YouTube Transcript:
Should the middle class get benefits?
Skip watching entire videos - get the full transcript, search for keywords, and copy with one click.
Share:
Video Transcript
The logic of well this is a rich person
so they don't need it. There's some
really poor people right now who really
need more cash. That is a very strong
logic. We've been walking down that path
for for decades and it's relatively hard
to see how you could reverse course.
Hello and welcome to the IFS Zooms in.
I'm Helen Miller, director of the
Institute for Physical Studies. And
before we start today's episode, I have
some exciting news, which is that on the
4th of November, we're going to be
recording a live episode of the podcast
at the British Library in London. We're
going to look at the chancellor's
options for raising more tax in the
budget. We'll be joined by our very own
Stuart Adam and by Dan Needle, who is
founder of Tax Policy Associates. And
we'll look at all of the options,
everything from taxing wealth to whether
Labour should break one of their
manifesto pledges. Uh, and you'll have a
chance to ask us your own questions,
too. Tickets are free, but spaces are
limited, so sign up now via the link in
the description. We look forward to
seeing you there.
For today, we are discussing the design
of the welfare system and specifically
exploring one of the central questions
in social security, who should get
benefits. We'll no doubt talk about the
benefits that are have been in the news
recently, including winter fuel payment,
benefits for children, benefits for
disabilities, and we'll cover the big
ones, universal credit, pensions. We'll
even talk about universal basic income.
But the aim today is not to get into the
nitty-gritty of those specific benefits.
Instead, we're going to look at the big
design questions. When should benefits
be universal, meaning that everyone in a
group gets them? When should they be
contributo, meaning that you have to put
something in before you get something
out? and when should they be means
tested? Meaning they go to those on low
incomes but are withdrawn as incomes
rise. We'll trace the story of Britain's
social security system from its
conception in the 1940s as a something
for something system to the system we
have today in which contributed benefits
are few and far between and means
testing has become ever more prevalent.
And to explore this area, I'm delighted
to be joined by Tom Waters, who's an
associate director here at the IFS, and
by Nicholas Timonss, who is a senior
fellow at the Institute for Government
and at the Kings Fund, and importantly
is the author of a wonderful book called
The Five Giants, a biography of the
welfare state, and is therefore
perfectly placed to help us with the
history. Um, welcome to you both.
Pleasure to be here.
Thank you.
Let's start at the beginning. So I think
I'm right in saying that before the
Second World War, Britain had some
health and unemployment schemes, but it
really was the report written by William
Beverage and published in 1943 that sets
out that found Britain's modern welfare
state. And he explicitly wanted benefits
that came as a right and without means
testing. So Nick, you've written tons
about this. What what was Bever's big vision?
vision?
Right. Well, Beverage hated means test.
He had a visceral dislike of means. Um,
and he wasn't alone in that because the
1930s means test was a household means
test. Uh, and if any money came in, your
benefit could be reduced. So even the
child getting a paper round could lead
to benefit being reduced or a parent
suddenly acquire a grandparent acquiring
a pension. And because it was so mean,
it it generated a lot of snitching. You
know, if a new coat appear or a new pair
of shoes and it wasn't even explainable,
you had the benefit man around. uh and
and beverage disapproved on other
grounds too. He felt that it was it
discouraged thrift. He was very much in
favor of thrift. Saving money for a
rainy day. There's not much point in
saving money for a rainy day if it's
going to be any money you save is going
to reduce your benefit level. Uh so his
his sort of kind of overall view was
that the the main test of benefit you
know they were offered only on terms
which make men unwilling to have
recourse to them. So he went for a
national insurance system. Uh so that
was something for something. I mean he
Bever was a very arrogant man. He said
he knew what the British people wanted
and he said what the British people want
is a something for something system. So
you pay in your contributions in the
good times and you get your benefits as
of right in the bad times. So he built
this national insurance system for
unemployment insurance and industrial
injuries and what have you uh on the
principle that no means test could be
applied to any part of it. And that
broadly speaking is what got enacted by
the Labor government in 1946.
So they had the the something for
something system, but I think it was
recognized pretty early on that there
were some people therefore who hadn't
got the contributions. They hadn't put
something in, they wouldn't otherwise
have got something out, but we might
still wanted to give them something. So
even with that kind of clear conception
of a national insurance system, I think
I'm saying right from the very start,
there was something else. There was
something called national assistance
which is basically what became income
support which is in in a sense the means
set of universal credit is its successor
many decades down the line. So there was
a sort of safety net uh of of means
tested benefit but it was in fact very
small at the time because you know the
war had produced full employment. wars
tend to produce full employment because
everyone's making munitions or in the
army or whatever in the air force. Uh
and so it was very very small initially
and it was mainly top up for pensioners.
Uh and that kind of held through into
the sort of 50s, beginning of the 60s
and then it all began to go a bit wrong.
Let's unpack that. Tommy, we're going to
dig into more of the details, but just
paint the the kind of broad arc for us.
So Beverage sets out this national
insurance system where you put something
in, you get something out. But if you
look at the system today, that's not how
the system today broadly works. So how
do we how do we get here?
So maybe a couple of numbers would help
kind of set the picture. So if you look
back in the late '7s, all working age
benefit spending, less than a quarter of
it, about 23% was means tested. If you
zoom forward to today, it's 63%. So
significant majority was means tested.
So we've really seen very big change. If
you look at contributory benefits, the
something for something benefits, back
in the late '7s, it was 38% of
contributory. Now it's just 8%. it's
really small proportion of the system.
