Part of 1 of a mini- series that goes only to look mainly at the "legacy" means tested benefits that will eventually disappear into Universal Credit. This first part is relevant to both ol and new benefit systems and the other means tested benefits that remain outside of UC. What is means testing? And why is it done?
Welcome to the first in a series of four blogs about an important group of benefits for those on lower incomes: the “income-related” or “means tested” benefits and their associates the “tax credits”.
This time, I look at what means testing actually means and why we have so many means tested benefits, given that when the modern system was last redesigned from scratch - way back in 1948- “means testing” was meant to be avoided. Why had people taken against them anyway?
At first sight, relating benefits to people’s other income and savings seems an obvious way for a benefits system to focus available resources on help to those that need it most. Indeed, I often talk to people who are surprised to learn that there are any benefits that are not actually means tested and so can be claimed regardless of other income and savings.
Means tested benefits and tax credits are then an important part of the benefits system, but are actually in the minority.
They are also in a state of change, as most of the benefits for people of “working age” are very slowly merging into the strange new world of Universal Credit (UC). This will also touch on some people over pension age too, although for them the big means tested benefit will remain Pension Credit (PC). But PC too will go through some big changes related to the introduction of UC for the young ones
But it’s going to take quite a while for UC to take over the means tested universe - the latest target is December 2023. So, as I type most people receiving help are getting what the Department of Work and Pensions (DWP) have taken to calling the “legacy benefits”. In fact, it will only be at the end of December 2018 – some five years after UC first surfaced – that most people will be unable to make new claims for the legacy benefits and they will then slowly start being replaced.
However, the basic principles and reasoning behind means testing is similar under old and new, even if UC deliberately aims to operate very differently and Pension Credit and council tax support will remain after UC. The many millions still on legacy benefits can still experience substantial changes within their claims.
So, it’s then still worth me taking my blogging quill to take an updated wander through the byways of these important benefits: both for those getting or still claiming them now and as a point of comparison and oasis of calm for those experiencing the still too chaotic world of Universal Credit that is finally beginning to have an impact across the land. Spoiler alert then, for a UC mini-series to follow this one…
- In this first Part I will be looking at: What does means testing actually mean? Why are some benefits means tested and others – indeed most - are not?
- In Part 2, I will look at what the main benefits are and what they might help you with.
- And in Part 3 I will attempt gently with some examples to give you a sense of how the sums work.
1. So what does means testing mean?
Well means testing means that your means…. I think I will start that one again …
Essentially, if a benefit is means tested, then it means that as well as meeting the particular criteria for receiving a benefit - such as actively job seeking or being excused job seeking because of health issues or caring commitments – there is also an extra financial assessment, that does not feature in a non-means tested benefit.
1.1 Means tested v non-means tested benefits
So, for example, take the main benefit for being too unwell to work: Contributory Employment and Support Allowance (C-ESA). This is non-means tested version of ESA: you claim it individually in your own right on the strength of your past National Insurance contributions, and most income and savings are irrelevant as indeed are any partner’s or spouse’s finances. Whether well to do, just about managing or not well off at all, you can receive C-ESA as long as you have the right NI contributions and meet the criteria for having sufficiently “limited capability” for work to qualify.
However, the means tested version - Income-related ESA – does look at finances both yours and any partner’s. It’s the same process and Work Capability Assessment as Contributory ESA, same passporting through theat assessment for many people with cancer. But theamount you get will be affected by income and savings, including your partner’s.
- Contributory ESA acts as an insurance pay-out from your compulsory National Insurance policy – and you wouldn’t expect an insurance loss adjuster to enquire about your income in the event of a break-in or flood at home.
- Income-related ESA is there to ensure a basic safety net minimum level of income. You may need to access that because you don’t have the right NI contributions for Contributory ESA and you don’t have much other income coming in.
Some people can get both sorts of ESA – a steady erosion in the value of non-means tested benefits in working age means that if you are on Contributory ESA and don’t happen to have much other income, then you might qualify for a top up of Income-related ESA. And even if you can't qualify for a top up from Ir-ESA that doesn’t apply, then you might be looking elsewhere in the means tested system for e.g. help with rent, council tax or travel to hospital and other health costs.
