Tagged: universality

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.

The proposal to limit Child Benefit to two children

This morning’s Daily Telegraph reports that the Treasury is considering limiting Child Benefit to two children. The Telegraph has been the conduit for a series of kites flown by government recently. The main purpose of speculating about policy changes – Norman Fowler, a former Conservative Secretary of State, used to do it with the Times – is to test the water, to see what people will put up with. This is the first attempt to put flesh on the bones of Iain Duncan Smith’s suggestion that large families should lose support, but it comes from outside his domain – Child Benefit is the responsibility of HMRC and the Treasury, not the DWP.

As ever, there are issues of principle and practice to consider. In principle, Child Benefit does four things:

  • It supports children in general;
  • it gives an income to women responsible for child care;
  • it supplements wages and other benefits, so that household income is adjusted for family size; and
  • it stands in place of a Child Tax Allowance, which it replaced.

The main effect of cutting benefits for larger families would have in three of these cases would be to limit the benefit, rather than to destroy it. There will still be a benefit, but it will be worth less. The aim that it negates is the principle of adjusting family income to the family’s size. Larger families are not going to say that the income they receive is intended for child number 2, and not for child number 3; what will happen is that all the family, and all the children, will have less, and that will happen regardless of whether people are in benefits or in work. In a nutshell, it will increase child poverty.

The issues of practice are more complex. Child Benefit works mainly because it is very simple. This reform looks simple on paper, but it adds a significant complication. People claim Child Benefit first for the oldest child. That claim runs till the child is too old, and it continues automatically until the youngest child is too old. If the benefit is paid only for the first two children, the claim will only be for the first two, and there will be no link to records for the younger children. Families will need to register a fresh claim for younger children – the ones HMRC will not know about – at the point where the oldest child reaches school leaving age. Fresh claims mean, inevitably, delay and non-takeup. It’s possible that this is an effect the government wants to produce – HMRC has been encouraging better-off families not to claim at all. If people don’t claim, they don’t cost.

Savings, however, will be limited. Only about a fifth of families have more than two children, and all of those will still be entitled to benefits for the first two. The cuts would, of course, affect the welfare of all the children in these families, but the actual savings would be about a sixth of the Child Benefit bill – far less than the government is aiming to cut from benefit. I am not sure exactly how much this would be, because from the previous £12-13 billion that Child Benefit costs, the government claims already to have taken steps to save £2.5 billion a year from the cut to higher earners. On paper, though, it seems unlikely to save more than about £1.5 billion. To put this in perspective, it’s worth about £2.50 a week on the pension. The effects of this saving would be disproportionate, however, because they will affect every person in a family with three or more children.

An argument for free bus passes

Speaking of the Telegraph, the latest salvo in Iain Duncan Smith’s bombardment of the benefits system is directed at free bus passes and TV licences for pensioners. I’ve made general arguments for universal benefits before, but I’d like to add another reason for defending bus passes for pensioners. The structure of benefits for people with disabilities currently makes a distinction between people above and below the age of 65. Below the age of 65, Disability Living Allowance has two components: care, and mobility. Above the age of 65, there is only Attendance Allowance, which has no mobility component. In other words, support for mobility is substantially removed at the age of 65. The same distinction will continue to apply after the introduction of Personal Independence Payment.

From previouses censuses of disability, it’s possible to say that roughly two thirds of people with mobility difficulties are older people. We have two options. We can try to remove the kind of unfairness which means that someone who has a stroke at age 63 is treated much more favourably than someone who has a stroke at 66. There’s a very strong case case for doing that, but it would involve a complex, selective assessment of millions of people, and it could be staggeringly expensive. Or we can try more generally to offer practical support with mobility for a very large number of people. That is most effectively done with public transport. If we continue to suspend personalised support at 65, then from 65 up we have to offer generalised support. All right, it’s not ideal, and it’s not enough, but it has to be better than offering nothing.

Confusion about Child Benefit

The news that HMRC is sending letters to parents about Child Benefit has prompted a series of articles about the muddle and confusion that goes along with the process. On one hand, there seems to be popular support from opinion polls to the effect that richer people should not receive Child Benefit. (See e.g. the Daily Telegraph, 29th October.) On the other, there is confusion about inequity, how the rules will work, whether people are being asked not to claim, and so forth. The Institutes of Chartered Accountants think the whole thing is far too complicated. There is no contradiction here. The first statement is a question of principle; the second part concerns questions of practice. It is possible to make sure that richer people don’t benefit disproportionately by using the tax system, ‘clawing back’ the benefits. There is no possible arrangement for means-testing Child Benefit, or introducing special tax rules for one benefit on its own, that isn’t going to be complicated. “What I find so frightening”, Richard Titmuss once wrote, “is the extraordinary administrative naivety of those who argue in such terms for ‘selectivity’.” That same naivety is at root of the Treasury’s current problems.