And so I think there's been quite a few
things that have contributed to that
change. There's been some kind of
broader demographic, social, economic
changes. So um a rise of lone parenthood
has pushed towards means testing. Um
we've had, you know, if you if you look
over the broad sweep of history, you
have, you know, periods where there's
higher unemployment following a
recession. That tends to push up the
number of people on means testing over
that period. But then also policy
changes, some really important policy
changes. So, a couple perhaps to to pull
out. One of them is the introduction of
housing benefit. And so, if you're on
low income, you get support with your
rent. And that that the introduction of
the national system of housing benefit
at least that led to a big increase in
number of people getting means tested
benefits. And you can kind of see why
that's means tested. It's um it's
something that is reflecting the fact
that you have a low income and you've
got high rent right now. It's kind of a
it's kind of an ongoing
ongoing problem. It's not just like a
short period out of work. And then
another factor is the sort of slow but
steady increase in the amount of support
for um people who are on low income in
work. So through things like tax credits
before that family credit before that
family income support. Um and the that's
been expanded steadily over time and has
meant again more and more means testing
because we're targeting it towards those
who are on a low income but are in work.
But I don't if Nick thinks I've missed
anything uh important there.
Well, do you think it was always
inevitable that we would move up towards
means testing? So in some when you've
got a smaller benefit system, welfare
system, social security system, however
you want to frame it, um the kind of you
put something in, you get something out
works for some things. As we said
earlier, there are always some people
who haven't put enough in. And the
people you want to support, whether as
Tom said, that's lone parents, people
with high housing, cost with
disabilities. But the minute you want to
support them, supporting all of them in
the country is hugely expensive. And
then lo and behold, you're back to a
system where you support them, but only
those on low incomes and you're into
means testing. So, was it always
inevitable that we would effectively get
to a system of means testing? Do you
think? I'm not sure it was inevitable,
but there are quite strong forces, some
of which you outlined, driving in that
direction. Uh, and this is something you
might come to later. It's partly the way
Beverage designed the system because
it's a flat rate system. So, you pay a
flat rate of national insurance
contributions and you get a flat rate
benefit out. Whereas most European
countries, for example, went for an
earnings related benefit system. So,
they're better off pay more money in,
but when they fall out of work, they get
a higher rate of benefit because they
contributed more. So the effect in in
the UK is even if you're better off and
you lose your job, you fall down to this
platform of the minimal benefit. You
come straight down. Whereas in France,
Germany, your position in society is
protected for a bit longer by the energy
element. And I think one effect of that
was that the middle classes had less of
a stake in the benefit system than they
did in health and education. So for
education didn't have to pay school fees
anymore. They got health they got their
healthcare free. they weren't having to
pay for it or take out insurance. So
there was huge gains to the middle
class. There was less of a gain in the
benefit system to them. So there was
probably less middle class support for
the social security system, other parts
of the welfare state. So I think what
just say that back to you I think what
you're basically saying is had we have
gone for um more of an earnings related
system where you put something in you
got something out but actually what you
got out was linked to how much you'd put
in maybe the middle classes would have
been more into that system would have
kept that for longer. We didn't have
that and therefore what you saw is just
an erosion of that system and instead
the system tilting towards basically
supporting people on lower incomes and
then means testing it away
and I mean as Tom was saying there you
know there are quite important
structural reasons for this so you talk
about housing benefit which has become a
desperate case of running up and down
escalator because it just keeps going up
whatever they do to try and control them
it does but up until the sort of 70 up
until the 80s government subsidized
council house building and indeed um
social housing
more generally. So you could build and
have low rents because the building was
subsidized. And when you move to
subsidizing the rent rather than the
building, you end up with a means tested
system. Uh because people who can't
afford it, the rents go up, they can't
afford it. They need help with rent. And
so that's a big in, you know, one of the
big drivers of the increase in means testing.
testing.
So maybe we should look at some specific
examples. Obviously, it's it's easy to
talk about these things in the concrete.
And I think it's worth we should
distinguish between benefits for the
working age population, for pensioners,
and for those benefits that are targeted
at children, disability, and other
things. Maybe we'll just start with
unemployment insurance, which is maybe
kind of where a lot of these social
security systems start. I think people,
some people at least, will be surprised
to hear what you said earlier, Nick,
about there are countries in which when
you lose your job, the government
replaces a very large share of your
previous earnings. And that feels really
alien to us here in the UK because it's
just not how we um we do things. But
Tom, there are pros and cons to these
different choices, right? There's not
there's not one obvious you should
definitely do it this way and that's
that's the way that everyone thinks is better.
better.
Yeah, I think that's right. I'd say as
well, it's not just there are some
countries do this. Like really, it's the
UK that's pretty much the exception. I
there's a few other countries, but if
you look across the OECD, so relatively
well-off countries, it is it's
definitely the norm to have some kind of
higher level of support when you first
lose your job. Um, so yeah, I'd say, you
know, there's couple of arguments you
could give in both directions. I say, so
starting with means testing, I think the
real attraction of means testing, and
perhaps one reason why it's grown is
you're getting support to the poorest
people right now. Kind of by definition,
you're only giving support to people who
pass the means test who are on a low
income. And so if you want to deal with
poverty, you know, you think back to the
um to the Labor government 1997, they
had these poverty targets to get poverty
down. How do you get money towards
people who are in poverty, the most
straightforward way to do it by a long
way is to means test. Um and so I think
that's a clear point, you know, in favor
of in favor of means testing. I'd say as
well, this kind of relates to some of
the things we've already been talking
about. I think contributory benefits
work better if there are periods where
your income is unusually low. So you're
unemployed, you're sick for a while,
even you're retired. And I think where
it's harder to see how the contributory
kind of principle could work if it's to
support people who are just on a low
wage and that's kind of that's the wage
they're going to be on for their life
cuz kind of when could they pay in to
get the money out if you like. And so a
lot of as we've been saying a lot of the
rise in means testing is for in work
support. Um people who are on low income
in work and that I think that kind of
has to be means tested support. it's
harder to see how you could do it um the
other way. So that's that's two
arguments for favor means testing
contributory benefits. I think there's a
few things one could say. I think one
actually perhaps underrated point is it
one thing we worry about with having um
taxes when you're in work means test
benefits when you're out of work is is
the work incentive effects, right? And
both on the tax side and on the on the
benefit side you're kind of blunting
work incentives. If you have contributo
benefits, that goes some way to
offsetting that because you get into
work now, you you lose some of your
salary, some of your earnings by having
to make a a contribution, you know, to
towards your uh you national insurance
contribution or whatever, but you're
kind of gaining a a right um you're
gaining a right to have higher income
when you lose your job or when you're
sick or when you're retired or whatever.
