Social policy: commentary and updates

Not quite Universal Basic Income: the new selectivity

UBI is universal when it provides for everyone in a category, without further conditions; basic, when it is only the starting point, and people are free to add income from other sources; income, when it is paid periodically. The Basic Income Earth Network identifies five main points:

1. Periodic—It is paid at regular intervals (for example every month), not as a one-off grant.
2. Cash payment—It is paid in an appropriate medium of exchange, allowing those who receive it to decide what they spend it on. It is not, therefore, paid either in kind (such as food or services) or in vouchers dedicated to a specific use.
3. Individual—It is paid on an individual basis—and not, for instance, to households.
4. Universal—It is paid to all, without means test.
5. Unconditional—It is paid without a requirement to work or to demonstrate willingness-to-work.

There is more to being ‘unconditional’ than not having a work test – benefits that are restricted to people with disabilities or care needs have to impose a test, and to that extent they are selective. UBI tries to avoid the pitfalls of selective benefits, which have three great problems: complexity, the difficulty for claimants of knowing whether or not they will be entitled, and potential stigma. Selective benefits commonly fail to reach many of the people who ought to be receiving them.

Arguments for Basic Income have captured the imagination of many people. I have my reservations about them, and those reservations are serious, but I’m sympathetic to the core objectives: providing people with a foundational income that is consistent, reliable, and as simple as possible.

It seems, however, that some recent programmes have departed somewhat from the script. In Wales, a ‘basic income’ experiment is being conducted for 500 young people leaving care. The programme is linked to advice and support relating to financial management, education, employment and welfare. That’s the right way to go about supporting vulnerable people, but it’s three steps removed from ‘Basic Income’: it’s selective, time-limited and not just a cash payment. In San Francisco, there are three such programmes. The first is the “Abundant Birth Project“, which offers a ‘Basic Income Supplement’ to pregnant women who are African American or Pacific Islanders, mainly for the duration of their pregnancy and shortly afterwards. Next is the Guaranteed Income Pilot for Artists, supporting two cohorts of 60 artists, nominated by partner organisations. The third, and most recent, is the Guaranteed Income for Transgender People, offering both cash support for 55 transgender people and ‘wrap-around’ support (including medical care, case management and financial advice). Again, these initatives are time-limited.

These programmes don’t have much in common with the idea of Basic Income. They’re selective, short-term, and eligibility is highly restrictive; they are linked, beyond cash, to other forms of support; and their target groups are highly visible. I don’t think we can draw any lessons from them about how Basic Income might work, or how people might adapt to a UBI. It’s interesting, however, to see that arguments for UBI have influenced the development of highly targeted, selective benefits – for example, this paper on supporting transgender people. We’re seeing, not a commitment to universality, but a new selectivity.

A case for higher taxes

Professor Richard Murphy argued yesterday in a tweet that the government should be aiming to cut taxes in a recession. He duplicated that tweet in his blog, but the core point he makes is this:

When facing a recession a government should
– cut interest rates
– cut taxes
– increase its spending.

In a recession, a government needs to stimulate the economy, and that can be done by injecting resources. I’d question, however, whether either of the first two would actually stimulate the economy as things stand. Interest rates have been close to zero for some time, and while lowering them further (perhaps into negative rates) would have some effect on economic activity – primarily, dis-saving, converting holdings from money to goods (such as houses) and diverting money to activities or locations which offer higher interest rates elsewhere – most of those effects have already been realised. Cutting taxes – the policy of the catastrophically inept Truss government – would primarily release money to those who pay more in taxes, and the resources released will go in large part to rentiers.

The simple case for higher spending is made by Keynes:

Pyramid building, earthquakes, even wars may serve to increase wealth …. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

Higher spending doesn’t have to be financed point for point, and it doesn’t have to be financed by tax – there are lots of other options. However, it can be inflationary if it means that ‘too much money is chasing too few goods’.

A large tranche of what we call ‘public spending’, however, is something different. Benefits and pensions are transfer payments, a point I’ve made in previous blogs. Government doesn’t spend the money it allocates to pensioners; it passes them the money so that they can spend it. Taxation to fund cash transfers doesn’t withdraw money from the economy. When transfer payments are directly financed – that is, being transferred from someone else – they are presumptively neutral in economic terms. This is not inflationary, because the amount of money in the economy remains the same after the transfer. Any differences will depend on whether the recipients spend money differently from those who pay. That will be true to some degree, but it’s marginal: people on lower incomes spend proportionately more on food and energy, and save less.

