Spending

Increasing coverage

4. Increasing universalism

4.1 Relationship to poverty/inequality mechanisms

Increased universalism may appear to be less cost effective in terms of poverty reduction than a benefit targeted on low income families: the diffused spread of transfer payments means that the degree of poverty alleviation is constrained. With a limited or shrinking budget it is often argued that this is better spent targeting the least well-off. This is based on the assumption that the amount spent on subsidies remains the same after introducing strict targeting, and that the targeted groups will therefore receive more (Mkandawire, 2007). However, in most cases the total allocation to subsidies is reduced, and in the long run the switch to targeting leads to reduced effort and reduced budgets devoted to poverty and welfare (ibid). Moreover, while means-testing may aid budget control, it is claimed to remain a short-term solution as it generates poverty traps, stigmatisation and non-take-up problems (Van Oorschot, 2002, Baumberg, 2016). Complexity and the rapid withdrawal of benefits with rising earnings in means-tested systems can create a disincentive to work longer hours or increase wages, as the extra income earned would be taken away in lost benefits and higher taxes. Moreover, there is evidence that the shame of poverty is globally universal (Walker et al, 2013), and that benefits stigma itself has been found to contribute to it (Walker et al., 2013, 226). Universalism might therefore not just prevent gaps in social provision but also better fulfil its role of social integration.

Through stronger conditionality measures, means-tested welfare generally implies stronger and more intrusive controls over personal circumstances and activities, fewer opportunities to become better off and a greater chance to fail to help those who are the most insecure. Moving to a more selective system might prove difficult to reverse, even in a favourable economic landscape meaning that cost-saving is unnecessary. Selective policies receive less support from society, so welfare states may fall into a ‘selectivity trap’ of ever stronger selective policies with ever declining support.

Increasing the universal element of welfare policies would reduce any stigma and increase take-up. Moreover, especially in highly unequal societies, where public attitudes may be divided into "them" and "us" (Hills, 2015), a more universalistic cash transfer system with a wider set of beneficiaries may attract more support and a more generous tax base, emphasising the role of redistribution as insurance required by everyone at different stages of life against periods of income vulnerability (Esping-Anderson and Myles, 2009; Kenworthy, 2011).

The debate surrounding a Universal Basic Income (UBI) can be understood in continuity with some of these themes. Supporters of a UBI have a variety of reasons to justify its institution: next to arguments related to dignity and human rights, there are arguments related to the simplicity the system, but also an emphasis on how UBI would allow to avoidance features of means-tested support – including stigma, disincentives and barriers to worker flexibility (Hirsch, 2015). A libertarian argument sees UBI as potentially reducing the government involvement in people’s lives. The latter arguments would seem to face a substantial trade-off in terms of the higher marginal tax rates needed to finance the system as well as attributing a role to the state in giving some baseline level of financial support, even if recipients choose not to do anything to try to earn money for themselves. Moreover, there are concerns that UBI would reduce the progressivity of the current system.

4.2 Party political support

Conservatives favour increases in means-testing, and have long voiced opposition to universal welfare programmes for several reasons: from their cost and their potential for increasing dependency, to their potential regressive effects and inefficiency in targeting resources to the poor, alongside a preference for smaller government. Labour and the Liberal Democrats favour a move toward reducing means-testing. From the left, the Fabian Society has actively critiqued the approach to targeting advocated by the 2010 government.

In regards to the UBI, the Shadow Chancellor has set up a working group to investigate the feasibility of a basic income and declared to be keen on including a pilot of the policy in the next manifesto. The Liberal Democrats did not include a Citizen Income in their latest manifesto but this has been widely discussed within the party, including in relation to UBI.

On the conservative side, arguments against UBI have been raised (for instance by Nick Boles) not solely in terms of efficiency, but also on “moral grounds”, as fundamentally clashing with the idea that “mankind is hard-wired to work”.

4.3 Type of intervention

Social security reform

4.4 Level

National

4.5 Public support

Bamfield and Horton (2009) found that strategies of progressive universalism – where those in the middle get something, if less than those at the bottom – attracted positive assessments in terms of fairness, with occasional signs that people would be more willing to contribute to benefits that had wider coverage. YouGov, asking in 2012 about opinions on the withdrawal of child benefit from families in which one or both parents are higher-rate taxpayers, found that 68% believe the new rules are unfair, suggesting that a more universal approach to child benefits is supported by the public.

However, public opinion has not very clearly pointed to either a more selective or a more universal approach across the board. On the one hand, the public is critical of some measures that appear to ‘waste’ public money on transfers to people who do not need them; on the other, they can be critical of means-tested help that might deter effort, and protective of some benefits that give a stake in the welfare system to a wide section of the population (Gugushvili and Hirsch, 2014).

