Busting the means testing myth

Andrew Harrop presents the evidence against increasing means-testing - universalism is the key to ensuring a well-funded welfare state.

 

Andrew Harrop is the general secretary of the Fabian Society

One of the most surprising conclusions from this month’s Fabian Society new year conferenceThe Economic Alternative, was the strong tide of support for greater means testing, particularly in such times of economic austerity. Speakers including Polly Toynbee, Peter Kellner, Kitty Ussher and Patrick Diamond lined-up to condemn universal welfare entitlements.

A commonly cited example from panellists and delegates was the winter fuel payment. We witnessed a stream of well-off pensioners (still a small minority, when you look at the statistics) express confusion and in some cases dismay that they receive an unrequested, undeserved and unnecessary benefit.

Surely, they say, such spending is wasteful and government would do far better to target resources at the most needy?

The Fabian Society’s new report, The Coalition and Universalism: Cuts, targeting and the future of welfare (pdf) puts the opposite case and shows that reducing the universality of benefits ultimately harms the very poorest in society means-testing is intended to protect.

Using analysis of the level of expenditure, the degree of targeting and the amount of poverty alleviation associated with 11 OECD welfare systems at different times between the 1970s and the 1990s, the data shows, counter-intuitively, that the more you means-test, the less poverty alleviation you achieve.

Figure One

Figure Two

The first graph shows that as the overall level of expenditure on welfare rises, the amount of poverty alleviation also rises.

This is not surprising, but our research also shows that governments that are more generous in welfare spending tend to spread such spending more widely amongst the population. There are very few governments that combine high levels of expenditure with high degrees of targeting.

The second graph is the one that is striking. It shows that governments which target spending more actually do less to alleviate poverty.

What does this mean for us? It goes without saying that the one-off effect of moving from a universal to a means-tested entitlement is ‘pro-poor’, but our evidence strongly suggests that the long term effect is likely to be ‘anti-poor’.

Historically, systems which mainly benefit only the poor have been funded so much worse than more universal systems that they have alleviated poverty less. In other words the greater efficiency of targeting has been more than off-set by the decreased generosity associated with designing welfare systems in which most taxpayers are not recipients and do not have a stake.

More generous welfare systems offer broad entitlements and give middle-income households a stake in a system in which they both pay in and take out. It is this majoritarian system that helps build public support for welfare. By contrast increased targeting of benefits erodes this public support and furthers damaging ideas of ‘dependency’ and of a ‘them-and-us’ mentality.

So far the coalition approach to targeting has been tentative. The restriction of child benefit to low and middle income households has been the most public and controversial measure but there have also been major restrictions to tax credits and growing speculation on the future of the winter fuel payment.

Perhaps wary of tackling the public discontent caused by introducing means testing to popular benefits like older people’s bus passes, the coalition seem to be pursuing a “salami-slicing” approach – cutting away universalism piece by piece – justified always by the imperative of deficit reduction combined with the twin refrains of “there is no alternative” and “we’re all in this together”.

In this light, the fight to protect the most vulnerable from welfare cuts currently being waged in both Houses of Parliament are likely to be skirmishes in an ongoing battle. Campaigners for social justice and progressive values need to think very carefully before advocating means-testing as the ‘least bad’ option. It may make sense today, but will it erode support for welfare spending over decades?

We need to defend the majoritarian basis of the welfare state, otherwise entitlements which poor families depend on most will wither. There should be no doubt as to just how high the stakes are.

See also:

Growth revision shows economic recovery is off trackTony Dolphin, January 9th 2012

Life is already hard for cancer patients. Don’t make it harderAlex Hern, October 25th 2011

How disability reforms were whitewashed from Labour’s conferenceDaniel Elton, September 27th 2011

Yet another nasty in the welfare bill: Means testing support for the disabled-since-youthDeclan Gaffney, September 22nd 2011

Considering income alone is never enough when looking at living standardsJames Plunkett, February 2nd 2011

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38 Responses to “Busting the means testing myth”

  1. Andrew Harrop

    RT @leftfootfwd: Busting the means testing myth, by @andrew_harrop of @TheFabians: http://t.co/SXIH2nSt

