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Universalism, means-testing, and their limits

Universalism, means-testing, and their limits. John Hills London School of Economics Scottish Policy Innovation Forum Seminar Universalism: Case studies on its purpose, value and limits Edinburgh 7 March 2014. Structure of presentation. What we want

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Universalism, means-testing, and their limits

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  1. Universalism, means-testing, and their limits John Hills London School of Economics Scottish Policy Innovation Forum Seminar Universalism: Case studies on its purpose, value and limits Edinburgh 7 March 2014

  2. Structure of presentation • What we want • The paradox of redistribution revisited • Limits to universalism: tackling fuel poverty • Limits to means-testing: bursaries for English students • Conclusions

  3. Preferences for taxation and benefits:Eleven EU countries, 2008 (%) Source: European Social Survey Round 4, 2008. Countries are Belgium, Germany, Denmark, Spain, Finland, France, Greece, Netherlands, Portugal, Sweden and the UK (averages weighted by population).

  4. Preferences for taxation and benefits: UK, 2008 (%) Source: European Social Survey Round 4, 2008.

  5. The paradox of redistribution?1980 to 2005 Source: Lane Kenworthy(2011), Progress for the Poor, figure 6.1.

  6. The paradox of redistribution?Mid-2000s Source: Ive Marx and Tim van Rie (2014), GINI (Growing Inequalities Impacts) volume, OUP. Based on Luxembourg Income Study..

  7. Limits to universalism?Framework for analysing fuel poverty Source: Hills (2012), Getting the measure of fuel poverty.

  8. Impacts of different policy approaches Source: Hills (2012), Getting the measure of fuel poverty.

  9. Targeting of different policy approaches This is analogous in some ways to ECO affordable warmth. This is analogous in some ways to ECO carbon. Broadly targeted supplier-funded energy efficiency archetype Narrowly targeted supplier-funded energy efficiency Energy bill rebate Winter Fuel Payments

  10. Results – fuel poverty gap impacts from spending £500 million

  11. Results – carbon emissions and cost benefit analysis

  12. Limits to means-testing? Mean marginal support withdrawal rate (%) per £1,000 of income: average for 27 universities Source: Hills and Richards (2012)

  13. Combined effective marginal tax rate (%) per £1,000 (single earner couples with one child going to university, one still at home): Average for 27 universities

  14. Dreaming spires? Combined effective marginal tax rate (%) per £1,000 (one earner couples, one child going to Oxford, one still at home)

  15. Dreaming spires? Combined effective marginal tax rate (%) per £1,000 (one earner couples, one child going to Oxford, one still at home)

  16. A tale of two parents…. (children going to Oxford in October 2012-13, first year)

  17. Universities are not alone • Faced with the combination of severe cuts but a desire to ‘protect the poorest’ at least to some extent, new means test are being created in many policy areas in England • These include local council tax support schemes, using withdrawal rates of 25% or even 30% in some place compared to the old 20% (undermining one of the aims of Universal Credit). • Others are devising their own replacements for Education Maintenance Allowances, the Social Fund, etc. Other examples include energy and water companies • And ad hoc changes are creating notches in the tax system – student loan repayments (in England), withdrawal of Child Benefit above £60k, personal allowance above £100k, etc. • Localised means-tests can create a chaotic picture: lower level organisations have limited expertise and may pay little attention to design choices such as cliff edges, and other interactions

  18. Conclusions • All countries use some combination of universal and means-tested services and benefits. The UK system is more means-tested than many, but the welfare state is still dominated by ‘universal’ school education, the NHS and state pensions. • This reflects (and feeds) stronger UK preferences for flat rate services funded by proportional (or progressive) taxation than elsewhere • One might expect targeted systems to achieve more redistribution, but that used not to be the case. More recent comparisons suggest little link either way between degree of targeting and scale of redistribution. • Untargeted spending may be less effective in addressing particular problems, and fiscal pressures and some attempts to protect the poor, are pushing towards new means tests. • But working age social security already relies on extensive means-testing, leaving little headroom for more and localised means-tests can create a chaotic picture (and are creating one in England) • There is more than one kind of universalism and more than one form of targeting.

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