Taxation is not the only way to finance public spending, but there are particular advantages in funding cash benefits this way. If transfer payments are funded by ‘helicopter money’ – like the extra £20 pw for Universal Credit during the pandemic – they’re politically vulnerable and implicitly temporary. Transfer payments financed by taxation, or by an equivalent mechanism such as national insurance, imply a more equal distribution of income than the same payments financed indirectly through creating credit. They will fund markets that function better for people on lower incomes. They do it without risking inflation. And they offer a better prospect of growth. The IMF have argued that a 1% increase in the income share of the lowest paid 20% produces growth of 0.38%, four and a half times the growth that comes from increasing the income share of the top 20%.

The uses of theory in social policy

States and welfare states is my twenty-third book. Its main arguments are that:

All states provide some welfare; all leave gaps.
The main methods used in comparative social policy don’t tell us what’s happening.
The ‘welfare state’ refers to guiding principles, not specific actions.

This leads to some distinctive insights about the subject matter:

An examination of the sources of legitimacy in modern government, founded in a distinctive understanding of sovereignty and governance;
An explanation for the burgeoning of social policy initiatives in many states which in the past would not have engaged with it; and
A new model of the development of greater universality, moving from particularism to solidarity and solidarity to welfare states.

Forty years ago, while being interviewed for a post in a relatively prestigious university, I said that I wanted to work on the theory of social policy. I was told that that didn’t exist as a subject. This is my ninth book set in that non-existent field, and I’m not convinced that people out there are any more persuaded of the relevance of theory now then they were then. One reviewer complained of the ‘high level of abstraction’; two others said it was ‘connected to policy’ and ‘clearly (and always) topical’. Two reviewers thought it was original; one that ‘it will not say anything new to academics in the field’; and one more commented that, rather than being distinctively original, ‘it does draw together a variety of ideas … ‘ Yes, that’s what original theory does. Theory is used to clarify, to structure and to identify the relationships between ideas and evidence. The originality comes from the distinctive synthesis and critical evaluation of material, not from new facts.

Towards a Scottish independence referendum: widening a crack in the law

The Supreme Court is currently hearing a question of whether or not the Scottish government can hold a referendum on independence. On the face of the matter, the constitution of the UK is a reserved matter, and that ought to imply that the Scottish Government doesn’t have the power to do it. From the submissions being made on both sides, the position is not so certain.

The wording of the Act defines competence solely in terms of legislative activity. Sections 29 and 30 deal with ‘legislative competence’; Schedule 5 makes it clear that constitutional matters are reserved, and so not within the competence of the Scottish Parliament. And there, one might think, the matter ends. Only it’s not so simple. The submission being made by the Advocate General for Scotland emphasises that any referendum would be advisory. It may still be the case, though this has still to be decided, that the Scottish Government doesn’t actually need a law to conduct a referendum; it could be seen as a matter of administrative competence, no different in principle from a mass survey of the population. Accordingly, the counsel for the UK government is trying to get the Supreme Court to agree that the Scottish Parliament must first pass a law on which a decision can be made. Passing a law would bring the measure directly and unequivocally into the provisions of the Scotland Act, and a UK decision made on that basis would certainly be negative.

The Scotland Act defines the legislative competence of the Scottish Parliament. It largely fails, however, to consider the actions of the Scottish Government (still referred to, in the Act, as the Scottish Executive). Normally this would rest on a definition of powers – the actions of government can be within its powers (intra vires) or beyond them (ultra vires). The ultra vires rule is well established in UK law: the classic case is AG v Fulham Corporation (1921), in which a local authority was blocked from operating laundry facilities because they had no explicit authority to do so. A public authority can only act in accordance with the power that it has legitimately been given.

The term ‘ultra vires’ appears in the explanatory note to section 107 of the Act:

“This section forms part of the set of provisions which deal with the handling of ultra vires acts by the Scottish Parliament or the Scottish Executive.”

Donald Dewar explained his understanding in these terms:

“it is not in the power of the Scottish Parliament to change the constitutional arrangements … A referendum that purported to pave the way for something that was ultra vires is itself ultra vires.”

The first of these examples, however, is referred specifically to the legislative remedies available to the UK government; and the second statement, by an individual MP during a debate, cannot taken as evidence of the intention of Parliament.

It could certainly be argued that the legislators were expecting the normal ultra vires rules to apply – but the law is not clear, and Jim Wallace failed in his attempt to fill the gap. If the Scotland Act had referred directly to administration intra vires, or simply to ‘competence’ rather than ‘legislative competence’, the Scottish Government could be held bound not to exceed that authority. However, the Act doesn’t say that. There is a hole in the legislation, and the Scottish Government hopes to be able to prise it open further so that it can let the light through.

23rd November: The Supreme Court has made its judgement, based on the simple principle that the Scottish Parliament does not have the power to make such a law. On the specific point of ambiguity, they held that the reservation of powers could not be taken to be confined only to legislative functions, and that it must include non-legislative powers.

