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 National Audit Office has qualified the DWP accounts, yet again, because of the levels of ‘fraud and error’. I put that phrase in inverted commas because the DWP has always presented them as a package; it’s not really about fraud. The breakdowns usually attribute most of the over- and under-payments to error.
(This graph may look blurred in some browsers; double-clicking or tapping on it should make it easier to read.)
The basic message from the graph is that some criteria are harder to manage that others. People get questions about income wrong, in both directions, and capital doesn’t necessarily get declared. In a nutshell, many of the problems are simply and directly attributable to means-testing. Living arrangements cause problems, too. By contrast, the sort of thing that doesn’t much appear is contributory entitlement. The essential problems stem from asking questions that suppose we can find out how people live and respond to their individual circumstances, rather than simply stating – as we do with state pensions – whether or not people are entitled.
The Scottish Conservatives have abandoned their long-held opposition to free prescriptions, and now accept that free prescriptions are popular and practical. A Conservative spokesman explained: “There is no doubt people in Scotland value the idea of free prescriptions. We have listened to them and changed our policy.”
The case for free prescriptions is straightforward. As things stood before the policy, and as I believe they still stand in England, five out of six prescriptions were exempt anyway – for pensioners, for children, for people on low income, for prescriptions issued by hospitals and for a wide range of specified medical conditions. There is already a means-test to make sure that richer people pay; it is called ‘taxation’. Introducing a further means test for people on lower incomes simply adds to the administrative burden. So people were being subjected to an awkward, complex and sometimes intrusive process which raised relatively little money.
The Conservative announcement has been met with howls of derision by the opposing parties. The change in policy has described the change of heart as ‘opportunistic’, ‘untrustworthy’, ‘shambolic’, ’embarrassing’ and ‘humiliating’. I suppose that that reaction might make sense to politicos of a tribal disposition, but credit where credit is due: the new policy should be welcomed. This is a triumph of reasoned argument over political prejudgment, and if it is a reflection of the fact we’re now in an election campaign, it’s also a triumph of democracy over ideology. There is joy in heaven for the sinner who repents.
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.
Ruth Lister drew attention, in the House of Lords last week, to the impact of the Decisions and Appeals Regulations on changes of circumstances. I missed the point first time around, but it’s important, and it has a particular implication when it’s taken into account along with other rules. Universal Credit is intended not just to be paid monthly but to be assessed monthly. Those ought to have been separable, and in one sense they are – the payment that a claimant receives is intended to cover them for the following month. However, the government is determined to have benefits assessed in ‘real time’, so entitlements for the month will change if circumstances change at any point during that month. The DWP memorandum explains:
Universal Credit is a dynamic benefit which is calculated on the basis of a wide range of personal circumstances and which is assessed and paid monthly. We therefore propose an approach to changes of circumstance which seeks to ensure that, at the end of each assessment period, the claimant is paid the amount we think they will need to manage over the coming month (next assessment period). We propose to achieve this by treating changes of circumstance which affect the amount of the award as if they occurred at the beginning of the assessment period, for the purpose of the award calculation. This is termed the “whole month” approach.
Claimants are expected to repay any overpayment, no matter what the circumstances in which it occurs.
This means that if someone’s relationship breaks down during the course of the month, their payment at the end of the month will be reduced – in some cases, immediately; if the system hasn’t caught up, they will have to repay anything they are not entitled to. That’s difficult enough. Beyond that, though, the combined effect of this rule with the under-occupancy rules also implies that, in cicumstances where a partner removes children from the house, entitlement to help with rent will be also cut instantly. That is likely to present major problems for people who will have no reasonable opportunity or ability to adjust their expenditure to their income.
The DWP reports that benefit fraud is dropping. Lord Freud comments:
“Clearly something is dramatically wrong with the current system when more money is lost because of mistakes by claimants than because of fraud. With Universal Credit bringing together six benefits into one, the system will be much easier for individuals to understand, and less vulnerable to human error.”
What is there about Universal Credit, though, that will reduce error? Universal Credit will be a highly complex, tapered means-tested benefit, where claimants are unable to tell month by month exactly what they will be entitled to. That is the problem, for example, with Housing Benefit. Here are a few figures, taken from the DWP statistics.
The first line shows the rates of fraud, claimant error and official error in Housing Benefit, which will be part of the UC system. So will the benefits in the next two lines, where claimant error is lower and both fraud and official error are higher. But while the rules for unemployment and sick people will still be there, the design of payments on UC follows Housing Benefit.
I’ve followed this with figures for two other benefits that won’t be part of Universal Credit: Pension Credit, and Retirement Pension. They are the only benefits where it’s possible to compare the impact of different benefit designs delivered to the same group of people – in this case, pensioners. And Pension Credit, which is the means-tested benefit, is at least sixteen times more likely to engender fraud and error than the National Insurance equivalent. If the government wants less fraud and error, it has to move away from means-testing.
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.