Universal benefits vs Means-testing : Wed Jan 09, 2013 12:50 pm  

I have been struck quite forcibly by how many people don't understand why universal benefits have existed or why they are not means-tested.

Back in the day, if you needed a helping-hand, you had to go cap-in-hand and ask "the Parish" for a hand-out and would most likely receive a lecture, delivered by some no-nothing daughter of a well-to-do local captain of industry, on your profligacy and fecklessness instead.
Families would routinely be split-up and have to go live in a workhouse to avoid starvation.

Fast-forward to the 1940's and universal benefits come into the picture.
You don't apply for them, everyone gets them and no-one has to be demeaningly means-tested to get it.
Instead, everyone pays into the system according to thier mean (we used to call this income tax).
Whilst it may seem counter-intuitive to give someone something and then take it back in tax, it's actually a cheaper method than putting some arcane process in place and a lot more civilised than making the recipients jump through multiple hoops to get it.

So, I now open this topic for debate.
n.b. It's not about the level of benefits but about the relative merits of universal versus means-tested.

Re: Universal benefits vs Means-testing : Wed Jan 09, 2013 1:05 pm  

Not only that, but better off people in receipt of non-means tested benefits pay some back in tax. This idea of cutting back on payments to "rich" pensioners is bonkers. The cost of administering the system will outweigh the benefits, not least because the really well off pensioners will be paying 40% or 50% tax on them anyhow. I suspect its all more about disadvantaging the better off in the hope they will rebel against the welfare system and so the government can let it all crumble to everyones detriment except the ultra-wealthy.

[John_D]

Re: Universal benefits vs Means-testing : Wed Jan 09, 2013 1:28 pm  

Dally wrote:

I suspect its all more about disadvantaging the better off

Whatever it is, it ain't that, even given the caveat you added

Re: Universal benefits vs Means-testing : Wed Jan 09, 2013 1:33 pm  

Means-testing supposedly targets the help at those who need it most, although given the Child Benefit Charge rules I suspect the current government don't actually understad what that statement means.

However, it is often more complex, more costly and more open to fraud and error than a universal benefit system.

There's a balance to be struck somewhere in the middle with a mix of the two IMO.

Re: Universal benefits vs Means-testing : Wed Jan 09, 2013 2:00 pm  

if everyone gets something, then surely there is no net benefit to the recipients, therefore no point in giving it to people.

Re: Universal benefits vs Means-testing : Wed Jan 09, 2013 2:02 pm  

EHW wrote:

if everyone gets something, then surely there is no net benefit to the recipients, therefore no point in giving it to people.

Eh?

[DaveO]

Re: Universal benefits vs Means-testing : Wed Jan 09, 2013 3:54 pm  

As I said on the Cameron thread that eventually was locked, "....there is another reason why the benefit was universal. It is to do with, ironically enough, being "all in it together". If you pay into the welfare state via taxes and NI and you also benefit from it (in this case via child benefit) then you have a stake in the system. If it is all one way traffic in that some people only ever pay in and are never eligible for any form of pay out, then sooner or later the system breaks down as those people begrudge paying anything in at all and start to support parties from the right to who promise them just that. We are well down that road and it is quite deliberate policy from the right which is very divisive."

So essentially non-means tested benefits are a way to give everyone a stake in the system. You pay National INSURANCE then when you need it the insurance policy pays out, no questions asked so to speak.

It's pretty obvious you can't have every benefit non-means tested but certain benefits such as child benefit lend themselves to being non means tested and the fact it now isn't despite the obvious flaws of the new system is all down to politics and the governments attempt to show "we are all in it together". What they failed to grasp is we were already all in it together with that particular benefit because anyone who had children qualified for the benefit.

Another thing in favour of universal benefits is means testing is a disincentive to work. There is in effect a high marginal tax rate applied to anyone who crosses the means testing boundary that would see them lose a benefit or a chunk of it. We also saw this with the way child benefit has been dealt with as with the original proposal (subsequently watered down) cross the boundary by a £1 and you lost over £1500 a year in a family with two kids.

So rather than take a promotion that would give someone a small pay-rise but make them worse off because they lose out on a means tested benefit people have a disincentive to take the promotion or a slightly better paid job.

I have a vague recollection from my childhood about my parents going on about "The Means Test" as something nasty that was introduced generally and I think they must have been referring to what happened in 1931 when the government introduced a household means test for any household where someone had been receiving insurance payments for 26 weeks. It was one of the things that led to the Jarrow March (proper name Jarrow Crusade) in 1936 but aport from that I think this household means test is where a lot of the stigma associated with means testing comes from which often leads to people not claiming what they are entitled.

Re: Universal benefits vs Means-testing : Wed Jan 09, 2013 5:32 pm  

Whatever the original motives were behind universal benefits, that doesn't mean that the principle is still relevant.

I really doubt that wealthy people feel that they're getting something back because they receive child benefit, winter fuel payments, free bus passes etc. They just do not place much value on those types of benefits. They'll accept them, treating them as a bit of a joke, but still feel aggrieved by what they perceive to be high tax rates.

In this day and age it shouldn't be necessary to subject people to having to apply for these benefits. The tax system should be quite capable of excluding high earners from receiving them without any great cost. The idea that we might as well give them to everyone because its too expensive not to shouldn't be acceptable in 2013.

Re: Universal benefits vs Means-testing : Wed Jan 09, 2013 6:44 pm  

Cibaman wrote:

Whatever the original motives were behind universal benefits, that doesn't mean that the principle is still relevant.

Indeed, though until quite recently family allowance was such a low amount that the costs of means testing would outweigh the saving, I'm yet to be convinced that still isn't the case. There aren't that many universal benefits now, means testing would be a hammer to crack a nut.

Cibaman wrote:

I really doubt that wealthy people feel that they're getting something back because they receive child benefit, winter fuel payments, free bus passes etc. They just do not place much value on those types of benefits. They'll accept them, treating them as a bit of a joke, but still feel aggrieved by what they perceive to be high tax rates.

You are probably right but as bus passes and free TV licences have to be applied for rather than come automatically you'd find those that don't need them don't apply for them.

Mind that doesn't mean the winter fuel payment is perfect, did you know it is paid to thousands of pensioners living abroad? That should be stopped as a priority.

Cibaman wrote:

In this day and age it shouldn't be necessary to subject people to having to apply for these benefits. The tax system should be quite capable of excluding high earners from receiving them without any great cost. The idea that we might as well give them to everyone because its too expensive not to shouldn't be acceptable in 2013.

That way means everyone filling is self assessment forms, HMRC can't cope with its current workload without have it increased massively, even this needs some admin and would more than likely mean stuff like family allowance remains largely non-means tested. The current shambles implemented by this current government shows what happens when you do things halfarsed.

Re: Universal benefits vs Means-testing : Wed Jan 09, 2013 7:40 pm  

Big Graeme wrote:

Indeed, though until quite recently family allowance was such a low amount that the costs of means testing would outweigh the saving, I'm yet to be convinced that still isn't the case. There aren't that many universal benefits now, means testing would be a hammer to crack a nut.

You are probably right but as bus passes and free TV licences have to be applied for rather than come automatically you'd find those that don't need them don't apply for them.

Mind that doesn't mean the winter fuel payment is perfect, did you know it is paid to thousands of pensioners living abroad? That should be stopped as a priority.

That way means everyone filling is self assessment forms, HMRC can't cope with its current workload without have it increased massively, even this needs some admin and would more than likely mean stuff like family allowance remains largely non-means tested. The current shambles implemented by this current government shows what happens when you do things halfarsed.

High earners are already subject to self assessment.