YouTube Transcript:
Should the middle class get benefits?

Skip watching entire videos - get the full transcript, search for keywords, and copy with one click.

AutoDub

Understand YouTube Foreign Videos

Immersive YouTube Voice Translation

Break language barriers, embrace global quality content

Solve Foreign Video Barriers Instantly

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incomes but are withdrawn as incomes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

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

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

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.

Add to Chrome — Free

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

YouTube TranscriptPreparing your results…