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Means Tested and Universal Benefits

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1 Means Tested and Universal Benefits
Learning Intentions: to examine the issues surrounding how we allocate welfare benefits. Learning Intentions are Are Beveridge’s founding principles appropriate for the 21st century? What challenges do the founding principles face? Is it better to offer universal or mean-tested benefits? How can we pay for the welfare state in the future? How should we allocate welfare benefits?

2 This presentation looks at
21st challenges to Beveridge’s welfare vision Different approaches to the welfare state Examples of universal and means-tested benefits The debate over which benefits should be means-tested

3 Founding principles of the Welfare state
The founding principles of the welfare state were that the state would look after each individual “from the cradle to the grave.” The Beveridge Report advocated collective government assistance to individuals from “cradle to grave” funded by social insurance. State benefits would be paid to the sick, the old and the unemployed. These would be paid for from taxes and national insurance payments from the working population. The founding principles of the welfare state were that the state would look after each individual “from the cradle to the grave”. Should a person fall out of work, or sick, become old, require housing or education, that citizen would have the right to state help. The welfare state would be funded by national insurance contributions from the working population. It was a form of social insurance, based on the same principle as car/home insurance. So long as more were paying in that claiming out, the state could, and should provide, on a collectivist basis. Post war reconstruction

4 Beveridge’s five giant evils
Disease (lack of health care) Idleness (unemployment) Beveridge famously identified five giant social evils that had to be tackled. Unemployment, poverty, poor housing, lack of education and lack of health care. Want (poverty) Ignorance (lack of education) Squalor (poor housing)

5 21st century challenges Beveridge’s founding principles were designed in the 1940s. By the 1990s, British society had changed in many ways. How do we pay for: Long term care for the elderly? The long term unemployed? Lone parents? One of the biggest challenges facing the UK welfare system today is how to pay for retirement. The proportion of older people in the population is climbing. At the same time as people live longer, we are have fewer children. With occupational pension schemes being abandoned by companies, it is likely more state help, as well as more private savings, will be needed. So far the government has avoided making tough decisions - such as introducing a compulsory savings scheme, or substantially increasing state pensions - needed to deal with the crisis. Lone parents. Nearly one in four children in Britain now lives in a single-parent family, with the number of such families rising from four million in 1972 to 12 million in 2007. Incapacity benefit. In 1979 just 700,000 people in the UK were claiming Incapacity Benefit (IB). In 2007, 2.67m sick and disabled people claim IB. There has been a particular rise in the number of people with mental health problems on the benefit, with an estimated 40% of total claimants citing illnesses such as depression. In order to get the benefit, an individual has to have been unable to work for six months. Beveridge’s welfare state could not foresee these challenges!

6 Should the rich pay more?
Left, Lakshmi Mittal, the UK’s richest “resident”. He is a non domicile. Right, Jimmy Carr, the comedian who was criticised by the Prime Minister for his tax avoidance scheme. The UK is home to some fabulously rich people who, due their non-domicile status or clever tax avoidance schemes pay little or no tax. City bonuses to investment bankers have returned. According to George Monbiot, tax avoidance in the United Kingdom deprives the Exchequer of between £25bn and £85bn a year. That’s more than the UK spends on the entire NHS. Above, Lakshmi Mittal. Since 2005, Mittal has been the richest person residing in the United Kingdom. The Mittal family owns 44% of Arcelor Mittal, the world's largest steel company. He is worth around £16 billion pounds. Ramon Abramowich. Owner of Chelsea. Worth around £12 billion. Both “live” in London, yet pay little or no UK tax. “Non-Doms”. Non-domiciles is the name given to those who “live” in the UK, yet pay little or no tax. In the tax year ending 2005, there were 112,000 non doms in the UK, double the number from They are among the richest people in the planet and because of the UK’s lenient tax rules (for non-doms) they have been flocking to live, in London particularly. The tax break was originally formulated in 1799 to help British colonialists avoid tax on their overseas income. It is now increasingly used by City tycoons and overseas billionaires who are flocking to London to take advantage of a loophole that allows them to keep their vast fortunes intact. The UK, along with Latvia and Uruguay is the tax asylum seeker’s destination of choice. Beveridge could not have envisioned there would be so many seriously wealthy people who would refuse to contribute to the social good. Tax avoidance

