The Labour Party’s love affair with means testing

Ed Miliband MP said this during a speech that he made on the 6th June:

It doesn’t make sense to continue sending a cheque every year for Winter Fuel Allowance to the richest pensioners in the country.

We beg to differ. It makes a lot of sense to send a cheque to every pensioner, including the wealthiest, because the process is automated and the scheme costs almost nothing to administer. It is true that the wealthy ‘don’t need it’: but they are already paying far more in Income Tax than they receive for their Winter Fuel Allowance; to means-test the Winter Fuel Allowance so that the wealthy no longer received it would be expensive; means-testing would require those who did need the Allowance to complete a complex form which they might not be capable of doing and might not wish to do (because a benefit that goes only to the poor is inevitably experienced as stigmatising); and to means-test the Allowance would mean one less welfare benefit contributing to social cohesion. The downsides related to means-testing the Winter Fuel Allowance far outweigh the benefits of retaining it as a universal benefit: As a universal benefit, the Winter Fuel Allowance goes automatically to the poor who need it, without stigma and without the completion of a claim form; it is extremely cheap to administer; and it is no problem that we give it to the wealthy because they already pay far more in Income Tax than they receive in their Winter Fuel Allowance.

When the Chancellor of the Exchequer found that it would be impossible to administer his proposed means-test for Child Benefit, he decided to withdraw through the tax system the value of their Child Benefit from households containing at least one higher rate taxpayer. To withdraw the whole of the value of the Winter Fuel Allowance through the tax system would not be as complex as withdrawing the value of Child Benefit, but it would still add yet another unnecessary complication to our already complicated Income Tax system. To tax the Winter Fuel Allowance in the same way as the Basic State Pension is taxed would be a simpler option.

Means-testing of the Winter Fuel Allowance might happen, of course. Tax and benefits policy is rarely rational; and because whichever way a future Labour Chancellor decided to withdraw the value of the Winter Fuel Allowance would increase the size of the relevant Department, we should expect departmental heads to brief in favour of the idea and to downplay the difficulties. The best we can hope for is a more complex Income Tax calculation for pensioners. The worst option would be that of means-testing the Winter Fuel Allowance itself.

In the same speech, Ed Miliband said this:

When it comes to the decisions of the next Labour government it won’t be our biggest priority to overturn the decisions this government has made on taking child benefit away from families earning over £50,000 a year.

This government has not taken Child Benefit away from families earning over £50,000 a year. It has asked those paying higher rate Income Tax to declare their household’s receipt of Child Benefit, and has withdrawn its value, on a sliding scale, through their tax code. Some households have chosen to avoid this method by discontinuing their Child Benefit claims. The outcome for those households continuing to receive Child Benefit is the first ever tax on children. We very much hope that any future Labour government would maintain Child Benefit as a universal, unconditional and nonwithdrawable benefit, and would abolish the present government’s Child Tax.

The same arguments apply here as apply to the Winter Fuel Allowance. The wealthy are already paying far more in Income Tax than they are receiving in Child Benefit; Child Benefit is cheap to administer; Child Benefit contributes to social cohesion; and a universal Child Benefit stigmatises nobody.