  2. The Fabian Society

    Busting the means testing myth, by @andrew_harrop of @TheFabians: http://t.co/U9Un94dM

  3. ACT Young Labor Left

    Busting the means testing myth, by @andrew_harrop of @TheFabians: http://t.co/U9Un94dM

  4. Pitamurti Nur Hayu

    #UK : Busting the means testing myth http://t.co/NEfa2NJH

  5. Anonymous

    Using analysis of the level of expenditure, the degree of targeting and the amount of poverty alleviation associated with 11 OECD welfare systems at different times between the 1970s and the 1990s, the data shows, counter-intuitively, that the more you means-test, the less poverty alleviation you achieve.

    =============

    Here’s an idea. Those claiming tens of thousands in benefits, could meet the rest of society half way and start working.

  6. Anonymous

    Perhaps wary of tackling the public discontent caused by introducing means testing to popular benefits like older people’s bus passes, the coalition seem to be pursuing a “salami-slicing” approach – cutting away universalism piece by piece – justified always by the imperative of deficit reduction combined with the twin refrains of “there is no alternative” and “we’re all in this together”.

    =======

    Yep, and that’s what the left is advocating.

    The rich and hard working pay all the taxes, and get NOTHING in return.

  7. leftlinks

    Left Foot Forward – Busting the means testing myth http://t.co/wmESRTFu

  8. Pulp Ark

    Busting the means testing myth http://t.co/MeYJdxcG #Social_Justice #deficit_reduction #Means_Testing #muslim #tcot #sioa

  9. Murray Rothbard

    Lies, Damned Lies & Statistics!

    1. You really need to learn that correlation is not the same thing as causation

    2. How is poverty = “Amount of redistribution to pre tax and transfer poor”

    3. What other variables could account for the relationship?

    4. Try using a common sense test, if you have £1,000 and you pay it to 100 people they get £10 each. If you only give it to the 50 who need it they can have £20 each. Not really rocket science is it!

  10. Murray Rothbard

    Lies, Damned Lies & Statistics!

    1. You really need to learn that correlation is not the same thing as causation

    2. How is poverty = “Amount of redistribution to pre tax and transfer poor”

    3. What other variables could account for the relationship?

    4. Try using a common sense test, if you have £1,000 and you pay it to 100 people they get £10 each. If you only give it to the 50 who need it they can have £20 each. Not really rocket science is it!

  11. BevR

    Busting the means testing myth, by @andrew_harrop of @TheFabians: http://t.co/U9Un94dM

  12. Murray Rothbard

    “@leftfootfwd: Busting the means testing myth: http://t.co/QQRTrwt9” <<LMAO, ignoring reality with statistics

  13. Miss Prankster Pixie

    why #meanstesting actually hurts th poor http://t.co/JM9dCdL1 #wrb #nhs #benefits #disabled #sparticusreport #sparticus #welfare #savethenhs

  14. KMJ

    RT @leftfootfwd: Busting the means testing myth, by @andrew_harrop of @TheFabians: http://t.co/IRexLvuw #NewsClub

  15. David Wood

    Nicely argued piece.RT @leftfootfwd: Busting the means testing myth http://t.co/cEO7skZG

  16. Katie McDowell

    Busting the means testing myth, by @andrew_harrop of @TheFabians: http://t.co/U9Un94dM

  17. Pamela Heywood

    Busting the means testing myth http://t.co/huEGbyeT

  18. Political Planet

    Busting the means testing myth: Andrew Harrop presents the evidence against increasing means-testing – universal… http://t.co/WmISEZ2Z

  19. Cochis

    RT @leftfootfwd: Busting the means testing myth http://t.co/FNXOxywR

  20. Robin Wilson

    Busting the means testing myth, by @andrew_harrop of @TheFabians: http://t.co/U9Un94dM

  21. Annette Carter

    Busting the means testing myth: Surely, they say, such spending is wasteful and government would do far better t… http://t.co/EW5lSgxk

  22. Robert Bowers

    RT @leftfootfwd: Busting the means testing myth, by @andrew_harrop of @TheFabians: http://t.co/iDf377ZK