7 Political challenge to the welfare state
THE INDIVIDUALIST PHILOSOPHY Political challenge to the welfare state The individualist philosophy is not new. It is, in principle, no different from the “laissez faire” approach of the 19th century. Individualists believe that the state should have as little to do with the workings of society. It should tax as little as possible and leave individuals to be responsible for their own wealth and health. The individualist philosophy is not new. It is, in principle, no different from the “laissez faire” approach of the 19th century. Individualists believe that government should have as little to do with the workings of society. It should tax as little as possible and leave individuals to be responsible for their own wealth and health. The individualists rose to prominence during the Thatcher years. Individualists are most common in the USA, which has a much less extensive welfare state than the UK. New Labour has attempted to blend individual responsibility with collective support as part of a “third way” approach to welfare. Charles Murray, an American sociologist claims that welfare benefits for single-parents have encouraged the decline of the family. "A plague is spreading through our social fabric". He sees a) high unemployment, and b) high single-parenthood as the central causes. This has encouraged a "counter-culture" which devalues work, encourages criminality and a "dependency-culture" (i.e. on state handouts). He claims that Britain will see a “underclass” develop who will not avoid "normal" work and live a life of crime, illegitimacy and government “dependency”.

8 David Cameron’s “Big Society”
“Circumstances; where you’re born, your neighbourhood, your school and the choices your parents make have a huge impact. But, social problems are often the consequence of the choices that people make” David Cameron, Glasgow, July 2008 David Cameron on poverty Following on from his theme of “Broken Britain”, Prime Minister David Cameron has developed the idea of the “Big Society”. In some ways it is the Conservatives’ own third way; between the individualism of Margaret Thatcher and government help for those in need. Cameron seeks to “heal” the so-called broken society by encouraging greater individual responsibility (a traditional Conservative approach) and use of the voluntary sector to help those prepared to face up to their problems. Conservative leader David Cameron is pursuing his own third way; between the individualism of Margaret Thatcher and the government help for those in need. His idea of the “broken society” refers to social evils such as long term unemployment, crime and poverty. Cameron seeks to “heal” the so-called broken society by encouraging greater individual responsibility ( a traditional Conservative approach) yet offering state help to those prepared to face up to their problems (very New Labour). Former Conservative leader Iain Duncan Smith’s work in Easterhouse, Glasgow persuaded the new Conservative leadership to offer greater government support to the poor. In reality there is a great deal in common between the two major UK parties. There is a consensus that there is a new group of “hard to reach” people (e.g NEETs) who are becoming increasingly trapped by poverty, a lack of skills, a lack of education and lack of role models. Neither the collectivist or individualist ways of old appear to answer a solution. The differences between labour and Conservative are, in reality, those of specific policies, rather than overall direction. Sometimes, even only the soundbites are different.

9 Deficit reduction In June 2010, Chancellor George Osborne delivered his “emergency budget” to reduce the size of the country’s budget deficit. The UK, like most countries, has had a budget deficit for some time, but this boomed after the Labour Government spent money on saving the big banks during the “credit crunch” of 2008. The main aspects of the Coalition Government’s economic plan until 2015 are: VAT increase (back to 17.5%) Public sector pay freeze Child benefit cuts Housing benefit cuts Disability Living Allowance cuts Tax cut for lowest paid Capital Gains Tax increased Public sector workers have been protesting at cuts to services, proposed increases in pension contributions, the end of the final salary pension scheme and the raising of the retirement age.

10 Universal benefits Universal benefits are those which people receive automatically, with no reference to their economic circumstances. In July 2012, Child Benefit (CB) amounted to £20.30 a week for the eldest child and £13.40 a week for each additional child with payments continuing until the age of 19 for those in full-time education. About 7.7 million families with children currently get CB, costing about £12bn a year. CB is a tax-free payment to anyone bringing up a child or young person. In theory, the Beckhams, should they return to the UK, would receive CB for young Harper Seven, as well as for their other children. It is not affected by income or savings, so most people who are bringing up a child or young person qualify for it. From January 2013, those earning over £50,000 will no longer be entitled to full CB. For every £100 earned over £50,000, 1% of CB will be deducted. The Government estimates that 85% of families will continue to receive CB in full. Universal benefits are benefits given to whole categories of a population, like children or old people, without other tests. Universal benefits are simple to administer. They are easily understood by those entitled to them. But their wide coverage tends to make them expensive. They may benefit rich as well as poor. Should, for example Jordan’s new baby, Princess Tiaamii, be entitled to child benefit? Supporters of universal benefits have argued for a different type of social security system, for example a Citizens Income, which would be tax-financed and unconditional. This, it is argued that it would be simpler, fairer, and would protect those in need more effectively than the means tested, tax credits system. Opponents argue that it would be expensive and would not target those in most need.

