Means-testing and the progressive state

In Sweden, the amount you get from the state pension is linked to the amount you earned while you were working. That is, the richer you are, the more you get.

I can already hear the howls of “regressive” if this was suggested in the UK. Broadly speaking, our public pension pays out a flat rate (provided you’ve paid national insurance for enough years) which is just about enough for someone to live on. It seems more likely that we would take that away from wealthy people than give them an enhanced rate. Just look at the debate around the winter fuel allowance, which is effectively just a cold-weather top-up to the state pension.

This raises a paradox. Any Guardian reader knows that Sweden is a socialist utopia with high taxes, strong public services and lots of redistribution. How can they be doing something so regressive?

Of course, richer people in the UK also get bigger pensions than poorer people. The difference is that this is done privately, rather than by the government. In the UK, many people pay money into private sector pensions and when they retire they can convert this to an annuity (or at least they could until the government abolished pensions). The Swedish public system mirrors this setup by counting up how much you pay in and converting that to an annuity when you retire. The more you put in, the more you get out.

This is just not how we do things in the UK. State support (the NHS aside) is usually seen as a last resort for the destitute, to prevent poverty and starvation. Means-testing is used to target government resources on the poor and prevent them going to the rich. This is our idea of progressive government.

But our progressive European neighbours like the Nordics actually do a lot less means-testing than we do, while managing to be highly redistributive and have lower inequality than us. How do they manage that? By having higher taxes and a larger public sector. In general, the most progressive countries in the world are characterised not by their efforts to target spending on the poor, but by universal benefits and relatively high, progressive taxes.

Now it is possible to argue that this model is not optimal and that a smaller state would be good for economic growth. In that case means-testing makes sense, since it allows you to achieve more redistribution if you are constrained by the need to keep government small. Alternatively, it could allow you to shrink the size of government if you are constrained by the need to redistribute. Limiting benefits to the poor also supports the small state cause in a more insidious way, by stigmatising claimants and undermining public support for state spending.

I am yet to hear a UK politician make the argument that means-testing is the corollary of small government and low taxes. Instead, Nick Clegg tells us that he “doesn’t see why someone like Alan Sugar should be entitled to a winter fuel payment” since he’s “got a bob or two”. I’m sure that Nick Clegg understands the link between means-testing and the size of the state, but libertarians and state shrinkers clearly think that it is easier to get their policies through by having a pop at the rich than to try to convince voters of the merits of small government. Which is a shame, since there is an interesting debate to be had.


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