Means testing
Introduction
Means testing sounds fair enough in principle, as it allows money to be directed to those who need it most, at least in theory. The reality is somewhat different because the theory doesn't take account of the way people actually behave, nor has the problem of how and where to draw the line ever been satisfactorily resolved. Furthermore, a lot of people don't claim benefits despite being eligible because they don't know that they're eligible.
The stigma
Some people don't like claiming means tested benefits even when they know that they are entitled to them. This could be because they regard it as scrounging or because they find the process complicated and/or humiliating. We therefore have a situation where some of the poorest people don't claim benefits that they are entitled to and desperately need. For example, some pensioners only claim the basic state pension, refusing to claim pension credits even when they are entitled to them.
Drawing the line
Self-evidently, any means tested benefit involves drawing the line such that people below the line are entitled to claim while those above the line are not. Wherever the line is drawn, some people will be just above while others will be just below. By claiming, those just below will be better off than those just above. The effect is compounded if the line is drawn at or near the same place for several different benefits.
A major disincentive
As I hinted when suggesting that there is a need for a separate London minimum wage, means testing can be a huge disincentive to looking for work. The tax credits system only offers a partial solution. As I explain in my page titled EXCEL spreadsheets, I would accept a job offer even if it doesn't improve my financial position, if I think that it improve my prospects, but not everybody thinks that way.
An in-depth analysis
Try this means testing debate, where you'll see a fascinating study outlining all the arguments for and against. While the debate tries to be impartial by presenting both sides, it reinforces my belief that while some means testing is necessary, it should be strictly limited. Too much means testing creates disincentives for people to remove themselves from dependency.
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