11 Means-Tested Benefits
Means tested benefits include; Working Tax Credit Child Tax Credit Pensions Credit Housing Benefit Council Tax Benefit Income Support Working Tax Credit (WTC) and Child Tax Credit are administered by HM Revenue and Customs. WTC is a tax credit for people who are in paid work. You may be eligible if you are a single person, or you are a couple living together and you are in paid work (including working as a self-employed person) for the required number of hours. Child Tax Credit. This is for families with at least one child. Council tax benefit. This is a payment made by a Local Authority, usually in the form of a discount, to help the recipient pay the cost of their council tax. Housing benefit. This is a payment made by a Local Authority to assist the recipient in paying their housing costs. Income Support. This is paid by the Dept for Work and Pensions to those out of work. Pension Credit This is made up of two elements: a credit that provides a minimum income guarantee to those aged 60 and over, and a savings credit for those aged 65 and over who have made additional provision for their retirement Means-tested tax benefits are proving difficult to implement, with many either not taking them up due to the complicated entitlements and forms. Many, sometimes organised criminals, are abusing the system. Overpayment is a massive problem. Since 2003, £500m in tax credit overpayments has been written off. At the end of March 2006 another £3.6bn in overpayments was outstanding, but the MPs think that £1.4bn of this will also have to be written off as unrecoverable.

12 Too complicated? Tax Credit forms can be very complicated meaning some people do not claim. Others have been getting too much! In February 2008 the House of Commons Accounts Committee reported that £1 billion of tax payers money had been wasted in errors or over payments. The report says that some £65bn has been paid in tax credits since Of that, £6bn was overpaid in the first three years. By the end of 2010 HMRC had collected £2bn of the overpayment but written off £700m. Of the £3.3bn still to be collected, the committee says £1.6bn is unlikely to be recovered. From the left, critics have complained that the tax credit means tested system deters people from claiming. The forms are complicated and many people do not know, far less than claim the benefits they are entitled to. From the right, others criticise the system for paying the money to the wrong people. Tax credits have been plagued with errors and overpayments. MPs also called it "unacceptable" that benefit overpayments due to error had almost doubled from £1bn to £1.9bn over the same period. About 200,000 cases of potential fraud were investigated in 2006/7 where the DWP considered there was a high possibility of prosecution - but only 7,483 of them were taken to court, according to the report.

13 Incapacity Benefit In July million people were officially unemployed; 8.1% of the labour force. This does not include the 1.6 million who receive Incapacity Benefit (IB), those who have chosen to stay in full time education or teenagers who are not entitled to Jobseekers Allowance (JSA). The tabloid press have, predictably, sensationalised data released by the Coalition Government that many Incapacity Benefit claimants could, with the proper support, work. Incapacity Benefit (IB) IB has been one of the most controversial of benefits. The government believes that around 1m of IB claimants could work if they wanted to. IB is a payment made to people who are unable to work due to ill health and no longer qualify for Statutory Sick Pay or Invalidity Benefit. Under the Welfare Reform Act IB is being replaced for new claimants with the new Employment and Support Allowance (ESA). Some feel there are many who have abused the rules of IB and do not want to work, although they could. Others feel the government is attacking a “soft” target for political reasons to win over the votes of “middle England”.

14 The universal credit The Universal Credit
The Welfare Reform Bill was given its Royal Assent in March It’s main features include: A single universal credit to come into force in It will replace Income-based Jobseeker’s Allowance Income-related Employment and Support Allowance Income Support Child Tax Credits Working Tax Credits Housing Benefit There will also be an annual benefit cap of about £26,000 per family. The Universal Credit

15 SNP’s Collectivist policies
The SNP Government has been remarkably collectivist. Prescription charges have abolished. Road bridge tolls have been abolished. The Graduation tax has been abolished and Scotland still has no tuition fees for higher education. Free school meals for S1-S3 are planned (subject to local authority funding!) The SNP Government have been remarkably collectivist in their short term as government of Scotland. Prescription charges have been cut and will be phased out completely by The Graduation tax has been abolished and Scotland still has no tuition fees for higher education. Free school meals for S1-S3 are planned Critics say that the money would be better targeted at those in need and that those in most financial need already receive free school meals. The same is true with prescriptions. Those in most need already receive free prescriptions.

16 What is the best way to allocate benefits?
Which benefits, if any, should be universal or means-tested? Are benefits too high or too low? Do we have a problem with welfare dependency or this is this made up by the tabloid press?

17 Can we afford some of our popular benefits?
In Scotland we have two very popular but very expensive universal “benefits.” All students in Scotland, regardless of their income, have their university fees paid. Is this a subsidy for the better off? Likewise, the National Entitlement Card provides all over 60s in Scotland, regardless of their income, free travel on buses in Scotland. Is this also a subsidy for the better off? Should we consider means-testing these benefits and “ring fence” the funds for early years support for the poorest?

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