And so there's a way in which that
actually helps offset some of those
disincentives to work. And perhaps
another reason say in favor of uh
contributory benefits is um kind of
along the lines of what Nick was saying
earlier is it might enhance the
political acceptability of it. There's a
something for something principle and
perhaps that makes the system more more
sustainable. So
what do you think Nick sticking with the
unemployment insurance issue for now and
we'll talk about pensions and children
in a minute. I mean
we have a bit of a contribution system
but not much.
Not much. Well, no. No, there is a still
a contributory based job seekers
allowance and contributed employment
support allowance. So the government's
proposing to change both those um so it
is made I mean Tom's right about you
can't use contribut
benefits to deal with low wages I mean
you know one of the other big reasons
why I mean Cesi's risen so much is the
the increase in in work poverty so to
speak which started off with tiny little
scheme called family income settlement
they realized you could be in work but
you would be better off on benefit in
the 70s that became family credit which
got increasingly more generous. But
there was this moment in the late 1990s,
early 2000s when both labor and the
conservatives realized that you know
unemployment benefit and the like is
normally given on condition you are not
working if you see what I mean. And they
suddenly realized that the globalization
has squeezed wages down the lower and
middle end. So it's better to use some
of the benefit money to support people
in low paid work rather than to just
give them money on condition that did
not work. So that's where you see the
big rise with tax credits coming in. Uh
and now universal credit and people tend
to forget that I think it's something
like 40% of the people on universal
credit are actually in work. You know
people tend to view it as a benefit for
those out of work and awful lot of
people are on universal credit and are
in work and that contributes to the rise
in means testing because you're paying
benefits to people who are actually
working means tested benefits to people
actually working. But do you think do
you think we should keep the I mean so
the one one approach would be to say
we've been whittling away these
contribution based benefits let's just
put the nail in the coffin and get rid
of them. Um but for all the changes we
have clung on to like you said the the
bits that are you know the bits of
unemployment insurance that are
effectively related to what you've
earned in the past I think you would
cling on to them. Is that right?
I think that's a good case for actually
hanging on to what little is left. I
mean there's certainly certainly some
people in the department of work and
pensions would love to get rid of them
because it much tidier we could just get
rid of these two little bits that left
around when we have to run separate
systems for them but you know if you if
you get contribution related jobsekers
allowance uh there are definite
advantages to it universal credit is a
household means test so the income of
the entire household was taken into account
account
uh contrary to JSA is an individual
benefits so if you lose your job but
your partner is earning and has savings.
Uh there's no savings rule in
contributive based JSA whereas there is
in universal credit. So universal credit
you've got a lot of savings. You don't
get it until you run your savings down.
If you get the contributed JSA there's
no savings test. So it's a bigger it's
it's more like it is a bit more like the
European system. It's more of a cushion
against unemployment. And people may say
well does that remove the incentive to
get a job? Well, I think all the
evidence is that people who've paid
enough contributions in and get made
unemployed actually are highly motivated
to get another job and so they you so
it's worth cushioning them a so they
might find the right job rather than
just a lower pay job to get them into
work and b they may also cut their
expenditure down by less because they
have this cushion they would otherwise
and that kind of helps the economy
turnover very very marginally but it's a
slight argument in failure so I think
there's definitely a case for keeping
them keeping what is there?
And of course I I framed it as a
question of should we keep them or get
rid of them? We could increase them,
right? I mean and the government is
thinking about what to do with
unemployment insurance and
well I mean the moment what the
government is proposing is to make JSA
more generous but at the price of
reducing the length of time for which
the this gets very complicated for which
those in the support group of employment
support allowance at the moment are not
required to look for work reducing and
you can have being on that sort of
permanently subject of occasional retest.
retest.
These are people who are disabled.
Yeah, exactly. Uh and they're proposing
to cut that down to 12 months. So, you
know, they're offering to make the
unemployment bit more generous, but at
the expense of people with disabilities
who will have this support group limited
to a year before they are required to do
something in the terms of preparing for
work or looking for work.
Yeah. And we've talked elsewhere about
the kind of shift that the government's
planning away from maybe people with
disability and towards other people
without work. Maybe we'll do a deep dive
into that another day, but for now, just
avoid the nitty-gritty. Um, let's work
pensions because obviously there's been
a big change in how we do pensions, too.