Some people will get neither: they don't have the right NI history for ~Contributory ESA but joint income and savings may be too high for Income-related ESA. An ESA claim may still be worth pursuing though
For older readers, it’s a similar difference between the biggest benefit of all – the non-means tested State Retirement Pension, built up from your NI contributions over your working life over your working life and a possible top-up or safety net alternative in Pension Credit and/or other help for any rent or council tax
1.2 More than just a basic safety net
The term “safety net” to keep you at least over a “poverty line” does imply these benefits only apply at the lowest end of the income scale. And at the basic levels that is very true – there have been unprecedented real cuts in basic amounts originally set at 1960s subsistence levels. However, firstly there are important additions for disability, caring and pension age, that bring the levels of support further up the income scales. real rises in rent means that Housing Benefit applies at much higher incomes than before, while tax credits reach much further than their predecessors.
So yes, for some these only offer a subsistence “safety net” income, but in other cases , they can then reach- and help out - far higher up the income scale than you might think, especially with additional help related to cancer or in situations faced by many people during their cancer journey.
So, never assume that means tested benefits won’t apply to you, not without a signed note from your local benefits advisor... It is always worth getting your potential entitlement checked up – you may not be entitled right now, but there may be non-means tested benefits to be explored – and they in turn can then trigger entitlement to a further top-up from means tested benefits.
For the rest of this blog, I am going to explore the background: Why do we have this mix of means tested and non-means tested benefits? And why allow any benefits to be non-means tested anyway?
If you don’t find this sort of background and context helpful or interesting, do feel free to skip to Part 2 where I get into the nitty gritty of what the different means tested benefits are and how they can help people affected by cancer.
2. Why aren’t all benefits means tested?
Many people I speak to assume that while cancer can hit income and create extra costs, the fact of having a partner working or having built up a fair amount of savings, means they won’t get any help. The most obvious and perhaps most historic role of a benefits system is to help those most in need and guarantee whatever safety net society sees as appropriate, so it makes sense to think that while financially hit by time with cancer, you might not qualify for any support. BUT do read on, as even if you were right concerning means tested benefits, there is also plenty of non-means tested support, where income and savings have very little impact.
2.1 Pros and cons of means testing
Given there is a limit to what we want to put into the system, then the argument for means testing are:
- 1- by having a means test available resources can be targeted at those most in need.
- 2 - so less money is needed to run the system
- 3 - so that makes welfare more politically and financially sustainable as those paying for it don’t feel too hard hit.
The reasons for not means testing are a bit less obvious:
- 1 - By not means testing the system is much cheaper to run (£1 per £100 spent for Child Benefit, £155 per £100 spent for the old discretionary Social Fund) and easier to access. And that means that the rate of take-up by those who need it most is much higher: nearly 100% for Child Benefit and Retirement Pension, but nearer 60% for Pension Credit
- 2 It does mean more money transfers through the system, but with everyone seeing some potential benefit - like an insurance policy - there is a greater stake for all in that system. There is also a greater incentive to earn and save without the high rates at which means tested benefits are withdrawn at incomes above basic levels.
- 3. And with it being less of a perhaps grudging act of charity and more one of mutual insurance and enlightened self-interest, social security becomes more politically and financially sustainable.
So, means testing wins on being cheaper to run and targeting resources on - but not always getting to - those most in need. Non-means testing is a more broad sweep further, gives all a stake in the system and can get to the poorest the most effectively - but does involve a lot of additional cash in the system.
2.2. Different aims and objectives
The reason we have both types of benefits is then partly there are advantages both ways and partly there are different things social security aims to do:
- - the most immediate is to relieve absolutely poverty
- - to share life's risks by means of a mutual contributory insurance system. We will all be benefit claimants at some point - our parents claiming Child Benefit or our hopes to make it to a wild time with our Retirement Pension. In between we might want to insure against risks of unemployment, sickness or time out as carers just as we might pay into a home contents policy.
- to support people who face additional costs whether from disability, cancer or putting themselves in harm’s way on our behalf in heavy industries and the armed forces.
- to encourage and support people to do things that involve some cost but that benefit society - being a carer, raising the next generation.
Now the first of these aims points to means testing, but many of the others work better by not means testing.
2.3 Of history and events
The oldest source of support has always been means testing whether by cha donations and religious alms, charitable bequests, or early systems based around the Workhouse and the Poor Law.
In the late 19th century and early 20th century, a wide variety of state and voluntary mutual insurance schemes grew up because of pressure and self-help from the new industrial communities. So, we entered the 1930s Great Depression with a ramshackle array of e.g. 26 different short-term unemployment schemes and local councils running a back-up where people who were not covered or whose entitlements had run out, could get some help of last resort funded by a special Poor Rate - with minimal and overstretched cash handouts and the workhouse
The system was found wanting in the face of the sheer numbers and the duration of the recession. As council coffers ran dry from the demand, the means test used got tighter and became linked to harsh and humiliating investigation of any other possible resources, as Council’s tried to make a very thin gruel stretch.
Despite budget deficits that made the current one look like a passing blip, the national mood really was one of a post- World War II “we are all in it together”. The 1930s means test had become an object of hate and resentment, so the big idea was to take a system that covered some - National Insurance - and apply it to all. Everyone pays in - very much as you might do with a house and contents policy - and as a result of the entitlement built up from paying those premiums, can claim whether in circumstances of losing a job or sickness that you hope don’t happen or life's eventualities. And that was to be the mainstay of an entirely new “social security from cradle to the grave”
This was then a key pillar of the new welfare state alongside expansions of social housing, a new secondary education, and the NHS itself. Indeed, health and social security were driven with passion by the same minister and for many years lived in the same Department of Health and Social Security (DHSS). Nye Bevan then proclaimed: “We are at last consigning the too long unburied corpse of the Elizabethan Poor Law to the grave”.
Making entitlement based on National Insurance (NI) - there are other ways to do this – the aim was to help gain acceptance that this was mutual insurance with entitlement from your contributions not some charitable, discretionary handout. However, the downside of this approach is that there would inevitably be some in genuine need that did not have the right NI contributions record to qualify. So, a very much second class back up safety net remained in the form of means tested National Assistance - only 1 in 38 of the population claimed, whereas now it is nearer 1 in 4.
But over time new needs were recognised as society changed and the contributory benefits were not allowed to keep up. And for successive Governments - whether simply trying to save money or wanting to widen the reach of support - means testing had the attractive quality of costing a lot less. So, the means tested system has grown like topsy and become much more mainstream than in many similar European system. A welcome side effect of this is that there is much less of a second-class sort of claimant and no longer sent off to separate poor relation benefit offices under the UK system.
Current policy is facing both ways: -
- in “working age” welfare, the thinking is very much towards means testing and greater conditionality and expectations of claimants. Universal Credit is taking that whole process a big step forward – or as critics claim disturbingly backwards.
- But in “pension age”, the concept of non-means tested social security remains strong, with an emphasis on strengthening non-means tested State Retirement Pension and pulling back a little on Pension Credit. Far from being cut back in real terms, pensions have had annual increases and the Pension Service remains committed to finding claimant friendly ways of dealing with changes, rather than pulling back on support in the name of increased “claimant and responsibility”
So, our current system is a mixture of means tested benefits / tax credits and non-means tested benefits, for a mixture of reasons:
- there are pros and cons to both ways of doing it
- there are different reasons for social security some which point one-way others’ t’other
- there is the piecemeal historical extension of benefits into new areas where means testing sends out siren calls to the Treasury.
2.4. What might a fully means tested system look like? And a fully non-means tested one?
Many might say it is high time to look at the whole system again. And there are big sweeping visions around the place, for new much more modern ways of doing both means tested and non-means tested benefits.
Negative Income Tax
You could run a purely means tested - but simpler - system through the tax system which we all have a sense of inevitable connection with :-) Just as you pay taxes as your income rises, a Negative Income Tax system might pay you when income dropped, using the relatively light touch means test of a system that everyone is involved in anyway.
Tax credits are an example of such an approach. They have had some real problems of implementation and unfortunate contracted out aspects of administration but could provide a different direction for reform than means tested benefit. They are a relatively new idea though, only tried in a few countries
Universal Basic Income
At the opposite end of the means testing spectrum, there is much interest - from all political persuasions - in something purely non-means tested and deceptively simple. It also seeks to address the challenge of changes in the world of work, when wealth may still be generated but need less labour involved – a sort of dividend not just for the shareholders. The basic idea is that we all give up income tax free personal allowances and conditional basic benefits in favour of a Universal Basic Income (UBI) - a flat rate payment to all adults who meet the rather strict citizenship requirements. It's a bit like Child Benefit for little ‘uns or Retirement Pension for all pensioners – a sort of working age adult benefit for all the in-betweeners…
UBI has some big problems though: substantial amounts would run through the system although relatively efficiently. the level might be critical, there would still be need for extra help for specific needs. And it does involve us giving up on a deeply entrenched habit of judging claimants as "deserving” and “undeserving”. The hope though is that they could end absolute poverty absolutely, increase work incentives, cut admin costs and the black market substantially.
It is rather blue-sky thinking, though trials are under way and being keenly observed. It does challenge all we know in terms of not judging claimants as “deserving” or undeserving” or at very least asking searching questions as to why someone is not earning. Will it just encourage the lazy to do little and live on the UBI or will it actively encourage activity as any earnings would much more clearly pay, with just normal NI and tax to pay? Might it even reduce the temptation of the black economy, as doing some work no longer either might risk essential benefit income nor face a "poverty trap” with up to 90% tax rates? Hence all the interest in trials.
There is no reason why a means tested system has to be quite so bad as either the “legacy” means tested benefit system’s 85 % tax rate. Universal Credit’s big aims was to cut this to 55% but cuts have raised it to 63% and led to an additional 20 to 30% taper from reductions in council tax support – that was originally meant to be part of UC. As a result, UC makes it worse with top tax rates of 93%. Tax credits manage a more measured 41%
And so...and next time
We have looked at what means testing is and why we have a bit of a mixture in the current benefits system. Different approaches, objectives and realities mean that we have a very mixed system of both non-means tested and means tested benefits. Both have real things to offer and real problems
In practical terms then, means tested benefits may be far more relevant to a far greater proportion of people affected by cancer than you might think.
Means testing while perhaps being the simplest and most ancient ways of ways of doing things, has some downsides given the different aims of a social security system and is not necessarily the best way to keep the system politically and financially sustainable.
Next time as promised, I will get into the more immediate nitty gritty of what the main means tested benefits and tax credits are and how they might help people affected by cancer.
But do feel free to post general comment and thoughts in the forums and do get your entitlements checked – some will be non-means tested anyway, but those that are means tested may apply higher up the income scale than you might think and may still be able to help you. The biggest issue with these benefits is not people claiming these wrongly but with the added complications of means test, the fact that far too many people are not claiming what they are entitled to… so don’t let that be you… Please speak to one of our Benefits Advisors – find your nearest Maggie’s Centre here - or see some of the suggestions in our links below.
Useful links and further reading
- What is Universal Basic Income and how would it work in practise? - The Independent, 31.7.18 - here
- Negative Income Tax - wikipedia - here
Other blogs in this series
- Means Tested Benefits & Tax Credits (2) - Benefits to top up your income - here
- Means Tested Benefits (3) : Benefits to help with specific costs - here
- Means Tested Benefits (4) - How much might you get? How the Sums work- here
Other benefit blogs
- Benefits and Older people 4 - extra help from disability benefits and Pension Credit - here
- Benefits in Pension Age 5: Pension Credit made real : simple sums and common examples - here
- Benefits and cancer: an overview - starting here
- Find out more about.... Benefits and Cancer
- Find out more about befits for... Difficulties with day to day living and getting around
Getting individual benefits advice and support near you
There may be a number of other places where you can get face to face advice, help with forms or challenging adverse decisions in your area. The local provision varies considerably but some good places to start looking include:
- visit your local Maggie's Centre and talk with one of our benefits advisors. Find your local centre here
- see if there is a Macmillan advice service nearer you - here
- find your local Citizens Advice office / bureau: in England & Wales - here. In Scotland -here
- Age UK - for older people - here