  23. TruthBeckons

    Time to bust the means testing myth again http://t.co/AKI6mV8D

  24. Fpvanham

    Given that the biggest benefits i.e tax credits, require you to pay into the system by working, and that unemployment benefit (which now requires you to make at least a token effort to find a job and go on work placements) is barely enough to live on at all, it’s hard to imagine that many people voluntarily living on the dole with the intention of never working, though some do exist. Making sure that everybody who needs the benefits gets them is more important than going after the people who exploit the system, and it’s simply immoral to pursue the latter at the expense of the former.
    The point is the rich don’t need any bloody help, because they have enough money to live on and then some. People at the bottom of the ladder who can’t make their way up because of an insufficient wage which only just allows them to pay the bills (and not spend money on say, learning new skills which might improve their employment prospects) often need financial support from the state just to get by- the minor inconvenience of not being able to afford an olympic size swimming pool in your back garden, for example, pales in comparison to the plight of someone who is struggling to buy enough food every week to stay healthy.
    As to the article, the analysis of the second graph is flawed. It could be simply that countries with more means testing spend less on welfare aside from the cost cutting effect means testing has, it does not necessarily mean that means testing has a harmful effect. A better way to establish the relationship between alleviation of poverty and means testing would to be to use data from countries that have similar expenditure per head of population on social security, with varying levels of targeting.

  25. Fpvanham

    Given that the biggest benefits i.e tax credits, require you to pay into the system by working, and that unemployment benefit (which now requires you to make at least a token effort to find a job and go on work placements) is barely enough to live on at all, it’s hard to imagine that many people voluntarily living on the dole with the intention of never working, though some do exist. Making sure that everybody who needs the benefits gets them is more important than going after the people who exploit the system, and it’s simply immoral to pursue the latter at the expense of the former.
    The point is the rich don’t need any bloody help, because they have enough money to live on and then some. People at the bottom of the ladder who can’t make their way up because of an insufficient wage which only just allows them to pay the bills (and not spend money on say, learning new skills which might improve their employment prospects) often need financial support from the state just to get by- the minor inconvenience of not being able to afford an olympic size swimming pool in your back garden, for example, pales in comparison to the plight of someone who is struggling to buy enough food every week to stay healthy.
    As to the article, the analysis of the second graph is flawed. It could be simply that countries with more means testing spend less on welfare aside from the cost cutting effect means testing has, it does not necessarily mean that means testing has a harmful effect. A better way to establish the relationship between alleviation of poverty and means testing would to be to use data from countries that have similar expenditure per head of population on social security, with varying levels of targeting.

  26. Newsbot9

    No NHS. No Roads… oh wait, no, one thing only: no brain in the right wing troll

  27. Newsbot9

    Great, and the jobs are where?

    Hint: The policies you support are destroying jobs.

  28. Newsbot9

    You’re using logic on a Tory troll. This never ends well.

    The simpler answer is this: Means testing is expensive and intrusive. Better to offer the benefits like the NHS to everyone, and reclaim the cost from the better paid through tax.

  29. Fpvanham

    It’s telling when somebody uses the phrase ‘hard working taxpayer’ in their justification of slashing benefits, forgetting that some of the benefits they want to cut go to low earning (but still hardworking) taxpayers. It’s a synonym for the rich euphemised when used in this context, exactly the same as the hackneyed, even more transparent use of ‘job creator’ by the american right wing.

  30. BevR

    RT @leftfootfwd: Busting the means testing myth http://t.co/bBet23zo #spartacusreport

  31. Anonymous

    ) is barely enough to live on at all,

    =================

    So lets see.

    Free health care – 1800 a year

    Free schooling for your offspring. 2 – 12,000 a year.

    Housing benefit.

    Free prescriptions.

    ….

    Far more generous with other people’s money than you make out.

    ============

    People at the bottom of the ladder who can’t make their way up because of an insufficient wage which only just allows them to pay the bills

    ============

    Symptoms correctly described. Cause completely wrong.

    Even for the poor their major cost is taxation. For someone on min wage, its 2.5K a year, ignoring indirect taxation.