I think there's tons of myths about
pensions. One of the biggest myths is
that people think they they pay in their
national insurance contributions over
their working life and it goes into some
kind of pot and at the end they're
drawing down that pot. And that's not at
all how it works. So, for it's a pay as
you earn system. You're not paying into
any kind of pot. Um, and it's not even
really a strong contributionbased system
in the sense that you have to have your
35 years of contributions to get your
state pension, but there are lots of
ways to get those contributions that
don't actually entail paying tax like
looking after children. Um, so really
now the link between between
contributions and what you get a pension
is vanishingly small. It's nothing like
the European style system of you put in
lots and you get out. So actually
pensions are looking a bit more
universal, maybe contingent. everyone in
the in the old in the kind of old age
pensioner group gets that benefit. Um so
we've moved away from the something for
something but not towards means testing
so much as towards this kind of more
contingent benefit. We've kind of
without keeping it in practice as you've
spelt it out, we've kind of kept the
concept of something for something for
pensions, you know, and they are getting
a bit closer to being a universal basic
income because,
you know, it's it's it will be possible
in future not to qualify for a full
basic for full basic state pension, but
it's going to be quite difficult because
you can get credited in for all sorts of
things and you only have to work for a
bit. So, you know, that so it it sort of
has survived. Mind you, it's been it's
been on a roller coaster journey. I mean
there was a point when it was being you
because it was being linked only to
inflation for donkey's years. It was
just just dis disappearing slowly but
surely disappearing and it was only um
the pensions commission in the 2000s
that kind of rescued it.
And now of course it's on the other
direction we have the triple lock and
now that's um yes
it's not disappearing now it's
ratcheting up.
It it is ratcheting up and at some point
that will have to come to an end but um
have to find the government that's
prepared to do it. I think the sort of
broad support that we have this basic
state pension basically it's pretty hard
to live in the UK for your entire life
or most of your adult life and not get
this thing. So it's more like a a
universal continued benefit. The other
benefit that's been in the news recently
is winter fuel payment which was a
universal benefit for old people um but
got the government into trouble Tom.
Indeed. So yes, it used to go so it's
two or300
um and it used to go to all essentially
all pensioners and the government last
summer is that correct? Summer 24. Yes.
They um they tied it to you have to get
pension credit which is a means tested
benefit. So is essentially means testing
wind fuel payment. You have to get
pension credit to get wind fuel payment
which meant that 90% of pensioners
wouldn't get it. Um and then this
summer, this few months ago, um they've
sort of reversed course most of the way.
I think we're now back to something like
75% of pensioners getting it. So it was
100 then 10% then 75%. Uh and I think
the kind of the the rationale of the
original policy of to try to get rid of
of of means testing it was to say, you
know, if you're on a higher income, you
don't need this extra extra bit of
support. Um, but of course it's
something that people have, you know,
quite sort of in one sense quite a
strong attachment to. It's worth worth
saying whilst we're here, it has nothing
to do with fuel. It is just cash. You
don't have to spend it on fuel. Um, it
does come in the winter. In that sense,
the uh the name is correct. Um, but um,
yeah, I think it's part of that that
sense of well, this was um, uh,
something that people had felt like
they've been getting often, you know,
often they would have been getting it
for years or even decades and have it
taken away. Uh, that caused a lot of a
lot of difficulty. It's a classic
example of one of the other reasons why
contributed benefits have have shrunk
somewhat is because the argument is
better off people don't need it. That's
always been the argument against
contributed benefits. Um and of course
Gordon Brown intro when Gordon Brown
first introduced this thing. You it was
more generous for people on pension
credit and the lower income and a
smaller sum for everybody else. This is
progressive universalism will give
something to everybody but more to the
less welloff. And so we end up where we
end up. Um you could argue I mean there
is something slightly paternalistic
about it, isn't there? I mean you're
actually saying pensioners can't cope
with budgeting over the winter even
though winter comes every year. So we
have to give them a special lump of
money in Christmas time. So get them
through the get them through the winter.
It's a slightly strange approach to
benefits. I think you know should should
we give them should we give them a
laundry voucher just to make sure they
do the laundry? It's also odd that we
have the state pension. Again, it's a
flat rate for most people. Then this
other little benefit that's sort of
wedged on top as opposed to just
deciding what you want the state pension
to be and setting that and not having
this weird little little uh thing on the
top. I mean, I think actually most
people would buy the argument that you
have lots of people who aren't in fuel
poverty or any other kind of poverty and
old and don't need this payment. I think
part of the reason that didn't go
through for the government is kind of
the politics of it. They announced it in
the summer in what felt like out of
context, what felt like picking on
pensioners. You know, I think arguably
had they done that in a more sensible
way as part of a bigger budget process,
maybe they'd have got away with their
original plans because I think I think a
lot of people understand that it is odd
to be giving winter fuel payments to
people who are very well off.
Well, in a in a way, but as you say,
it's also just sort of it could just be
part of the state pension. We give state
pension to people who are perfectly well
off. So, in that sense, I'm not so sure
it is odd. Um,
the fact that it's build is different to
the state pension, right? I think you've
rolled it in. I think the fact it's an
extra payment that is labeled and it is
just label. You're absolutely right.
It's just labeling. You don't actually
have to spend it on. You could spend it
on cigarettes or whatever. Um but the
fact that it's labeled as we're helping
with your fuel then I think it seems odd
to some people at least to hear well the
government why is government helping um
people you know in this kind of
situation. Um okay let's talk about
children. Um because I think there's
some interesting stuff there. We have I
mean this is again lots of change has
happened here. We had for a long time a
child benefit that was a payment that
went to families for all of their
children. And then earlier you mentioned
Tom Tony Blair trying to tackle poverty.
I think I'm right and say at that point
he added it in a means tested benefit
for the reasons you said in order to
target support at those on the lower
income. Um so we had that means testing
and now child benefit itself has been
means tested and now the child of
universal credit has been capped. So we
we started off with this concept of I
guess children add cost will have a
benefit but over time we've been moving
towards more means to maybe Tom talk us
through like the effects of that and
what it means.
