A different approach to contributions in a basic income scheme

Following my previous note on Basic Income, I thought I might fly a kite.  One of the problems of Basic Income, or at least of the Basic Income schemes reviewed to date by the Citizens Income Trust, is that it becomes  difficult to justify maintain funding from social security contributions. There may be a way to resolve that.

Basic Income and contributory schemes have some important things in common.  Both avoid the problems of means testing; both promote a general sense of entitlement; both aim to be minimally intrusive.   Contributory schemes, however, have their own problems.  They exclude people who can’t contribute –  they have to, if they are going to stick to the principle of insurance.  So it’s not possible to rely on contributions alone.

This has set me to wondering whether the schemes could not be in some sense combined.  It’s central to most understandings of Basic Income that it should be unconditional, and a contributory scheme can’t be.  Benefits don’t however have to be paid only in one way or by one rule.  A Citizen’s Income could have two elements:  a basic, universal element for everyone, and a contributory element paid in respect of work record.     Imagine, for example, that the universal element was paid to everyone, and the contributory element, paid subject to no other condition than contribution, built up at 0.5% for every three months contributions from work or child care until after 50 years it reached an equivalent level.  Working to similar costs to the Reform Scotland proposal (approx £215bn for people of working age), that would yield:

Weekly Annual
0 16 £72 £3744
10 26 £86.40 £4492.80
20 36 £100.80 £5241.60
30 46 £115.20 £5990.40
40 56 £129.20 £6739.20
50 (max) 66 (max) £144 £7488

That corresponds to some aspects of  our current system – the special treatment of pensioners, and the much lower benefits paid to younger people (JSA for people under 25 is about half the basic State Pension).  I won’t claim that that is an advantage, because some people might reasonably think it is the opposite.  It would however meet most of the objectives of both a basic income and the enhanced contributory system Frank Field has been arguing for.

There are problems with the idea, of course.  The levels of benefit are crucial, as are the levels of contribution and tax.  Any basic income scheme would put money toward the better off and  to the middle-aged; a scheme like this would even more strongly enhance the position of people aged 40-65.   (That should be liveable.  This age group are key contributors and taxpayers, and no scheme is going to work that doesn’t benefit them – anything other process turns benefit payments into taxpayers versus the rest.)  The scheme would look expensive, because any scheme that puts money out and takes it in gives that impression.   It would reduce relative benefits to incomers, and we’ve never really worked out what to do about the five million Britons who live abroad.  The main point of the example is only to show that we might do things differently.

Leave a Reply