    What is needed is savings. They need to be able to save, and they need to be forced to save.

    However, that won’t happen. They spent 12 billion (up from 2.4 billion), on that Olympic swimming pool. Now the poor have to pay the debt off.

    That was Labour’s plan, wasn’t it?

  32. Fpvanham

    And yet despite all that generosity, what the low paid do earn is only just about enough to get by. I speak from personal experience when i say a single mother on minimum wage with 2 children only just has enough money to get by, as opposed to being comfortable through the generosity of the state, which is the fantasy that you paint. They still have to pay rent, phone bill, for the internet, for mobile phone credit/contracts, electricity bill, for food, toiletries, water, clothes, travel fares/fuel and so on.
    You imply that the money spent on free education can be treated like disposable income, which is ludicrous seeing as it isn’t optional, and it’s a minimum requirement for a first world country. Healthcare is paid for through national insurance, which everybody with a job pays, so it’s only free at the point of delivery.
    Your argument has one glaring contradiction. On the one hand, you claim that the poor are being kept poor because the government’s forcing them to cough up too much money, yet on the other hand you say the state props them up by giving them money. Given that we have a progressive tax system, it stands to reason that if you were to get rid of both, that the poor would end up worse off, seeing as the biggest part of the tax burden is on the backs of those who can afford to pay . In fact you just said that the rich pay all the taxes, so you contradicted yourself twice over.
    Saving makes zero sense unless you have money to spare. If you’ve got enough money to spare to save, then you’re not struggling, so it only really helps if you’ve fallen down the financial ladder rather than having always been there like the majority of the working poor. I don’t support labour, so your silly tribal jibe is null and void.

  33. Anonymous

    I speak from personal experience when i say a single mother on minimum wage

    ==================

    That single mother has 2.5K of employment tax.

    Would an extra 2.5K a year make a difference to her? You bet.

    However, its not going to happen.

    The government has massive debts, off the books mainly, and it will extract that 2.5K to pay for things that aren’t services. Namely pensions and in particular civil servants. 1.3 tn compared to 1.0 tn of state borrowing.

  34. Anonymous

    You imply that the money spent on free education can be treated like disposable income, which is ludicrous seeing as it isn’t optional, and it’s a minimum requirement for a first world country.

    ==============

    However, that person on welfare isn’t paying for it. They get it for free. 6K per year per child

    =============-
    Healthcare is paid for through national insurance, which everybody with a job pays, so it’s only free at the point of delivery.

    =============

    That person on welfare isn’t paying for it because they aren’t paying NI

    1.8K per person

    NI does not entitle you to the NHS. NI is far more restrictive as to what it entitles you to.

    =============

    Your argument has one glaring contradiction. On the one hand, you claim that the poor are being kept poor because the government’s forcing them to cough up too much money, yet on the other hand you say the state props them up by giving them money.

    =============

    I’m not making that argument

    =============

    Given that we have a progressive tax system, it stands to reason that if you were to get rid of both, that the poor would end up worse off, seeing as the biggest part of the tax burden is on the backs of those who can afford to pay . In fact you just said that the rich pay all the taxes, so you contradicted yourself twice over.

    =============

    Nope. I’m saying that in order to become richer, you need to spend less than you earn, and you need to invest the difference.

    The state is making them poorer.

    Take a median wage earner. What would have happened if they didn’t give the money for NI to the state, but instead invested it. 19K a year pension, instead they get 5K

    =============

    Saving makes zero sense unless you have money to spare. If you’ve got enough money to spare to save, then you’re not struggling, so it only really helps if you’ve fallen down the financial ladder rather than having always been there like the majority of the working poor. I don’t support labour, so your silly tribal jibe is null and void.

    =============

    And they don’t have money to spare because the state is taxing them to pay for its debts.

    By the way, jibe is for sail boats. The word you mean is gibe.

  35. Fpvanham

    That might be because i’m not just talking about the unemployed, as they’re not the only ones who receive benefits.

