Why does the government keep giving money to people like me?

The announcement that households with income up to £300,000 will be entitled to financial assistance with childcare under the government’s plans has raised a few eyebrows. But this largesse to well-off people is not unique.

My daughter started full-time nursery four or five months ago and she recently turned three. Last week I was sent a form which, when filled in, will entitle her to free nursery care for 15 hours a week, for 38 weeks a year. This is equivalent to around £3,500-£4,000 knocked off our annual childcare bills. Our household income is not at the £300k level, but a quick check with the excellent ready reckoner provided by the Institute for Fiscal Studies shows that it is within the top 2% of UK households.

Does this make sense? ‘Free’ childcare, or pre-school education if you prefer, is now available to all 3 and 4 year-olds. We already start big school at 5, a year earlier than most other European countries. Why does the state want to corral our toddlers into its embrace so soon?

The motivation behind this is to try to ensure disadvantaged children get a good educational start, drawing inspiration from the US Head Start scheme. This appeared to be successful in boosting later educational achievement amongst the poor, although recently the evidence has suggested its benefits have been exaggerated – and the Labour government’s UK equivalent, Sure Start (which still limps on under the coalition) seems to have achieved relatively little.

Maybe extra support is beneficial to disadvantaged groups – but if the same free provision is available to the well-off it’s not clear to me how relative performance of these groups will benefit.

As I have mentioned before on this blog, I’m in the fairly unusual position of having a small child when over the age of sixty. And of course I get government-funded freebies simply for surviving this long, irrespective of income. My Freedom Pass is terrific. I use it every day in London and also for my frequent bus trips between Milton Keynes and Buckingham, where I work.  A back-of-the envelope calculation tells me that the Pass is saving me about £2000 per year. I probably use it a lot more than most over-60s, probably because I am better off than the average and still in work; my London council isn’t paying £2000 for all over-60s. However official figures show that in London local authorities are paying approximately £275 each for 1.15 million over-60s, which is a fair amount in itself.

I am of course also entitled to a £200 Winter Fuel Payment, but haven’t had the gall to claim it. Most over-60s do, whatever their income.

Enough of me. Why, in a time of alleged financial stringency, do we spend so much public money on people who, objectively, don’t really need it? Means testing is said to be administratively difficult, but I rather doubt this. And if these benefits were at least taxable, some part could be reclaimed through HMRC at very little administrative cost.

It all comes down to politics. Spendthrift governments of all parties have brought such a large chunk of the population into a state of at least partial dependency, that any attempt to make cuts automatically generates a hostile reaction from hundreds of thousands of voters. The coalition must surely understand this. So why on earth are they seeking to entrench the problem further?

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

1 thought on “Why does the government keep giving money to people like me?”

  1. Posted 26/03/2013 at 17:43 | Permalink

    There was a book by the Fabian Society a few years ago which argued for an expansion of middle-class benefits. Their logic was that if the better-off receive benefits, their overall attitudes to benefits will become more favourable. They will belief that increasing the size of the welfare state was in their own interest, and will use their political clout to push for further increases. Effectively, of course, the book was simply saying: Use fiscal illusions to make the state fatter.

    On means-testing and complexity: It is true that means-testing is administratively complex. But given that a means-testing system already exists, the marginal cost of adding one more transfer is probably minimal. The problem is that we have different means-tests for different transfers, unnecessarily duplicating and triplicating bureaucracy.

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