So I think there's there's a kind of a
rationale saying look if you have two
families who have the same income but
one of them's got several children the
other one doesn't have any children
overall taking into account all tax and
benefits do we want the system to be
treating the two of those families
exactly the same? I think there's a
rationale for saying well no the one
with kids have got higher costs and so
we want to um want them to pay on net to
pay less tax and so that it strikes me
that that that's a a sort of a a
coherent justification for having a
universal child benefit which as you say
we had for a long time I mean I think in
its current form child benefit started
in the late 1970s and all the way until
2013 it was universal and then I think
this connects what we were just saying a
minute ago this sort of feeling of well
rich people don't don't need it um and
So we can means test it. And we had this
quite we have this quite strange means
test based on
that's very generous. It's a very
strange means test.
Unbelievably clunky.
Yeah. Exactly. So the higher earning
partner is the only one that matters of
the of the parents. And uh
for this particular test
for this particular test than not for
literally any other. Um and um if you
yeah if you if your your income is over
£80,000 you don't get any child benefit
at all.
um which whereas for universal credit or
for child tax credit before it it's a
household means test. So we're trying to
target resources towards those
households that on a on a low income. So
we're in this sort of slightly strange
middle middle position between full
universality and sort of proper means
testing. We have this kind of slightly
weird means test.
It is for a long time there was a clear
sto like you were saying to a clear
story about child benefit. And I think
you can see of all the cases where you
might argue for a universal benefit um
well I keep saying universal I think
really I mean contingent on being in a
state so on having a child it's not
literally everybody in the country it's
once you have a child because you can
make a clear case for there's an extra
cost associated with having a child and
maybe the government wants to support
that. I think disability has some of
that flavor too and we'll come back to
that. Um yeah now we have this funny
hodgepodge where for lots of people it
is kind of universal. You get these
benefits but there's also big big means
testing. I mean, do you think we're just
confused about what we're trying to do
with child benefit?
I suppose we are a bit confused. Yes. I
mean, you know, there's the argument you
put there's also kind there's also a
kind of argument, you know, that that
society as a whole has a stake in its
children and therefore is interested in
looking after all children because it's
the interest of society as a whole.
That's not popular. It's not an argument
you hear spelled out very often these
days, but it it was certainly one of the
arguments behind child benefit when
child benefit came in. Um, and I think
there's validity in that and you know
the fact that some people may be
sufficiently well off to spend it on a
better bottle of wine. Well, kind of
that's a price you pay maybe for for
ensuring there's no stigma about
receiving child benefit. There's no and
we haven't talked about stigma but there
is a stigma attached to receiving means
tested benefits rightly or wrongly that
people do perceive that. Um so I think
it's it's it you know it has a real
advantage in being a universal in that
sense benefit and I can the same applies
to the state basic state pension. I mean
if you you know why do we not means test
the basic state pension we tax it so the
better off pay back a good chunk of what
they get certain if they're higher rate
taxpayers but we do it because it gives
you a platform of a minimum income on
which you can then build your savings
knowing that you will see the benefit of
having done the saving if you mean test
basic state pension then you don't know
whether how much you know you don't know
whether any of yours you don't the
initial bit of your savings actually be
worth anything because you might just
get means tested away. So you don't
actually see any benefit of having done
it. So having that that you know there's
another reason why it's a good good
reason for there being a universal basic
state pension.
Just back to the children limit. It's
worth pointing out isn't it that sort of
flavors of this debate are raging right
now around the two child limit. So
within universal credit it used to be
the case that you got an extra payment
for each child. Now you only get an
extra payment for the first two children
and not for the third child. So that's
that's within a means tested benefit. So
that gets means tested away. But now
there's this contingent element where it
depends on which child it is. And some
people people are talking now about the
fact that removing that policy would uh
reduce child poverty. It would be very
well targeted in a means tested kind of
way towards low-inccome people. But the
supporters of that policy say well
actually you need you know we need
incentives across families to line up.
So those families who don't get mean to
benefit and have a child have to face
financial incentives and those who have
benefits should face that incentives. In
some ways there is some trade-offs here
right that you can't really get round.
and you're trying to think about who to
target benefits to, how to preserve work
incentives, how to treat different
families in similar ways when actually
they're often quite different. I mean,
it's just kind of tricky, right, Tom?
Yeah, exactly. I mean, I think there is
a question the government should, you
know, does the government want to sub or
to what extent I should say, does the
government want to subsidize or
incentivize people having children?
Isn't it saying that society has an
interest in the raising of children and
indeed the, you know, the the
propagation of uh of society? And so
that I think there's a legitimate
question there, you know, how how much
should the the state be supporting in
cash cash form or other form be
supporting having kids? I suppose it
seems to me with um with a two child
limit that part of the Yeah, that that
sort of rationale as you say is exactly
what that what I said is we want to have
we want the people on benefits to have
face the same um uh financial
constraints that those who aren't on
benefits face when they're having a kid.
But but obviously in one sense we don't
we don't have that anyway. You know, you
you if you have your first or second
child when you're on uh universal
credit, you get uh you get an extra
extra cash. If you're on uh if you get
housing support, you can often at least
get extra cash for having more children.
And um if we were really were to go the
whole hog and say we want to have the
same incentives for for rich and poor to
have more kids that would you know that
would imply not having any means tested
uh benefits for for families with
children which would be um which would
be a very very very severe change from
where we are now. So it seemed a little
bit odd to me but
I think it's a good point. A lot of
these benefits having multiple effects
right we often you know they're often
affecting uh things like work incentives
but also the incentives to save to
change jobs about whether to have
children in the first place and all
sorts of other things. So I think what
makes this area complicated is that
there are just lots of things going on.
Well, as you said, I mean, the whole of
social security is riddled with
trade-offs. They're all trade-offs.
