Targeting the Educational Maintenance Allowance
Last month parliament voted to scrap the Educational Maintenance Allowance (EMA). The coalition government wants to replace EMA with something more targeted. Yet EMA is better targeted, and cheaper, than other policies which are not being cut.
Educational maintenance allowance (EMA) is paid directly to pupils aged 16-19 to assist with the costs of education. Some 650,000 pupils in total receive EMA. Eligibility is based on household income. Pupils from households with incomes below £20,000 per year can receive £30 per week. Those from households with incomes over £20,000 but under £25,000 can receive £20, and those with incomes between £25,000 and £30,000 can receive £10.
The coalition’s view that EMA is poorly targeted draws on research that shows that only 6% of EMA recipients would not have been in school or training without EMA. A further 6% would have gone into work based training. So 88% of EMA recipients did not have their behaviour changed or choices affected by their receipt of EMA. This 88% is referred to as a “deadweight” cost.
These findings are contested – a study for the Association of Teachers and Lecturers found that over one third (38%) of EMA recipients would not have started their course without EMA.
This 88% seems very high. But how do other policies compare? Take, for instance, the proposed Married Couple’s Tax Allowance. This is a tax break to married couples, based on the belief that married couples are more likely to stay together, and so provide a stable upbringing for their children, than unmarried couples. The cost is estimated at £600m, EMA costs around £550m annually. In the grand scheme of things, these costs are pretty similar.
Discussing it last year, the Prime Minister said, “Now I don’t believe for a minute that people get married for money or that people will stay together if you give them a few more pounds here or a few more pence there, of course not”. So the new tax allowance will not alter anyone’s behaviour. Its deadweight cost is presumably estimated at 100%.
Or consider the Winter Fuel Allowance. Last winter, any household with someone aged 60 or more received a £250 winter fuel payment. For those over 80, it rose to £400. This benefit is not targeted at all and was last year paid to 9.2m households. Of these, around 1.6m were defined (in 2008) as being in “fuel poverty”, that is, struggling to afford to keep their homes warm. So the remaining 80% (at least) could be said to be the deadweight cost of this policy. And the total cost of Winter Fuel allowance is around £2.7bn - 5 times as much as EMA annually.
Evidently, the problems of targeting are not unique to EMA. Realistically, of course, there is no way of focusing a benefit directly on this 12% (or even 38%) of pupils who say they otherwise would not continue in education. Teenagers are not stupid. Ask a teenager if they need £30 to do A levels and they will likely say yes. So using an income threshold to define who gets the benefit becomes an obvious way to ensure that it goes to those who need it.
In 2010, around 650,000 pupils were claiming ESA. 85% of those claiming do so at the higher rate. That means that the overwhelming majority of pupils claiming EMA live in households whose incomes are below £20,000 per year. Depending on the size of the household, £20,000 translates to a standard of living either below or substantially below the national average. A sizeable number of pupils getting EMA are in poverty.
Moreover, figures on tax credits indicate that more children aged 16-18 live in households receiving tax credits than receive EMA. Even if we take the more targeted aspects of child tax credit (that paid out of work and that paid in work but at the higher level to low earning families) this is still the case. In December 2010, around 750,000 dependent children aged 16 or over were in households receiving either out of work tax credits in work tax credits above the family element (see HMRC figures for more details).
All of which discussion seems somewhat academic in the light of the vote in the House of Commons. But it is worth bearing in mind as the replacement for EMA is brought in. At the moment, plans are not finalised. However, it seems that the replacement will take the form of money to colleges to assist with student travel costs. The money in question appears to be around some £52m or thereabouts, roughly 10% of the current EMA spend.
So the replacement for EMA has 10% of the resources of the original. Even if it were perfectly targeted only at the (low end estimate) 12% of pupils who would otherwise drop out, it still falls short. By concentrating so much on targeting the benefit, some of those who need it most miss out.