In the Wheatsheaf last night, I was struck by an obvious injustice. The pub was charging everybody the same price for beer, regardless of their income. This is obviously unfair: why should the millionaire picking up his children from the posh school pay the same as a low-wage worker? Beer prices must be means-tested, so the rich pay more.
Astute readers might spot a problem with that paragraph. It’s bollocks. It would be grotesquely inefficient for barkeeps to check everybody’s income before serving their Tiger*. A far easier way of addressing this unfairness – if such it be – would be to tax the millionaire and give income support to the poorer customer. This would have the same effect as means-testing – the millionaire would be less able to buy beer and the poor person more able – but would be more efficient.
You might think this is childishly obvious. It should be. But it’s not. People are judging manifesto promises in the same bonkers way as I’m alleging beer prices to be unfair. Take three examples:
- Iain Martin says about social care: “Someone aged 25 should pay masses more tax so someone with a £1.5m house aged 75 gets free care? Really?”
- Giving a winter fuel allowances to all pensioners, rich and poor, seems unfair – hence Tory plans to means-test the payment.
- Labour’s plan to abolish tuition fees has been called a subsidy to (future) middle classes at the expense or poorer workers.
All these examples are of people making the same error I made with beer prices. They are expecting each individual transaction to be egalitarian and are overlooking the costs of doing so.
So for example, if you think it unfair that some rich folk get free social care, the solution is to tax them more: an inheritance or land tax would make sense for several reasons. The serious question is how to best pool the risk that some will need lots of social care and some not – a question the Tories haven’t addressed. If you think it unfair that rich pensioners get a winter fuel allowance, you should get them to pay higher income tax, not faff around with expensive and intrusive means-testing. And it posh people get subsidised by abolishing tuition fees, the answer is to get them to pay more income tax.
When it comes to judging inequality, what matters is the system as a whole, not individual actions. Expecting each individual policy to increase inequality would be inefficient, just like asking barkeeps to conduct means-tests. As Nicholas Barr says in a standard textbook on the welfare state:
It is frequently the overall system which is important...Taxation and expenditure should be considered together. (The Economics of the Welfare State, 2nd ed, p185, his emphasis)
Instead, the test of individual policies should be based in efficiency. Personally, I think winter fuel payments are daft: just have a higher state pension instead. Similarly, whether to impose tuition fees upon students is also a matter of efficiency: what’s the best way of financing universities? Do tuition fees (as I fear) have baleful effects upon the character of universities? And so on. These are genuine issues. What’s not a serious concern is that specific policies are inegalitarian. In the cases I’m considering here, equality concerns should be tackled by the overall tax and benefit system, not by each single policy in isolation.
* Other beers are available. But they’re not as good.