Working senses versus the poor versus
universality, and everything's a trade-off.
trade-off.
Yeah. Let's say disability, cuz that's
another big one that's been raging in
the in the press, partly because there's
been this huge increase in disabilities.
Maybe Tom, you fills in on the
background about why it's become more of
an issue and the fact that we actually
have two types of benefits for disabled people.
people.
If you're working age, you can get uh an
incapacity kind of benefit, which is
mostly a higher element of universal
credit. Um so that's means tested. If
you're uh that's and that's targeted
those who are unable to work. If you um
have higher living costs broadly
associated with your disability, then
you can get another benefit, personal
dependence payment, and that's not means
tested at all. Uh so that's kind of more
in the spirit of, you know, some of the
things we've been talking about with
child benefit or or or the state
pension. And it's certainly been in the
news a lot because there's been this
very significant increase in the number
of people getting these benefits since
the pandemic. So a kind of a one way of
thinking about it before the pandemic
about 20,000 people began a claim for
one of these benefits every month and
since about mid 2021 mid 2022 around
then that number's been about 40,000. So
we doubled the kind of the inflows into
these benefits.
That's huge. Let's just put let's
underline that that is a huge change in
in the number of people flowing onto
it's a huge change because it's
persisted and when this first happened
you know we thought you know maybe this
is just kind of a postco thing and it
will just like there'll be this little
hump and it will go back down but
actually it's still the case it's just
continued still 40 or 50,000 a month
starting um starting claims so um it
it's it is a very important change it
means that over this decade as a whole
government spending on health layer
benefits is set to grow by about30
billion pounds. So, you know, really
significant sum. It's worth saying that
the rest of the working age benefit
system uh if anything is is has been
shrinking over time. So, when you look
at the thing as a whole all spending on
working age benefits, it's not the case
that you know we're we're at a
historically high level. Um but this
part of it certainly has been um has has
experienced quite a shocking rise. And
thinking back to the kind of beverage
stuff, do you think disability is one of
those things that just wasn't really
it wasn't really in the initial
conception of the welfare state at least
to the degree to which it is now?
That is true. I mean there was an
industrial injuries scheme and there was
a war disability scheme and that was it
at the beginning. Um so what changed
over time was well one was one was
medical advance which meant that
actually some people were kept alive
with disabilities who would otherwise
have died in the early days. So then
then you start saying what do we do what
we do for them? Uh and you know slowly
but surely growing
awareness in society of the costs of
disability. Uh so you know you know if
you get multiple scerosis or some other
debilitating disease it's not your
fault. It's not insurable. Society
increasingly took the view we should do
something to support these people. So
you do get a big big big growth over the
70s and 80s of disability benefits of
one form or another. Uh since when it's
been as you know from the 2000s on it's
been a bit of a battle to try and
contain the bill.
I think you can see the tradeoffs we've
been talking about today playing out in
the debate. Right. So the government you
know had some measures which have now
been reversed but you have these two
benefits that you set out Tom. One it's
basically a payment to all people deemed
to have a disability. So a contingent
benefit if you like another part of the
system which is means tested. Um of
course if you move away from a means if
you a means best tested system only goes
to those on low incomes but there are
some people on higher incomes with
disability but if you support everyone
with a disability then you have to
decide who it goes to and you know if
you're not using income you use some
other criteria. So you use the how
disabled are you or what kind of
disability you have and that's um that's
kind of where the debate is going to
play out in the next few years, right?
It's really all about who's going to get
benefits and for what reason.
Yeah. Well, I think we we'll have to see
how it how it does play out because is
you know obviously it's no secret the
government struggled to um to pass much
reform in this area and so we'll have to
we'll have to see what what they do with
it. But one, you know, one thing that
was in the in the waters is being was
being considered before the bill came
out was what we could means test
personal independence payments and that
ended up not not making it into the into
the bill. Don't I don't I don't have any
inside knowledge. I don't know how
seriously that was being taken, but you
could imagine a world where the
government says, well, we want to we
want to make a saving from this bill.
What's the kind of easiest way to do it
that's going to potentially, you know,
cause the least difficulty? Um well if
we means test it we'll say you know you
can be a millionaires can get person
payment at the moment we we'll take that
away and you could you could imagine
that that kind of argument going through
um but it it and it you know this comes
back to exactly the kind of things we've
been talking about people can kind of
say well you know rich people rich
people don't need it
one of the other things that will help
you correct me if I'm wrong but we don't
really understand why there has been
this big increase in claims and you know
if one could work out why this is
happening and then do something about
why it is happening. That might be a
better way to constrain the bills and
saying how do we take money away from people.
people.
Yeah, that would certainly be preferable
to get the underlying demand down.
Basically, we do know Tom that that some
of the conditions that are rising are
sort of mental health conditions for
example. So, they're not all some of the
physical conditions you might think
people have that are just just
stationary across life. Once you've got
a life, you know, a chronic disease of
some sort, that's just it's a fixed
characteristic now of that person.
Whereas with other things and maybe more
likely that other other other
interventions you know talking therapies
to people with mental health for example
uh could help those people too. I think
there are other policy options in this
in this sphere. There's one more thing I
want to talk about before we sort of try
and draw some lessons from all of this
which is universal basic income. We
don't have a universal basic income um
but it's an idea that knocks around and
that you know from time to time gets uh
people get excited about. I think the
people like the idea really like the
idea. Um so so let's talk about why why
don't we just do that. So I think by
universal basic income most proponents
of that have in mind everyone in the
country just gets sent a check or a bank
transfer for some amount of money. We
all get the same amount of money and
it's enough money and this is quite
important. It's enough money that it's
it's a good platform upon which you
could build a life. You could sort of
live on on that money. Um, I should give
the listeners a spoiler that I think
we're all going to rubbish the idea.
