Means-testing is not the solution

RECENTLY there have been regular references in the Press to means-testing as a way of helping to deal with the looming black hole in the island’s finances.

The calls have come from members of Policy & Resources and others in relation to recipients of Guernsey’s old age pension. A more oblique reference to means testing was made by a representative of a new sub-committee P&R has set up to look for savings across the States. Lord Digby Jones has gone much further by proposing that everything provided by the States should be subject to means-testing and questioning why such a system has not been suggested or implemented before.

The answer to Lord Jones is that it is only a couple of decades since three States committees sought to offset costs by means-testing, i.e. charging elderly residents of care homes and hospitals for the cost of their care. Social Security means-tested the assistance granted to a resident of a private home while Health and Housing used means-testing to recover the costs of services already provided. Each of these tests differed significantly, meaning that residents receiving similar levels of care paid very different amounts. Worse still, the first scheme took account of the value of the family home, but the other schemes did not. These fundamental differences led to much confusion and anger as the children of a person in a private home watched their inheritance evaporate in front of their eyes while the offspring of a resident in, say, the Duchess of Kent House, was assured the family home would be theirs to inherit.

Significant dissatisfaction prompted politicians into action. Social Security recommended a scheme which would have provided equality in the sense that the family home would have been taken into account in all the means tests, but equity was wanted more than equality – specifically, equity in the family home, please. A year or two later, the States introduced the contributory scheme still in operation today, including amending supplementary benefit legislation to allow payments to care home residents without taking the value of the family home into account. Public pressure removed any threat to the family home, but only if you were in a care home of course, and not if you still lived in your own home. To this day, we do not have equality of treatment for all.

This demonstrates that while equality of treatment, or fairness, might be the clarion cry of the public and politicians alike, this only goes so far. As soon as it is no longer advantageous to enough people, a different list of demands will be forthcoming.

We are currently experiencing exactly that form of ‘kickback’. Following the disastrous debate on the introduction of GST, which was rejected after weeks of public opposition, along with a hugely compensatory set of offsets that sought to balance the extra costs of GST, we have been scratching around to find alternatives. Means-testing is alleged to offer a glimmer of hope.

Let me assure you that means-testing – particularly in relation to some form of affluence test – is no road to equality of treatment or fairness or improved States’ finances. It might promise a great deal in the eyes of those inexperienced in its vagaries, but it is far more likely to introduce unfairness, inequality of treatment, bitterness, a mountain of appeals, counter-productive outcomes, litigation and confusion among the public. It’s not that means-testing in itself is wrong, but it works best when assessing an individual’s need, and not as a crude mechanism to reduce a single form of income to achieve a cost saving.

If the cry for means-testing continues, the States will have to determine some form of balance between what is best for the community as a whole and what is best for a specific section of the community. P&R tried to do that, but the public, frankly misled by some populist politicians, wanted otherwise, perhaps sadly when pensioners as a group were the most likely to benefit. Nevertheless, the States will now have to decide if it should consider utilising means testing as a method of reducing expenditure and, if it does, what design of means test it should employ, if any.

Should it be (a) a variant of the island’s most sophisticated test of means – income support, as applied to some 3,000 householders representing 5,000 or more individuals, or (b) a random affluence figure, as utilised in the payment of family allowance, or (c) a tax-based system of some kind, or (d) a combination of all of the foregoing?

It appears the P&R president may favour an affluence test with the bar set low to make a real difference in expenditure. The problem with an affluence test set at a low rate is that it runs the very real risk of coming perilously close in annual terms to assistance levels granted under the income support law, especially when that scheme nets out the value of social insurance contributions, payments made to income tax and childcare costs, while at the same providing disregards on earned income for both partners, should they both be employed. Mixing an affluence test with a low bar and income support with no limit is bound to produce huge anomalies, especially for the elderly when care charges become involved in the assessment processes. Reducing pensions to save overall expenditure levels such as care costs will not make much sense to a pensioner who has experienced a reduction in their pension when he or she needs every penny to meet a top-up payment to a residential home for their loved one’s care. Still, living in grinding poverty is a small price to pay when compared to paying GST.

Furthermore, and most importantly, the general thrust of the income support law is to provide levels of assistance to avoid hardship. The calculation of the requirement rates generally excludes those little items that might be considered luxuries. The rates of assistance, while not minimalist, are not that far from it.

The lifestyle of a pensioner with an income significantly higher than the basic old age pension will tend to utilise a significant proportion of that pension, if only in savings, to maintain a way of life that is not wholly removed from that they enjoyed while they were in employment. Retirement is a difficult enough change of lifestyle without reducing levels of income so severely, or even moderately, that every day becomes a chore. Holidays and travel are important for pensioners, keeping the brain and body sharp and providing something to look forward to.

I’ve used holidays as an example, but it could equally be a hobby like golf or visiting children who long ago left Guernsey due to an inability to find affordable accommodation. Pensioners also need new or second-hand vehicles from time to time – nothing lasts forever and prices for environmentally-friendly transport don’t come cheap.

As an aside, the current cost of leaving the island is prohibitive for both pensioners and families alike. This is an area that requires detailed examination. It’s all very well buying new boats and such like, but if you cannot sell the seats what’s the point?

In short, income support provides an essential level of support for those with an inadequate income, but it cannot be significantly increased without cries of feather-bedding those who have failed to provide for their future. While largely inaccurate, the calls of largesse would nevertheless come. Perhaps Employment & Social Security could give it a try, but I wouldn’t rate its chance of success.

The States finds itself between a proverbial rock and a hard place. Deputies have ruled out GST to reach financial equilibrium. But they have not suggested any viable alternative. Instead, we hear off-the-cuff suggestions pulled out of a very old and battered hat with little to no thought and zero hard evidence of the validity of what is proposed.

It’s no way to govern.

Finally, to avoid being accused of not providing a pointer to the future, I’ll refer to a letter I wrote to the then States’ Treasurer sometime in 2000. In that letter, which was about a redesign of Housing’s rent rebate scheme, I suggested that rather than redesign that single scheme, the States should consider the design of a new scheme to bring together all the separate schemes that existed at that time, bound with a single and logical golden thread. Such a scheme would provide a logical path from benefits through to tax with everything in between being slotted in neatly. It would provide equality of treatment and cries of foul would be consigned to the dustbin of history.

I haven’t changed my mind over the past 22 years.

. Andy Le Lievre is a former member of the States, Committee for Employment & Social Security and chairman of the Social Welfare Benefits Investigation Committee and member of staff at Public Assistance Authority, States Insurance Authority and Housing Authority.