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.

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