But, um, you have a crack first, Nick.
What's what what's to love or loathe
about a universal basic income?
Well, I think I think there there are
essentially two problems. One is uh if
if if it's it has to be enough to live
on, right? If it's not enough to live
on, it's not a universal basic income.
So some people suggest quite small ones
but it's got to be something serious
kind of something like the level at
which we pay the basic estate pension
which we view as just about enough for a
retired person to live on. The levels of
taxation you would need to pay that to
everybody would be absolutely
astronomic. Uh and what's also missing
from that is we have as we have
discussed have lots of other contingent
benefits like children and disability.
So, are we going to wipe all those away
and just have one benefit for everybody
with no allowance for your particular
circumstances? Well, I can't see that
happening. So, the bill is going to be
even bigger because we're going to have
to retain some bits of the contingency
at the same time as we have a UBI. So, I
think it's kind of pie in the sky.
I mean, I do do agree with that, but um
let let me give let me give what maybe
kind of the best gloss for it or a a
good gloss for it. So, um you could
imagine so so this kind of connects to
what Nick's saying. We give more cash to
people who are in particular
circumstances. Obviously on low income
we talk about that a lot. But also in
virtue of having ill health, in virtue
of having kids, in virtue of having high
rent, all those things contribute
towards uh greater uh benefit um
receipt. And if you just had a pure UBI,
you would be flattening all of those
distinctions. So it doesn't matter
whether you're a renter, doesn't matter
how many kids you got, you you know,
everyone gets the same. And so that
would mean for lots of people who get a
lot of cash because their their needs is
is assessed in this way are really high
um they would lose out um to a very
large degree. you I think the best you
can put in it is well if you want to do
redistribution towards people who have
kids towards people who have higher rent
towards people who have incapacity you
could use the benefit system which is
what we do you could use the tax system
and so I think the other way of thinking
about it is well if we made that it
require a complete rewrite of the way
the tax system works which I can see you
already appalled by um
oh no a rewrite just going in that direction
direction
um and um uh uh but in principle that
could be the means by which we do
redistribution on these different
margins. We have historically at certain
points in time had higher tax allowances
for those with kids. You could do
something along those lines for example.
Um and perhaps one argument in favor of
that is so so that that kind of strategy
would be like we get the benefit uh in a
flat way and then we use the tax system
to do the means testing. Um, one reason
for doing that, I think, which could be
pref preferable, is you get rid of all
some of the problems we've been talking
about with stigma. So rather than it
being a problem of needing to get people
to take up the benefit, it's just a
problem of tax collection, which is
perhaps something we're got bit of a
better idea about how to how to handle.
So I'm not I'm not saying I'm all
convinced by um by my own argument, but
I think that that if if you want to do
redistribution to these different
characteristics, you do have in
principle have these two different tools
available to you.
Yeah. So I I agree with that, but it is
worth I think underlying Nick's point
here about just like the numbers here,
right? So you know most people I think
you talk about the UBI have in mind that
it is sufficient to really support it's
not just like you know5 a week. It's
enough that you actually do something
with it. You could live off it
potentially. But then if you want to and
it's a good rule of thumb if you want to
take I don't know average earnings and
say we're going to give everyone in the
country we'll pick some number 30% of
average earnings. you've got to raise
30% of national income to give to
people. So that's yeah we we currently
raise something like 37% of national
income in tax. You could look at another
30% of tax to to raise money to
redistribute and you say okay that's
that's a bit crazy. So then we'll say
well let's just 10% of national income
will redistribute. That's still quite a
lot of money. Um but for each individual
it wouldn't be enough to live on. So, in
that sense, you're not going to you're
not going to be able to get around um
you're not going to be able to get
around these trade-offs that if you want
to give people enough money to live on,
then if you give it to everybody, that's
really expensive. And if you know some
people, you got to take it away somehow.
And you either take it away through some
kind of means test or by only giving it
to some people based on some characters
in the first place. And UBI doesn't
really get around that, right?
Yeah. Exactly. So, I I'd like to think
of it as a three-way tradeoff. So you're
trading off between giving um enough
sports people on low income total cost
and work incentives. And UBI basically
just takes two of those very you could
depending how what the level of UBI you
could have a high UBI which says
actually the work incentives look pretty
good at least before you start worrying
about how we're going to have to pay for
the thing. The working centers look
pretty good because you don't just as
small issue um because once you get into
work you don't lose any of your benefit
and um uh and we can provide enough
support for people on low income. That's
one way of doing it. But obviously it
costs absolutely tons of money or you
give a really low UBI and then it
doesn't cost tons of money. You still
have a working incentive advantage but
you're not actually really supporting
people who are um who are on low income.
So that that three-way tradeoff I think
is like absolutely fundamental. You
can't get around it. You just have to
pick one. and UBI is just kind of one
kind of corner of the available choices
and and and we don't really know what it
would do to work incentives. I mean I
mean there have been some small
experiments around the world, haven't
they, with UB, but they are very small
and I don't think the answer from them
is very clear. I mean if you know if
people have enough to live on will this
encourage them to do more work as or or
will they say well that's all right I
can live on this I don't want to do
anything and we don't we really don't
know what the impact
won't neffect the incentive to earn a
marginal pound but the incentive of
which job to take maybe you'll be more
entrepreneurial because you've got some
say so or maybe actually your thing
actually I'm going to just stay at home
and not do my rubbish job um before
before we uh uh just wrap up Tom as as
now the most um as the person who's
happiest about the idea of a UPI at
least in this in this room. I mean, some
people will be shouting as as they were,
what about the administrative costs that
actually we've described an immensely
complicated system. UBI really simple.