UBI

An IPSOS Mori poll carried out for the Institute for Policy Research at the University of Bath in 2017 showed that half of all adults aged 18-75 in the UK (49%) would support the UK Government introducing a universal basic income (UBI) at the level to cover basic needs in principle, while a quarter (26%) would oppose it. support drops if introducing a basic income meant increases in taxes or cuts in welfare benefits spending from their current levels. If it meant an increase in taxes, 30% would support the introduction of a UBI, while 40% would be opposed. If it meant cuts in welfare benefits spending, 37% would support its introduction, while 30% would be opposed. If it meant both an increase in taxes and cuts in welfare benefits spending, 22% would support its introduction, while 47% would be opposed. However, elements of targeting remained salient for many (with 57% supporting UBI only for people on low income), thus effectively undermining the unconditional element that defines UBI.

The most convincing justification for introducing UBI (79%) saw it as a way of rewarding and encouraging people doing “very important unpaid work, such as caring or other voluntary work”. 67% thought it would provide income security to all who feel insecure about their job, but also reverse negative effects of conditionality (63%). 63% saw it as relevant in relation to threats of automation. 62% saw it as reducing bureaucracy and make the system more transparent.

4.6 Evidence of Effectiveness

Korpi and Palme (1998) found that across 11 countries, universal approaches are associated with more public spending, greater redistribution and greater poverty reduction. They concluded that ‘The more we target benefits at the poor only and the more concerned we are with creating equality via equal public transfers to all, the less likely we are to reduce poverty and inequality’ (pp.681-682). The amount of resources allocated for redistribution is not fixed – more inclusive welfare states generate larger budgets, since middle and upper income groups are more willing to finance schemes that they participate in and benefit from. Where the better-off opt for private welfare arrangements, the overall outcomes tend to be much more unequal than under earning-related public schemes.

These findings have been recently disputed by studies claiming that while there was a clear correlation between universalism and redistribution in the 1980s and early 1990s, this relationship fades out and disappears in recent years. In the 2000s, the size of the redistributive budget is actually correlated with low-income targeting, which goes against Korpi and Palme’s core argument (Kenworthy, 2011; Marx et al 2013). Moreover, Brady and Bostic (2015), by including public opinion data in their model, find that income targeting reduces public support for redistribution, but universalism, which they measure differently, does not seem to boost support significantly. However, Jordan’s (2013) assessment of public support for specific programmes in 17 OECD countries finds indeed that, as Korpi and Palme predicted, citizens express stronger support for universal programmes than for targeted measures. Jaques and Noël (2018), using OECD data and measures of institutional design, find that countries where social programmes are less anchored in universality have less generous redistributive budgets and are less effective in redistributing income and reducing poverty; countries with more encompassing welfare states spend more on transfers and services and do more to redistribute and reduce poverty.

Marx et al. (2013) re-examine Korpi and Palme’s (1998) influential claims, adding 14 to the 11 countries originally studied. They find a mixed picture, suggesting that relationships have changed since the previous analysis. Most importantly, their findings point at how outcomes are sensitive to operationalisation, data source and, especially, country selection. For instance, the weak positive relationship between targeting and redistributive impact is driven mostly by the inclusion of Southern European countries (Greece, Spain and Italy). On the other hand, strong targeting produces strong redistributive outcomes in some countries (e.g. Denmark) but not in others (UK and Australia). Moreover, the relationship between targeting and redistribution is different for family transfers as compared to old-age benefits, or other benefits for the working aged, where a negative relationship between targeting and redistributive impact is found only for family benefits. Overall this analysis stresses how the nature of targeting has changed in terms of segments of the population covered or in terms of conditionality applied. The importance of focusing on within country across time evidence is stressed in McKnight’s (2015) analysis of four EU countries (the UK, Italy, Sweden and France) over a period spanning four decades. Within country analysis finds a negative relationship between greater concentration of net cash transfers on lower income households and inequality and poverty reduction. In order to understand this relationship, the progressivity of direct taxation needs to be considered.

Gugushvili and Hirsch (2014) present a review of the literature on the effectiveness of targeting versus universalism on distributional outcomes. They suggest looking at cash transfers from a functional prism: targeting of family benefits may lead to more redistribution, but the same is not true for old-age pensions or other active age transfers, such as sickness or unemployment transfers. Moreover, they stress the importance of looking at the interaction between size and coverage. In their assessment, while the UK displays a better-than-average targeting of poor households, the cash transfer system manages to lift only four out of ten above the poverty line.

