Means testing means more welfare dependency

Shadow Chancellor George Osborne leads the chorus of tut-tutting at means-tested child tax credits going to “better-off” families and seems to believe that we would save enough to bail out the national debt were they restricted to “needies”.

Needy “clients” will typically be on a plethora of “targeted” benefits – to pay their rent, council tax, etc., and will get a whole range of free goods and services. By definition, anything “targeted” has to be withdrawn if and when people are deemed non-needy. Do this suddenly and there is the loss of a hundred or more per cent of any extra income above the cut off point for entitlement. The only way to cope is by phasing out gradually – and the more that is “targeted” the more that has to be withdrawn and the further the taper has to extend up the income scale. The effect is still minimal over crucial reaches of the income distribution, with claimants facing severe losses.

If credits stop suddenly at lower income levels many more people will see nothing or have a negative income if they try to improve their fortunes. David Cameron promises to let people keep a large slice of their out-of-work benefits when they get a job; necessitating a further big phase out at a higher point. Another way to avoid tapers extending to “better off” levels is to drastically reduce the value of means-tested credits and benefits or – stop targeting needies. 

There is an immediate appeal to “targeting the needy” – not just because of conspicuous compassion, but the suggestion of a cheap and precise way to address a problem. Bang, bull’s eye, solved! Dynamic consequences, what are they?

Sadly, there is not a finite supply of needies, even really, truly needies, but a multitude of hopefuls on the margins clamouring to be let in; altering their circumstances, dumping their assets, and staking their claim to be “needier than thou”. Tax credits were first given to working families, then non-working families and now childless workers.

Putting qualifying conditions on one benefit causes migration on to another. Once the youngest child reaches 16, a hefty and increasing slice of the burgeoning lone parent population goes straight on to long-term sick benefits – the interim measure until the state pension can be accessed. There are the benefits to get off benefits; accumulating one on top of another as seemingly convenient ways to counteract the disincentives of the one that went before. Not worthwhile to work? Make up the wages of the low paid, even for a few hours work. Pay a bonus for putting a toe in the labour market, maybe £20, £40 extra a week. Sticking at the maximum benefit for the minimum hours?  Have an extra benefit to extend your hours. Got children? We will pay to care for them – more than your labour is worth.   

About 30% of spending by government is now on a maze of around 40 benefits and tax credits, their administration and policing. If it is so cheap and useful, why is the vast accumulating expense of targeting needies drowning us in debt, even though it has done little other than further social dislocation? Where in the world has means testing been other than counter-productive? Countries that have – as Britain used to – universal tax allowances for dependents, a minimal safety net and enforcement of responsibility for family members, also have lower rates of poverty, inequality, household fragmentation and welfare expenditure.

Patricia Morgan is the author of The War Between the State and the Family.

1 thought on “Means testing means more welfare dependency”

  1. Posted 05/02/2010 at 13:09 | Permalink

    Click my name for full article:

    Consider two workers who are made redundant. Mr A has worked in the factory for twenty years, moved up the career ladder a bit, was earning a decent wage and has all but paid off his mortgage and built up some modest savings in the bank. Mr B has only worked there for one year as his first ever job and was earning a very modest wage, barely enough to cover his living costs.

    The means-testing principle says that as Mr A has some assets to fall back on, Mr A should get less than Mr B.

    The contributory principle says that as Mr A has been paying tax for twenty years, Mr A should get more than Mr B.

    So which of the two principles is “right”? Or neither?

Comments are closed.