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 conference, The 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 track – Tony Dolphin, January 9th 2012
• Life is already hard for cancer patients. Don’t make it harder – Alex Hern, October 25th 2011
• How disability reforms were whitewashed from Labour’s conference – Daniel Elton, September 27th 2011
• Yet another nasty in the welfare bill: Means testing support for the disabled-since-youth – Declan Gaffney, September 22nd 2011
• Considering income alone is never enough when looking at living standards – James Plunkett, February 2nd 2011
38 Responses to “Busting the means testing myth”
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.
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this a serious suggestion we should lower the tax rate to zero?
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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.
H. O.
RT @leftfootfwd: Busting the means testing myth http://t.co/zBDF9vNJ
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