Thoughts on politics and life from a liberal perspective

Sunday, 13 June 2010

Testing Means Testing

There has been much discussion about various state benefits recently in the context of what could be cut in order to save the government money and the question of means testing has raised its head again.

Every time I hear this subject discussed there is always someone from a body who opposes the idea of means testing whatever specific benefit they are talking about involved. The argument often revolves around for example the fact that if a benefit is universal then take up by those who need it most is higher and also that the admin costs per capita are lower. There are other arguments in favour of universality too such as the one that Frank Field advanced recently for child benefit which is along the lines of it being unfair to take away benefits from higher earners who have "played by the rules".

The problem I have with universality (especially in the current economic context) though is that it is providing benefits to people who do not really need them. Does a multi-millionaire's family really need child benefit? Does a wealthy 60 year old really need free bus travel around the country? Do rich pensioners need the Winter fuel payment? All of these benefits are currently universal.

We are having to look long and hard at cutting spending and increasing taxes. One of the taxes that is likely to go up in the emergency budget the week after next is VAT, perhaps to 20% or even higher. VAT is a regressive and to an extent stealthy tax (as an aside, I would actually prefer income tax to rise if any tax has to go up instead but that aint likely to happen at the moment). Think about what we are saying when we are preserving for example universal benefits for the children of richer families and better off older people. We are effectively asking the poor (who will be disproportionately hit by a VAT rise as a percentage of their income) to subsidise the rich.

Even though changing to means testing would not be enough to completely stop tax rises it would be enough to mitigate them. And at least we would be focusing benefits on those who need them.

Perhaps then the government would have a better claim to be doing things in a way that is consistent with the principle of us all being in this together.


marksany said...

Marginal withdrawal rates.

sanbikinoraion said...

There are two ways to deal with this problem: either means-test benefits, with all of the admin headaches that entails (never mind the indignity), or to raise taxes on the rich. Considering how steep our benefits withdrawal rates are already, I'm in favour of the latter.

Disenfranchised of Buckingham said...

VAT is not regressive. It is basically a voluntary tax like the lottery.

The deserving poor spend their money on food and housing which are not subject to VAT. The feckless may spend their money on satellite TV, booze and fags. It is their choice to buy these and pay the VAT.

I'm agnostic about means testing. Means testing increases the poverty trap and is seen as unfair by people who save and have been responsible in their lives. Why should the guy who blew a £9 million lottery win noe receive job seekers allowance and other benefits?

However I see no point in paying tax to have it handed back by the governemnt.

Anonymous said...

Perhaps all such universal benefits should be taxed - then the wealthy will pay tax on them at their highest applicable rate.

Mark Wadsworth said...

What is the practical or mathematical difference between income tax and income-based benefit withdrawal?

Answer, very little, except that income tax is honest and benefit withdrawal is adminstrative hassle and dishonest.

Mark Wadsworth said...

What is the point of taxing welfare benefits?

As it happens, VAT is absolutely The Worst Tax by a country mile, whether it is regressive or not is a different debate, but it certainly stifles the productive economy and hence benefits the unproductive 'economy' (banks, housing).

But, as DoB points out, the Righteous really love VAT because it does not apply to Righteous Things but does apply to Unrighteous things.

The least bad tax is Land Value Tax, of course.

asquith said...

"Does a multi-millionaire's family really need child benefit? Does a wealthy 60 year old really need free bus travel around the country? Do rich pensioners need the Winter fuel payment?"

No, they don't. But think about the perverse incentives. There's little enough encouragement for old-timers to save as it is, or for poor parents to take better paid jobs, without having them tied up in knots over whether they'll be worse off.

Unlike many liberals I do not oppose having a minimum wage, because it ensures people are significantly better off in jobs than out of them. But this will not be the case if their means tested benefits are withdrawn. This already happens with child tax credit & working tax credit (which often go unclaimed btw) & I would not want to see any more of it.

Means testing was something Brown loved as it made people beholden to the government, Labour specifically. He may not have planned it that way but he ensured that people would want to stay poor.

They should junk all the useless spending, they WILL have to cut spending that does benefit people (you can't have it all), hold their nerve on CGT. They should also not be ringfencing certain budgets. It implies that the money spent on the NHS & DFID is all put to good use, which is absurd to say.

No one can say we're not in for a rough time. But I am against superficially plausible responses for the same reason I am against populism.

I seriously will get pissed off with the coalition if this budget isn't meticulously done. I know it will hurt however skilful the surgeon is, however much he is trying to heal the patient, but if they just randomly lash out it will hurt more.

asquith said...

Among the few uses I do see for means testing are the pupil premium & the various student bursaries etc. Because they are ways of helping people of humble origins get on, just as in this raising of the income tax threshold.

I am very sceptical about not only child tax credits but things like the maternity grant, which pays out to mothers but only if they make sure to be poor & stay poor. What sort of message does that convey?

Look at DLA as an example of a good benefit (except, of course, where it's awarded to people who don't deserve it &- this is far more common- denied to people who do). But I mean in the way it workf. Not means tested, or withdrawn on starting work, just paid for as long as you're disabled, which is often for life anyway.

Now we have got child benefit, it should be the same, as it currently is. The only idea I would consider is one that I think Field has had, which is to reduce the age at which it stops.