Along these lines, Van Lancker and Van Mechelen (2015) use EU-SILC data in 26 countries and find that redistributive budget is strongly and consistently associated with higher levels of child poverty reduction, and that universal systems tend to have the highest budgets; however, they also find that targeting is associated with more generous benefit levels for low income families, and that generosity is related to higher levels of child poverty reduction as well. What emerges from this study is that the best performing countries are actually countries with a system of targeting within universalism. In these countries, two channels of poverty reduction are simultaneously at play: they combine high redistributive budgets with higher benefit levels for low income families.

Mkandawire (2007) points out that stigma, along with complex and invasive means-testing procedures discourages many potential beneficiaries from applying for benefits that they are entitled to claim. If the barrier of social stigma results in benefits being left unclaimed, then the ability of targeted programmes to reduce poverty is hampered for any given level of available resources. Oakley (2014) found that almost a third of eligible recipients in the UK were not claiming the means-tested benefits to which they were entitled. Consistently with the previous decade, 17% of those eligible for Child Tax Credits and 35% of those eligible for Working Tax Credit had not claimed (DWP, 2018).

UBI

The OECD (2017b) has evaluated costs and distributional effects of UBI using EUROMOD. In the UK, expanding coverage by replacing the existing systems with a UBI would result in a very large reduction in progressivity and losses in the size of benefits for many poor households. In a budget-neutral scenario, poverty rates would increase significantly and would require significant tax increases to offset some of the losses (OECD, 2017b).

These conclusions also emerge in Martinelli (2017), which, using microsimulation for a revenue-neutral UBI set at the level of existing benefits, finds increased numbers of households living below the poverty line (approximately 11% to 15%) and higher levels of inequality. Offsetting the cost with a progressive tax model performs better than a flat rate model since low-earning individuals, who are more likely to live in households at risk of poverty, pay an income tax rate of 23% as opposed to 28% under the flat rate model. Without modelling revenue-neutrality, a model generating the least adverse distributional effects would cost an additional £36bn a year. (This model assumes UBI set at the level of the tax saving implied by personal income tax allowance (PITA), combined with the withdrawal of PITA and Child Benefit⁴).

Overall, Martinelli (2017) finds a clear relationship between the fiscal cost of full UBI schemes and their effectiveness at combating poverty and inequality, giving rise to concerns about whether UBI is really the most effective way to achieve these goals. Moreover, Martinelli discusses the UBI option deemed as the most feasible by Torry (2016) and Reed and Lansley (2016): namely, that of retaining means-tested benefits, taking UBI payments into account in their recalculation. However, this solution sacrifices administrative simplicity, while also retaining high marginal withdrawal rates which cause poverty and unemployment traps. What seems to emerge is thus a three-way trade-off, between designing a a UBI scheme which is fiscally feasible, has no adverse distributional consequences, and is sufficiently generous to eliminate the need for means-testing.

In a recent study by Hoynes and Rothstein (2019) focuses on advanced economies and uses the 2017 Current Population Survey (CPS) Annual Social and Economic Supplement to compare various UBIs to existing programs in the US. They find UBI would direct much larger shares of transfers to childless, non-elderly, non-disabled households than existing programs, and much more to middle-income rather than poor households. At the same time, “pure” UBI (providing a set benefit to all regardless of income, age, etc.) funded to meet basic needs for low-income households would be extremely expensive, about twice the cost of all existing transfers in the U.S. They also confirm that replacing existing anti-poverty programs with a UBI would be highly regressive, unless substantial additional funds were put in.

Atkinson et al. (2017) use EUROMOD for a static simulation approach modelling the effects of tax and transfer reforms along the lines put forward by Atkinson (2015). They analyse the first round impact of revenue-neutral tax and transfer reforms including a partial UBI, or ‘participation income’. These reforms move towards a more universalistic approach, and entail increasing income tax in a progressive way, raising universal Child Benefit, either strengthening social insurance or implementing a ‘participation income’ variant of basic income, and increasing the minimum wage. Their EUROMOD simulations show that each of the tax and transfer reform packages have a substantial impact on reducing summary measures of inequality and poverty. For the same overall cost, the participation income reform produces a larger immediate impact on both inequality and poverty because it directs resources towards low-income households not in receipt of the insurance-based payments, that are the focus of the social insurance package. The reform would see bring the poverty headcount down by 38% and the poverty gap by almost 60%. The impacts on child poverty are considerably greater.

4.7 Cost

High despite offsetting the high administration costs of means-testing, which considerably exceed those of universal programmes.