Means Testing
The return of means testing
Under the Beveridge scheme, it was envisaged that means testing
would rarely be necessary but in recent times as many as 1 in 5 of
the population have been receiving Income Support/Ib JSA at any one
time and 1 in 3 children have been in families receiving it.
This increase has been due to many factors including more
claimants:
- for whom there is no appropriate non-means tested benefit e.g.
lone parents.
- who might not have enough National Insurance
contributions.
- whose entitlement to short term non-means tested benefits has
run out e.g. long term unemployed.
- having to claim means tested top-ups to non-means tested
benefits due to cuts in these benefits - this was not supposed to
happen according to the Beveridge plan. However, the amount of NI
benefits started at lower levels than were recommended and have
been cut back ever since.
- needing help with dramatically increased rent levels since
private rents were de-regulated in 1989 and Housing Associations
forced to rely on more expensive private capital.
- on Retirement Pension which has drastically fallen in value
since being linked to prices rather than earnings.
To means test or not to means test? Why means test?
The case for means testing is perhaps more obvious than the case
against. Common sense suggests that in a world of competing
resources, targeting on the poorest claimants means higher rates of
benefit can be paid for a given level of resources - or perhaps
more accurately less resources are needed for a given level of
benefit!
- Means testing "targets" available resources more effectively on
those on the lowest incomes. It is a waste of scarce resources to
pay, say Child Benefit to every parent, many of whom don’t really
need it.
- An entirely means tested system would “cost” a lot less than an
entirely non-means tested one for the same level of benefits.
- As a result, less resources have to be raised through
taxation.
- So....the system is saved from becoming politically and
financially unsustainable.
The arguments AGAINST means testing are perhaps less
obvious:
- Non-means tested benefits have a higher take up rate - Child
Benefit is taken up by almost 100% of those entitled, but Income
Support - the basic poverty line benefit - reaches only 65 to
80%.
- Non-means tested benefits are easier and cheaper to administer
- Child Benefit administration takes up some £3 of every £100 of
expenditure, whereas the Social Fund eats up £55.
- Means testing leads to a poverty trap where for a wide band of
income you may be little or no better off from working, as your
benefits are reduced by the means test at steep rates (sometimes £
for £). If there is thought to be disincentive effect through
income tax of over 40% at the top of the scale, the effect is
likely to be even more pronounced with effective tax rates of 100%
or more at the bottom end.
- By paying out in situations where a means tested benefit might
not (e.g. if you are unable to work, but your partner is still
working), a non-means tested benefit helps prevent acute poverty
arising.
- Everyone - regardless of current income - is at risk of
redundancy, ill health, disability, old age etc. and needs some
insurance against these eventualities. It is far cheaper to
administer this through universal, compulsory insurance than by
selective, private insurance.
- A non-means tested system involves everyone as a contributor
and potential beneficiary in a system of mutual insurance, reducing
the social divide between a taxpaying “majority” and a claimant
“minority”,
- So...the system is saved from becoming politically and
financially unsustainable.
This argument has taken a further twist with the introduction of
Child Tax Credit which will be payable to some 90% of families with
children and has been described as “positive universalism”.
Are non-means tested benefits really non-means tested?
The general distinction between means tested and non-means
tested benefit is that non-means tested benefits are not affected
by any other income or savings that you or any partner may have.
But there are certain exceptions:
- Claimant’s earnings - if you earn more than a certain limit in
a week you may lose Incapacity Benefit, SDA, Contribution-based JSA
or CA for that week.
- Claimant’s occupational pensions - if you have a
works/occupational pension of over £50 a week this can affect the
payment of Contribution-based JSA. A pension of over £85 a week can
affect the payment of Incapacity Benefit.
- Partner’s earnings - you can claim extra amounts for a spouse
or person looking after your children, but not if this “adult
dependant” earns more than a certain level - usually the value of
the addition - but check under each benefit. An adult dependant’s
earnings can also affect extra amounts of benefit for any dependent
children.
When “means tested” and “non-means tested” systems meet
You may actually need to claim from both types of benefit - e.g.
to top up your non-means tested benefits or earnings, or to get
rebates on rent and council tax. Many people fail to claim their
means tested top up – approximately 1 million pensioners missed out
on Pension Credit in 2004/5. The general rule is that you must
claim any non-means tested benefits first and then claim means
tested benefits as a top up.
Stuck below Income Support levels
This rule can actually leave you worse off than if you were not
entitled to non-mean tested benefits in the first place! This is
because, while you may be just a few pounds over your Income
Support level – when for example claiming long-term Incapacity
Benefit - you will lose most of the extra cash (up to 85%) through
reduced Housing and Council Tax Benefits. You will also lose out on
the indirect “passported benefits” that come with Income Support,
such as free school meals, free prescriptions, access to the Social
Fund. So you could be worse off than if you just claimed Income
Support - which is meant to be the minimum income that you need to
live on!
Means tested premiums
On a more positive note, certain non-means tested benefits
(notably DLA and AA) can act as “qualifying benefits” for
entitlement to extra means tested “Premiums”. These are extra
allowances used in calculating Income Support, Income-based JSA,
Housing and Council Tax Benefit for certain groups. They are not
benefits in their own right, but more Premiums means a higher
Applicable Amount and so can mean more money!