Rebalancing the mix

Most developed countries’ benefits systems exhibit a mixture of different kinds of benefits, and this is increasingly true of developing countries. Most run social insurance schemes of some kind (either government-run or organised by trade union, employer, or independent organisations); most have a layer of means-tested benefits; and some have universal and unconditional benefits for certain demographic groups (usually elderly people and/or children). In the short to medium term this is likely to remain the situation. This is both because complex systems tend to be path dependent ( – that is, adapting an existing system is easier than starting from scratch), and because there are good reasons for all three kinds of benefits. Social insurance represents reciprocity, with a contribution record granting a right to receive benefits when certain contingencies arise; means-tested benefits recognise that a needs-based approach can be appropriate; and unconditional benefits recognise our equal membership of society and represent a solid financial platform on which families can build. Each of the three types exhibit both advantages and disadvantages, with perhaps means-tested benefits offering more disadvantages than advantages, and unconditional benefits more advantages than disadvantages, with social insurance somewhere in between.

So the question is rarely: How can we replace the current benefits system? It is usually: How should we rebalance this mixture? In the UK, and in the medium term, no viable Citizen’s Income scheme could entirely abolish means-tested benefits. The complexity of the current system means that levels of Citizen’s Incomes that could be funded by adapting the tax and benefits system would be too low to avoid losses for low income households at the point of implementation unless means-tested benefits were left in place and recalculated.

Social insurance benefits (National Insurance benefits in the UK) are another question. If a Citizen’s Income scheme were to be implemented, would we wish to abolish National Insurance benefits? Even though they are not genuine social insurance benefits (there is no connection between the amounts collected and the amounts paid out; and the Government can alter the rates and durations of benefits at whim), many older members of the public still have a soft spot for them. However, younger members of society do not, and don’t understand them either.

The UK’s propensity to manage change in an evolutionary fashion, rather than through wholesale demolition and building afresh, means that we are likely to see Citizen’s Incomes implemented alongside social insurance and means-tested benefits. This is not a problem: at least for the time being.