    ==========
    However, that person on welfare isn’t paying for it. They get it for free. 6K per year per child
    ==========
    not the argument i’m making- the argument i’m making is that although they’re not paying for it, it’s not as if you can put the cost of it back in their pocket, is it, unless you’d rather give people the choice to forego education altogether?

    ==========
    That person on welfare isn’t paying for it because they aren’t paying NI

    1.8K per person

    NI does not entitle you to the NHS. NI is far more restrictive as to what it entitles you to.
    ==========
    on welfare does not equal unemployed necessarily, and as long as your earnings are above a certain rather low level, you’re paying NI. The point isn’t about entitlement, it’s that some of that money is funding the NHS, hence it’s only free at the point of delivery.

    ==========
    I’m not making that argument
    ==========
    That’s exactly what you wrote, that the low paid are being made poorer by taxation, yet at the same time they’re getting more than the amount they pay in tax’s worth of benefits (since you seem to think on benefits is a synonym for unemployed, i’ll reiterate that it includes the low paid employed). You can’t have it both ways.

    ==========
    Nope. I’m saying that in order to become richer, you need to spend less than you earn, and you need to invest the difference.

    The state is making them poorer.

    Take a median wage earner. What would have happened if they didn’t give the money for NI to the state, but instead invested it. 19K a year pension, instead they get 5K

    =========
    this a serious suggestion we should lower the tax rate to zero? unless you were simply to lift low earners out of tax and make up the deficit by increasing the burden on the wealthier (an argument i presume you’re not making), essential services like education and healthcare would become private, which would cost more and make them poorer. You can’t put money aside if you can’t spend less than you earn, period.
    =========
    And they don’t have money to spare because the state is taxing them to pay for its debts.

    By the way, jibe is for sail boats. The word you mean is gibe.
    ========
    already dealt with this, and yeah i know, typo.

  36. Lord Blagger

    On education, my point is that someone else is paying, and they are paying a lot. The left claims that these poor people are only getting 65 pounds a week. They aren’t. They are getting a lot of money. It’s just that some of it goes in health insurance, or schooling, for free. The amount they get needs to reflect this.

    You can put the money in their pocket, so they see it, and restrict its use to education. School vouchers.

    NI doesn’t fund the NHS. Not one bit.

    NI alone doesn’t even fund the entitlements that you get for paying it.

    That’s exactly what you wrote, that the low paid are being made poorer by taxation.

    That is correct, they are. I don’t see how you can dispute that someone on min wage is taxed 2.5K, since its factual.

    The unemployed get a lot of payments. The problem is that the min wage earner, and there are many who don’t get extra benefits, have to pay their tax for the unemployed to be better off. That bluntly isn’t moral, fair or right.

    =============

    this a serious suggestion we should lower the tax rate to zero?

    =============

    Yes. No one under min wage should pay any tax. No one should get more than min wage on benefits. [Disabled get 100% of their extra costs]

    Above min wage, you have to save 20%.

    State pension for past accruals will be paid.

    No more state pensions shall accrue.

    NI is abolished.

    What does this mean? It means that the 20% comes from NI. That money goes into a fund, in your name, tax free. It has to be invested. [Caps on fees essential]

    Now, for median worker this means they would have had a 19K a year pension in place of the state pension at 5K. The claim is you can’t invest in the FTSE, its risky. Compared to the state pension, the state pension is the disaster.

    At retirement, you go into drawdown.

    If, and only if, the money runs out, does everyone else help via general taxation.

    This is just in time bailing out. Most people won’t need it. We wait until we have to.

    If you die early, it goes to your heir’s fund.

    50% of contributions go into spouse’s funds. These pension funds are ignored on divorce.

    This is good for the poor. They tend to die young. The increase in retirement age is screwing them out a larger percentage than the rich. e.g. If you live in the Gorbals, your life expectancy at 65 is low. Lets say its 5 years compared to 25 years in richer areas. A one year increase is 20% off your pension payout compared to 4% elsewhere.

  37. H. O.

    RT @leftfootfwd: Busting the means testing myth http://t.co/zBDF9vNJ

  38. Tax credit changes will discourage work and have other disastrous effects | Left Foot Forward

    […] Busting the means testing myth – Andrew Harrop, January 26th […]

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