A few reasons not to cut the value of benefits

The most obvious problem with cutting the real value of benefits is that it will plunge people further into poverty. It’s not a great surprise that people on benefits and low wages might be going without food; that’s been a recurring problem since at least the early 1980s. It’s been estimated that there are two and a half million people in Britain who are destitute. There will be more. Expect growing malnutrition, and the short and long term harm to public health that goes with it.

A policy of impoverishing benefit recipients, however, will affect more people than just the recipients. There are the macroeconomic effects. Cutting the value of people’s benefits would cut the demand for goods and services, at a time when the economy is teetering on the edge of a slump. We know that people on lower incomes spend proportionately more of their income than richer people do – that much is self-evident, because people on lower incomes don’t have resources to save. Research for the IMF has calculated that benefits for poorer people produce more of a multiplier – a beneficial ripple outwards – than tax cuts for richer people. Conversely, withdrawing money from poor people will reduce demand more than withholding it from richer people.

Next, there are sectoral effects. Poor people spend proportionately more on food and energy than people on higher incomes do. Local shops and community businesses depend on their customer base; if that base withers away, so do the businesses that serve them.

Now to labour markets. Most benefits, by quite a long way, are not concerned with whether or not people are part of the labour market: pensions, child benefits and disability benefits account for three quarters of the cost of benefits, and other benefits, notably Universal Credit, extend to people who are working as well as those who don’t. The mean-minded reluctance to support people on benefits is often justified in terms of the ‘incentive’ to work. As benefits for unemployed people currently stand at something like 15% of the average wage, one might have thought that there was every incentive to work for pay. But there’s more going on here. Many years ago, I heard a senior executive from the Danish social security system explain that they didn’t want to make too little provision, because if people got used to living on very low income that would undermine their incentives to work. I dismissed that argument at the time – the evidence didn’t seem to show much of an incentive or disincentive effect in either their system or in ours. But the speaker had a point. If we want people to engage in a high-wage economy, the last thing we should be asking those people to do is to survive on a pittance and take any low-skilled job that comes up. Forget the gibberish about preparing CVs: we should be training, getting people into education and funding internships. We have to put more money into the process, not less.

Finally, microeconomics. One of the central arguments that’s made by free-market liberals is that markets need to be able to operate. Indeed they do, but markets have to be fed. When people get cash benefits, those benefits are spent in the market. When incomes are very, very low, people have less ability to participate in markets, and market providers have less reason to engage with them. Lower incomes mean more uncertainty for businesses and for poor people, more debt, and more debt defaults. This is the opposite of anything a free-marketeer should want.

Low-tax investment zones: three things to watch out for

It’s been suggested that the government is on the point of announcing 12 ‘low tax investment zones’, where businesses and perhaps employees will benefit from deregulation and reduced taxes. Much of the response to this, predictably enough, will be about fairness, and the suspicion that the government is offering special favours to its mates.

Let me offer a different perspective. I’m going to assume, although there are grounds for scepticism, that the government’s basic claim is justifiable: that these programmes will have an effect in stimulating economic growth. The question is: what sort of effect?

There are three things that governments should always be aware of in judging value for money in special programmes and initiatives. They are deadweight, spillovers and externalities. Deadweight happens when those who are benefitting do not actually change their behaviour. If a firm that is already trading successfully moves from one area into another, simply to get the benefit of the programme, it’s a dead loss.

Spillovers occur when people do benefit and change their behaviour, but carry on reaping the benefits of the programme after the case for stimulation has ceased to apply.

The term ‘spillovers’ is now increasingly being used in development economics to refer to externalities, but externalities are something different. Externalities, or external effects, can be positive or negative. The stimulation of the economy would be a positive externality. An increase in crime, for example, is a negative externality, and crime in freeports, such as smuggling, drug dealing and money laundering, has been a major concern.

There is no certainty that the deregulation and low tax will have any benefit to the economy. They may be detrimental. Let’s have fewer assumptions, please, and more evidence.

The Natcen report on disability benefits is disappointing

The DWP declined to publish the Natcen report on The uses of health and disability benefits. It’s now been released to the Work and Pensions Committee, and is available here. The report is presented as a qualitative study; wisely, the authors have avoided numbers. However, the form of the report is disappointing, and I cannot suppose that it is an adequate reflection of the work that was done.

Qualitative social research works, or needs to work, on two guiding principles. The first is that what people tell you is evidence. That is often derided by people in love with quants, but it is fundamental to the nature of evidence. Courts of law judge evidence by looking for corroboration – probabilities and statistics aren’t enough. As a broad proposition, evidence is corroborated when two or three witnesses say the same things, confirming what the others have said. This report doesn’t do that. It consists very largely of the researchers’ summaries of what people told them. In a 79-page report, there are 15 ‘case illustrations’, and only 27 direct quotations from respondents. That means, simply put, that while there are plenty of judgments, there is hardly any evidence given for those judgments.

