It’s not only in the UK that the principle of universality has been called into question.  The French government has said it is committed to universality – but the main option being considered is means-testing to limit the value of the benefits to the better-off, which is rather a strange interpretation of what ‘universality’ might imply.   The Fragonard report has reviewed several options for cutting family allowances, introduced in the 1930s.   It’s not an easy read.  The basic model seems to be based on a means test which will reduce benefits by different formulas, and the alternatives being considered are for different thresholds.   (Before anyone asks, no, I don’t understand the formulas.  The report explains:  “In this system, household income is divided into parts and the progressive scale is applied not to the income but to the parts of income.”)   A Le Monde article shows how it all works out.    More than two-thirds of a poll sample  agree that the benefits should be means-tested.

They do things differently in France, of course.   Opposition to cutting universal benefits, according to Le Monde, comes from the political right.  And it seems the issue is being linked politically with the idea of gay marriage, which is something of a conceptual leap.

The redistribution of inconvenience

The Times is attacking the principle of universal benefits. They argue that taxing people with one hand to take it away with another makes no sense. Yesterday, Hugo Rifkind, who more usually writes humourous pieces, questioned why people should have universal benefits. “Should the State tax me more so that it can keeping paying me more? Would that really be sensible?” Today, an editorial attacks Winter Fuel Payment as “indefensible” and the front page quotes an MP calling it “crazy” and “mad”.

The distributive effects are easy to defend, because that’s down to the maths. It’s possible, on paper at least, to show that an efficient means test can get us to the same result as an efficient tax system plus universal benefits (there’s no such thing as an efficient system, but I’ll leave that aside for the moment). The real argument, then, is about how we do things. What is the point of churning money – taxing people with one hand and giving them benefits with the other?

There are lots of reasons, but for the moment I just want to stick with the most basic practical argument. If you have income tax along with a universal benefit, you have to ask people about their income once. If you have income tax plus a means tested benefit, you have to ask some people about their income once, and others twice. We ask older people to fill in forms about tax, Pension Credit, Council Tax Benefit and Housing Benefit – and some politicians think that’s not enough. (The main effect is that at least one and a half million pensioners don’t get the benefits they should.) We ask younger people to fill in forms about tax and Tax Credits, and then another five million have to fill in forms about JSA or ESA. We’ve just seen the mushrooming bureaucracy needed to means-test Child Benefit for higher earners; even with people dropping out, there’ll need to be more than a million extra forms filled. This is about the distribution of the burden of administration, and who bears that burden. Taxing with one hand and allocating funds with the other is simpler, fairer, much less cumbersome and much less intrusive.

Why, then, do the journalists on The Times not get it? The answer may be that if you’re rich enough, you only get one test, which is tax, and the non-means tested benefits you get, like the bus pass or Winter Fuel Payment, just seem pointless. The lower your income, however, the more likely it is that you’ll be subject to multiple tests. People who write for The Times aren’t generally troubled by that; but the current experience of higher earners with Child Benefit should make them think again.