Tagged: universality

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.

The cost of free services in Scotland

Robert Black, who recently retired as Auditor General in Scotland, argues in today’s Scotsman in favour of reviewing the cost of universal services – particularly free personal care and free transport. He acknowledges that the cost of free prescriptions and eye tests is less and that they have a preventive function. His position has been consistent; it was formerly argued in an Audit Scotland report, Scotland’s public finances.

Part of Bob’s case is unarguable – that public expenditure has an opportunity cost, and we should always be prepared to consider what the implications are of one decision relative to another. Some of the figures he uses, however, are contentious. The increase in prescription costs to £1 billion is a general cost of the NHS, not a specific cost of ‘free prescriptions’. They cost nearer to £80m, though I’ve been struggling to find an accurate figure – the rest of the £150m cited in costs is down to eye tests, which have been separately justified in terms of savings elsewhere. We’re told that the cost of the National Concessionary Travel Scheme (bus and travel passes) ‘could rise’ to £500m. Well, it could do anything in theory; much depends on inflation, much on future policy; but the budget for 2012-13, 2013-14 and 2014-15 has been set at a constant £194m. There are certainly pressures on the public finances, but it’s not clear that it’s the universal benefits currently in dispute that are driving them.

Universality: a simple point

In reports from today’s Liberal Democratic conference, both Nick Clegg and Don Johnson have queried why the Winter Fuel Payment should be available to rich pensioners. The same argument is frequently heard about other benefits, including Child Benefit, and it could be extended to any non-means-tested benefit – health care, pensions, social care and so forth.

There are several arguments for universality – social inclusion, avoiding deterrents and so forth – but the simplest one is this. At present, everyone is already subject to one test of income: the tax system. The easiest way to manage any benefit is to pay a fixed sum and then to claw it back from tax. If there was to be a separate test for benefits like Winter Fuel Payment, everyone who might qualify would then be subject to a further test of income. Testing people’s income repeatedly is a recipe for unnecessary administration and intrusion. Why would anyone want there to be more tests than we need?

Citizen's Pension is sidelined

It appears that proposals for a Citizen’s Pension have been kicked into touch; I saw this first in an article by Simon Reade (“How politics put paid to the Coalition’s pensions reform”, i, 22nd September) but the main source of the reports has been the Financial Times, which I can’t link to here because it’s confined to subscribers. This decision goes beyond the question of postponing decisions till after the next election. When the government suggested a flat-rate pension in 2010, the proposal was for a universal payment for all pensioners. In later discussions it seems this has been changed to become a flat rate pension for anyone who has contributed for 30 years – which is line with the Beveridge scheme rather than the original idea of a Citizen’s Pension. The key difference is that those who have not been able to contribute or whose working life has been interrupted, especially women and people with disabilities, will be left out. That means that there will be no minimum income guarantee and that Pension Credit will have to be maintained.

The other long-standing weakness of the Beveridge scheme, of course, is that flat-rate benefits were never enough to meet basic needs. The reason why governments moved to earnings-relation was the evidence that continental schemes had proved far more effective in providing incomes in old age.

Developing a benefits system for Scotland

I did threaten, when I set up this blog, that I would use it to float half-baked ideas. This is a first stab – I’m likely to make changes and extend the argument as time goes by.

The Scottish Government has been keen to consider how to expand its role in taxation and economic management, but social security has hardly been mentioned. One of the main uses of tax is for “transfer payments” – moving money from one set of people to another. Pensions, tax credits and benefits have to be paid for. An independent Scotland, or a much more devolved administration – “devo-max” – would need to have its own benefit system. This has not largely featured in any of the discussions. That might be because it is a hot brick, and no-one wants to handle it; but it might also reflect a sense of despair, a feeling that not much can be done about it.

There is a general problem in all administrative reform called “path dependency”: changing things that work can be difficult to justify. Are we going to say, for example, that benefits should not be acting as a form of social insurance (the rationale for Widowed Parent’s Allowance)? That people should not be compensated for disability if they do not have financial needs (Industrial Injury Benefits)? That people should not have their rent paid (Housing Benefit)? It’s doubtful, if we were designing the system from the outset, that we would do things the same way; but once they have started, it’s hard to stop.

A benefits system cannot be designed from scratch. There are people now who are elderly, disabled, unemployed or otherwise in need of support, and they have benefits delivered on the same terms as the rest of Britain. The first thing that they will learn about a new system is whether they are better or worse off than they were before. If a Scottish system cost the same as benefits do now, it would either have to pay the same benefits, or it would have to justify paying less to some people so that others could get more. And people would always compare what was happening to what happens over the border. When the Republic of Ireland became independent from the UK, it mirrored the benefit system blow by blow for most of the next sixty years. Even today, it still has a clutch of benefits that look like benefits in the UK – Jobseekers Allowance (yes, the name is the same), State Pension and Child Benefit – and others that look a lot like the way that the UK system used to look (Invalidity Pension, Maternity Benefit, Supplementary Welfare Allowance). Scotland would most likely end up doing the same sort of thing.

The only practical way to make more fundamental reforms is to pay substantially more in benefits, so that people do not lose out. The strongest contender for a reformed system would be something like a Citizen’s Income – extending the universal principle of Child Benefit to a range of adults. The coalition government is talking about something similar in relation to pensions – a Citizen’s Pension, instead of the combination of insurance and means-testing we have now. The same principle could help people at the margins of the job market without work – the labour market in Scotland has a sector of people who are “sub employed”, shifting between benefits and causal, peripheral and temporary work, and a more secure income would make a big difference. To make it even possible, however, the Scottish Government needs to start thinking about the issues now.