The social protection system

A social protection system is judged by whether it reaches the people who need it without spending most of the money on people who do not. Ukraine has spent a decade moving from a system that failed that test to one that mostly passes it.

The starting point

Universal subsidy: energy priced below cost for everybody, which meant the largest transfer went to the households that consumed the most, which are not the poorest households.

That is regressive, expensive and it destroyed the finances of the energy sector at the same time.

The shift

Prices moved towards cost, and a targeted housing subsidy was introduced for households whose utility bills exceeded a share of their income.

Then monetisation: paying the subsidy as money to the household rather than as a credit to the utility. That is a technical-sounding change with a large effect — a household that receives money and pays the bill has a reason to use less, and the utility receives cash rather than a state receivable.

What targeting requires

Income data, which is the hard part in an economy with substantial informal earnings. The system uses declared income, property ownership and large purchases, and it is imperfect in both directions.

The wartime layer

Payments to displaced people, administered at very large scale and delivered largely through the digital services system rather than through offices. That worked because the identity and payment infrastructure already existed.

The honest assessment

Better targeted, considerably cheaper, and administratively demanding in a way that a universal subsidy never was. That trade is worth making and it should be stated rather than glossed.

Moving from subsidising everybody's bill to targeted support changes the unit of payment, and that always changes behaviour. I am not the person to give an honest assessment — I am not inside this system. The one thing I have seen from the employer's side is that when the targeting works, my staff's anxiety about income outside their wage falls measurably.