Wouldn't it just be so much better? You
say, "Well, administrative costs that
that just gives you some free money."
I think the administrative costs
involved running the B system are very
small relative to the direct amount of
cash that goes out the door. And the
reason why we have these admin costs is
precisely because um we think that
there's good reasons to distribute more
cash to um to people in virtue of some
characteristics than others. So I think
I mean I think the amount of savings I
don't I don't know the exact number. I
think the amount of savings you would
get from that would be absolutely
trivial compared to uh you know we spent
whatever whatever 120 billion on working
age welfare. I don't think we'd be
looking at much of a saving relative to that.
that.
Yeah. All right. We we should wrap up in
a minute. I mean lesson to the future.
Nick, what do you I mean, you've been
studying the history of this for a very
long time. Do you think we should be
trying to reverse this drift towards
means testing? Should we just accept it
and and run with it? I mean, where's
system doing great and where's it
where's it going wrong, do you think?
Well, I mean, I've already said I think
the bits we've got, we we still retain
should be retained because they do bring
advantages. Um, I genuinely think it's
very difficult to try and rebuild uh
national insurance system. I think it's
kind of one of those things when you
start losing it, it's very difficult to
get it back. uh and the reason we don't
you know and and we don't have it
because an earnings related system is
much more expensive uh I mean if you
look at you know this is big broad
truism but if you look at the rates of
shares of GDP that European countries
spend on on public you know all public
services it's normally about two or
three percentage points GDP higher than
is here and what drives that is the
expenditure on earnings related benefits
and health and those are the two things
that take it up above. So if you wanted to
to
we know we're not an unulated one
because it's the British people do not
appear I sound like beverage don't I but
yeah the British people do not appear to
be willing by that sort of level of
taxation to achieve it and even we try
to rebuild it it would be more expensive
and at the moment we're don't for a long
time now we've not been in the world of
trying to make public services public
service including benefits more expensive.
expensive.
Yes. What do you think? What lessons do
you draw from all this time for the
future of benefits and welfare? And
I agree. I think it's it's much easier
to go in one direction than the other.
The the logic of um well, this is a rich
person, so they don't need it. Uh
there's some really poor people right
now who really need more cash. That is a
very strong logic which uh has put us,
you know, which we've been walking down
that path for for decades. And it's
relatively hard to see how you could
reverse course. I think in so far as um
we still have I guess well in we still
have the sort of the universal more
universal components things like child
benefit semi universal I guess and um
and the state pension. I do think it is
worth faith if if the governments want
if governments want to think about
reforming it is to think well what
actually is the the overall goal here if
we um you know if we simply want to like
take some money off rich people the most
straightforward way to do it is through
the income tax system um and it probably
isn't to do some you know horrible means
test on child benefit or um or for that
matter on the on the state pension. So I
think you got to keep in mind what the
goal is and and think about the overall
shape of the system uh rather than
worrying too much about this particular
benefit going to this person or that person.
person.
Great. So we should we should wrap up
there for this episode of the IFS zooms
in. Um we've talked about how the UK's
welfare state began with a vision of a
contributory social security insurance
you know beverages something for
something system but over time we've
moved to a means system. um in fact one
of the most mainetive systems in the
developed world and I think you can
really see how that has happened. We had
a desire to support people who hadn't
contributed to give to groups. Then you
give to groups without contribution and
you have to decide which groups to give
to and you either make them contingent
benefits. So you give them to people
with children or who are in old age or
you give them to people on low income
and then you means test it as income uh
has arisen. And if there's one message I
would take from all of our discussion
today, it's that there are trade-offs.
There are these three things we can't
get around. We are trying to balance the
cost of a system and not wanting it to
balloon. the desire to get support to
those who need it most and incentives in
a particular work incentives and you
know there's no way to do all those
three things uh at once necessarily so I
suspect we'll keep a mix of both
contingent and more universal benefits
and means tested benefits and therefore
we should expect expect to have some
complexity in our system but of course
not all complexity is good we've had
some examples today where complexity
seems um unnecessary but the lesson for
I think for policy makers is they should
keep thinking clearly about these
trade-offs, about the cost of policies,
how well targeted they are at different
outcomes, and about what they do to work
savings and other uh and other
incentives. And I at least would say for
now a big no to universal basic income
on the basic that on on the notion
numbers just don't add up. To make it
big enough to be really a basic income,
you would have to be uh really reshaping
the state. Most importantly, it doesn't
get around the trade-offs. You still
have trade-offs even with uh with a UBI.
But for now, let me say a huge thanks uh
to my guests uh Tom Waters and Nick
Timmons. Um and thank you to you for
listening. And if you've enjoyed this
episode, please do subscribe to the IFS
Zooms in in your podcast app and share
it with anyone who might be interested.
And if you'd like to support our work,
you can become a member for little less
£10 a month. You can just check the link
in the episode description. We'll see
Click on any text or timestamp to jump to that moment in the video
Share:
Most transcripts ready in under 5 seconds
One-Click Copy125+ LanguagesSearch ContentJump to Timestamps
Paste YouTube URL
Enter any YouTube video link to get the full transcript
Transcript Extraction Form
Most transcripts ready in under 5 seconds
Get Our Chrome Extension
Get transcripts instantly without leaving YouTube. Install our Chrome extension for one-click access to any video's transcript directly on the watch page.
Works with YouTube, Coursera, Udemy and more educational platforms
Get Instant Transcripts: Just Edit the Domain in Your Address Bar!
YouTube
←
→
↻
https://www.youtube.com/watch?v=UF8uR6Z6KLc
YoutubeToText
←
→
↻
https://youtubetotext.net/watch?v=UF8uR6Z6KLc