Citizen’s Income News, Summer 2012

In September the National Audit Office published a report on Means testing: ‘It is clear that means testing will be used extensively for the foreseeable future as it helps target state support at the people that need it most, but it can have many other important consequences. For example, there can be disincentives for recipients of means-tested benefits to return to work. Means testing also makes the administration of benefits more complex and is associated with higher costs as well as increased rates of fraud and error. In light of proposed and ongoing reforms to benefits and related programmes, the National Audit Office notes the importance of departments sharing good practice and learning from past experiences in the design of means tests. For example, HM Revenue and Customs has struggled in the past with unexpectedly large overpayments of tax credits (£9 billion between 2003-04 and 2009-10) because of the way that payments are determined under the legislation. In spite of changes to the design of tax credits, overpayments continue to be significant. Departments do not systematically consider or measure all of the impacts of means testing: for example, the burden on claimants, such as difficulty with completing forms and the cost of requesting advice. Issues associated with means testing, such as incorrect declarations of earnings and errors by officials in calculating entitlements, accounted for over half of all fraud and error in benefits and tax credits. There is a lack of coordination of, and overall accountability for, means testing across government. Departments are responsible for their own means-tested benefits and their impacts, but because means-tested benefits interact with each other it is important that there is coordination. For example, no one body has responsibility for looking at how the impact of university fees will be influenced by wider means testing. This is important as some households could be financially worse off if they work more and their child is no longer eligible for a bursary to help towards tuition fees.’ The report formed the basis of a hearing by the House of Commons Public Accounts Committee, which published its own report on 12 January 2012:

The January 2012 briefing from the European Centre for Social Welfare Policy and Research, by Orsolya Lelkes and Katrin Gasior , is entitled Income Poverty and Social Exclusion in the EU . ‘According to Europe 2020 targets risk of exclusion should be measured by three indicators: at-risk-of-poverty, severe material deprivation and living in households with very low work intensity. … In the first group, with Hungary, Poland, Latvia and Lithuania, countries tend to be characterized by high rates of (severe) material deprivation and poverty risk (12-21% and 12-26%, respectively). Hungary is somewhat distinct from the other three countries (which are actually geographical neighbours), with a relatively worse work intensity and material deprivation indicators and somewhat better poverty risk measure than the others. The second “resource-poor” cluster, with Bulgaria and Romania, suffers from an extremely high extent of (severe) material deprivation (27-37%). The third cluster of “better than average” countries includes a large number of heterogeneous countries, which perform above the EU average in most indicators. The fourth group, with Germany, the UK, Ireland and Belgium, is characterized by an above-average share of low work intensity rates (12-24%), below average share of people suffering from severe material deprivation (3-6%), and at-risk-of-poverty rates around the EU average (see Table 1). The weakness of these countries is low work intensity: in order words, a high share of people lives in jobless households or in households with little labour market engagement. In contrast to this “work-poor” group, there are two “resource-poor” country groups’ (pp.1, 4).

The Fabian Society has published The Coalition and Universalism: Cuts, targeting and the future of welfare, by Andrew Harrop. ‘Universal provision funded by proportionate or progressive taxation actually leads to a transfer from richer families to poorer ones. … on average the amount redistributed to the poor actually decreases as welfare states become more targeted. Any increase in redistribution from an increase in targeting is clearly outweighed by the smaller expenditure that is associated with the lower willingness to pay of targeted welfare states. This confirms the hypothesis that strategies of targeting result in welfare states that do less redistribution to the poorest than strategies of universalism’ (pp.2, 9).

On the 1st March the Namibian Basic Income Grant Coalition published a press release relating to the recent two year Citizen’s Income pilot project in two Namibian villages (reported in the Citizen’s Income Newsletter, issue 2 for 2009): ‘Despite the positive results, the Namibian government has still not committed itself to the introduction of a BIG [Basic Income Grant: Citizen’s Income] in Namibia. Instead, senior government leaders have raised concerns that the grant would make people lazy and dependent on hand-outs. Such perceptions are rooted in prejudices rather than being based on the evidence provided by Otjivero! We wish to point out that the BIG Coalition arranged for many Namibians, including Members of Parliament (MPs), to visit Otjivero and to witness the developments there first-hand. The honourable MPs were free to assess the impact of the BIG themselves and they were impressed with the results achieved in Otjivero. However, they preferred to express their views in private instead of speaking out publicly in support of a national BIG.’

Research published by the Institute for Fiscal Studies shows that ‘Universal Credit will strengthen financial work incentives for some people, as intended, but weaken them for others. In general, incentives to work will be strengthened for the main earner in a family who works part-time or has low earnings, and will be weakened for those with higher earnings and for second earners in couples’ and that ‘moving from the current system of benefits and tax credits to a single benefit will require major administrative and IT changes. It is noteworthy that the government is attempting this at a time when spending on benefit administration (and public service spending generally) is being cut; the fact that such a major reform is being attempted at a time when benefit entitlements are being cut, overall, rather than increased, also increases the political risks to its implementation.’ [note]Mike Brewer, James Browne and Wenchao Jin, ‘Universal Credit: A Preliminary Analysis of its Impact on Incomes and Work Incentives’, Fiscal Studies, vol.33, no.1, 2012, pp.39-71, pp.69, 70[/note]

The 14th BIEN Congress will take place from September 14th to September 16th, at the Wolf-Ferrari-Haus in Ottobrunn near Munich. The congress’s main theme will be ‘Pathways to a Basic Income’. For further details, please see the website: