Move away from the means test

Means tested benefits aim to utilise public funds as efficiently as possible by targeting assistance at those who need it most. In practice, however, there are a number of problems with the approach.

  • Costs of administration. Means-tests are often complex. A recent report shows that sophisticated systems of means-testing cost considerably more than simple systems: the unit cost of administering housing and council tax benefit claims is almost sixteen times higher, for example, than that for non-means tested child benefit. As a result, many of the savings means-tests are supposed to ensure evaporate.
  • Quality of administration. Complex administration often turns out to be poor administration. Error rates by both claimants and officials are high: DWP estimates show that in 2010/11 errors led to £1.3 billion of benefits being underpaid and an addition £2 billion being overpaid. Both under- and over-payments cause considerable problems for claimants: they may have to wait long periods while errors are corrected, or unexpectedly have to pay back money to which they were not entitled.
  • Take up. Complicated and intrusive means-tests discourage many from accessing their full benefit entitlement. The figures for child tax credit (CTC) and child benefit (CB) are instructive: CB which is not currently means-tested is accessed by 96 per cent of eligible households compared to 80 per cent take-up for the more highly targeted CTC. As a result, CB actually reaches more families living in poverty than CTC.
  • Work and savings disincentives. Means-tested benefits are withdrawn as work hours or savings increase and as a result, some families may see little financial advantage in working more. One report estimated that in 2010, many claimants would net less than 10p for every extra £1 they earned.

The government anticipates that the introduction of universal credit from autumn 2013 will address many of the inherent shortcomings of means-tested benefits. Consolidating various benefits into one payment, smoothing out withdrawal rates and moving much of the administration on-line are all expected to have real advantages for government and claimants alike.

While CPAG believes the introduction of universal credit presents an opportunity to make improvements on the current system, it is also likely that many of the problems associated with means-tested benefits will remain.