The second principle is voice: what people tell you, and the way they tell it, matter. Direct quotations, right or wrong, have a purpose and a moral authority. Researchers have an ethical duty to report what people are telling them. The way the respondents express themselves is fundamental to any adequate qualitative social research.

It may well be that this format was demanded by the DWP. (I’ve been asked by other commissioners, in the past, to dump direct quotations and to just say what I think instead – and I’ve refused to do so.) It’s very likely that the researchers intend to provide the evidence for this report, and to reflect the voice of the respondents, in a separate publication. However, they will need the DWP’s permission for this. Their report, as it stands, does not do what it needed to do.

What kind of support can be offered to people on low incomes?

Many people in the UK are facing destitution; at least 2.4 million people are there already. One of the complaints we hear most about proposals to cope with current threats to household income is that the proposals are not adequately targeted. What that usually means is that some people on higher incomes will benefit. The call goes up, repeatedly, for any benefits to be confined to people on low incomes.

It’s not easily done. Introducing a new means test would be complex, hard to roll out and liable not to reach large numbers of the intended population. There are ways forward, however. The mechanism used for Cold Weather Payment, for example, gets the benefit to recipients of Pension Credit and to a range of recepients of Universal Credit, including those with children under 5 or people with a range of disabilities – there doesn’t have to be cold weather to call that mechanism into play.

If the aim of benefits is to redistribute income in general terms, there’s an argument for doing something like this. That’s true because overall, the effect of making payments on this basis is to improve the average income of people in the lowest parts of the income distribution, generally at the expense of those on higher incomes. What it can’t do, however, is to protect the full range of people who stand in need of protection. More than a third of all pensioners who should get Pension Credit don’t. Official figures claim that Universal Credit goes to 80% of those entitled, but that is highly implausible – Jobseekers’ Allowance had a takeup of less than 60% and Universal Credit has subjected hundreds of thousands of people to sanctions, exclusions and delays. And that, of course, only takes account of the people who are supposed to get the benefit. More people are on very low incomes, but not entitled because they have some savings, because they have theoretical or imputed income attributed to them, or because they fail to meet other conditions such as availability for work.

Any process which calls for a selection to be made has to be subject to some kind of test, and any test is likely to exclude the people who we are supposed to be helping. The situation has been made worse, however, by the progressive limitations on the scope of benefits that have been imposed by successive governments. We might have been able to argue, forty years ago, that we had a safety net – an effective minimum income, even if there were some gaps. We no longer have the same.

That, then, leaves the outstanding question: what can we do to help the people who are most at risk now? Coming back to the figures on destitution, we know there are three factors which come up repeatedly about destitute people. They are people with complex needs, migrants, and they are likely to be single. Any scheme which does not cover those three contingencies is not going to protect others from becoming destitute; and we know that this coverage is not on offer within the scope of the existing benefits system.

There are two main options. One is to address the specific issues which are causing the current crisis – in particular, the costs of fuel, food and housing. Labour has proposed a temporary cap on energy prices. A cap on energy costs, certain foods or rents would would imply direct interference with the market. We have done all of these in the past – the control of milk, eggs and meat in the 1950s and 60s, the use of rent control, and the current price cap on energy – so we can say that this is feasible. This would, however, require a fundamental change in the way that governments manage the economy, and indeed on how they think.

The alternative is to think about ways that people can manage in a market-based economy, increasing their command over resources overall. That can be done both by removing limitations which work particularly against people on low incomes (such as the pernicious effect of laws on debt and debt recovery, or the price discrimination against prepayment meters) and by finding alternative ways for essential costs to be met – such as child care, general needs housing and travel passes. What wouldn’t work, in this context, is simply giving people more money to pass to the energy companies. Giving people generic money will not cope with the pressures that specific commodities are creating – it will just put up the prices of those commodities.

Additional material, 25th August

The Resolution Foundation has just published a careful and considered approach to targeting. They recognise that supplementing people on means-tested benefits would fail to reach 40% of everyone in the lowest income quintile – that is, the bottom fifth. Their suggestion is for a social tariff, more broadly based than current means-tested benefits, covering benefits, pensioners and low earners; but that still suffers from the outstanding problem that it is not possible to target people on lower incomes without introducing ‘a new means-tested benefit outside the benefit system’. Coverage of people with complex needs could be improved by extending this to cover disabilitiy benefits, and coverage for migrants by removing restrictions on claiming after entry to the country, but there would still be gaps.

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