Tagged: Basic Income

An assessment of Basic Income

Luke Martinelli’s assessment of Basic Income is a serious, wide-ranging consideration of several of the arguments: among them, affordability, distributive effects, work incentives and political feasibility.  There is more to say about administration, implementation and the relationship to existing benefits, but no-one ever covers everything.

He characterises the opposition to UBI as saying that “an affordable UBI would
be inadequate, and an adequate UBI would be unaffordable.”  That’s not the whole story, either.  I put the case like this in a video interview:

“If you limit the level of benefit you are still dependent on other benefits, so you’ll get all the problems of the tapers, the poverty trap, the intrusion into people’s lives and the complexity.  If you increase the cost, then you can float people off those benefits – but what will you have achieved if you do that?  … those people who were formerly on benefits will find themselves on the equivalent in Basic Income, and you’ll have spent nearly all the money to the benefit of people who weren’t on benefits – to people who are better off.  So you have really got to decide, is it worth putting large amounts of money into a scheme which isn’t going to benefit the people you most want to help?”

Flying a kite: a convertible personal tax allowance

This is a partly-baked idea, based on reform of the Personal Tax Allowance.  It would allow people to take the allowance in cash rather than by setting it against their liability for tax.  The current allowance of £11500 is worth £2300 (that is, 20% of the allowance) to everyone who pays income tax.  If it was possible to convert it to a cash payment, it could benefit many more people.

In round numbers, there are about 65 million people in the United Kingdom.  30 million (24 million people of working age, 6 million pensioners) of them get the personal tax allowance.  For most of these taxpayers, tax and allowances are calculated at source, so the benefit is invisible.  The cost to the Treasury is something in the region of £70 billion.

If 30 million people receive the allowance, 35 million don’t. 15 million of them are 19 or under, so there are roughly 20 million adults (both pensioners and people of working age) who don’t currently get the benefit of the Personal Tax Allowance.  The proposal is simple:  to make it possible for those people to elect to receive the equivalent cash value of the allowance (that is, £2300 pa, just under £200 per month).

The idea may be off the wall, but it’s not outlandish: it asks for nothing better than what is already received by the other 60% of the adult population.  The only net beneficiaries would be people with incomes lower than the tax threshold.  About 6 million of them are people over 65 on lower pensions, 7 million are adults of working age receiving benefits, and the remaining 7 million are either people on low pay or non-workers.  There is no obstacle to people in work receiving the same option – there would be no net cost, apart from the mechanical administration of the payment – but there is no financial advantage for people who are already in receipt of secure incomes to make the switch.

The basic model should be easy to operate.  A tax year runs roughly from April to March.  Records of tax allowances are already kept for everyone with a National Insurance number.  People who wanted to convert their tax allowance into a cash payment would need to make their election in good time before the tax year – the obvious deadline is the time of the submission of tax returns by the end of January.  A person who made that election would then have a tax allowance for the forthcoming year of zero. No further administrative test is necessary.

Many Basic Income schemes have suggested that the Personal Tax Allowance should simply be abolished.  I think it’s important that there should be a choice, for three reasons.  First, PAYE works, and it works for millions of people.  Getting rid of it would complicate people’s lives and breed resentment; it would also more than double the administrative burden.  Second, there are some people, especially self-employed workers, for whom a zero tax allowance would be difficult to manage or live with. Third, choice matters in its own right. If the choice proved popular among workers, it could pave the way for other, more ambitious schemes; we can cross that bridge if we come to it.

This scheme could all get more complicated, but it’s important to avoid that.  Changing back and forth between PAYE and cash payment, week by week or month by month,  would be complicated and could be error-prone.  Disregarding the payment in means-tested benefits would be inequitable, because if the benefit is allocated continuously for at least a tax year, some people would have the payment and others wouldn’t; and if it’s not allocated continuously, there would have to be a complex set of mechanisms to cope. People who owe back tax typically get an adjustment in their tax allowance; if people do not have a full personal tax allowance they should not be eligible.

In principle this scheme could cost up to £46 billion (20 million times £2300), but there are reasons why it wouldn’t.   First, anyone who is currently getting more than the tax threshold in the course of a year already receives the equivalent benefit.  Most people would remain on PAYE – the main reason for electing for a change would be to secure a more stable income.  Most people who become unemployed pass through unemployment: about half the people who drop out of the PAYE system return within six months.  They will typically keep their tax allowance in PAYE.  So not everyone who receives benefits will be getting a converted allowance.  Second, those who earn but are below the tax threshold already receive part of the equivalent benefit.  Third, most important, the cash payment will have to be offset against benefits for about half the relevant population – that is, pensioners and adults of working age on means-tested benefits.  I’m not going to pretend that the interactions with benefits are straightforward – far too many pensioners who are entitled to Pension Credit don’t actually get it – but it should all mean that the net cost is likely to be in the region of half the maximum, something over £20 billion.  That’s still not cheap, but it’s both practical and much less expensive than many alternative proposals that have been canvassed.

This is a proposal, then, for a relatively small, limited benefit that would be unconditional and easy to administer.  It would mainly work in favour of people who are not well protected in the current system: people on unstable incomes, students, people who are not receiving benefits, people with home responsibilities. The argument for a scheme like this is that it would make a difference, not that it would answer every problem.  It would not settle the problems of the benefits system, and it is not big enough to make any very large difference to poverty.  However, money from one source can be mixed together with money from other sources, and a small benefit like this would make sense alongside other benefits.  It would offer a limited but stable source of supplementary income to many people on insecure incomes, and it would offer some support to people who currently have none.  What set me off on this week was a challenge made by Kathy Mohan to Theresa May in the street: “I can’t live on £100 a month”.  She’s right; she can’t.  We need to make sure that part of the benefits system, at least, is stable, secure, guaranteed and permanent.

The cost is the main reservation.  It’s much less than the cost of many Basic Income schemes, and it’s better targeted – getting money to just the people that Basic Incomes are supposed to reach, and doing it without making any of them worse off.  But there is always an opportunity cost.  I’ve not run the figures, but I suspect putting the same money into Child Benefit would have a much greater impact on poverty than this proposal, which offers more to pensioners with moderate incomes, students and women with home responsibility. On the other hand, it probably compares favorably in distributive terms to current proposals for supporting university students and FE, which will cost over £14bn, but have other arguments running for them.  It’s all a question of priorities.  Nor is this the only half-baked scheme I’ve canvassed on this blog.  Think of this as the glimmer of an idea, rather than a personal recommendation.

I also have to admit to a certain apprehension about putting potentially dangerous ideas into the public domain.  One of my first supervisors, Della Nevitt, once scribbled a back of an envelope calculation in the Ministry for Housing and Local Government and it mushroomed into the Rate Rebate,  Rent Rebate and Housing Benefit schemes, the last one in its day described as the greatest administrative fiasco in the history of the welfare state.  I need to think more about this, and it’s possible that other people can see a lurking catastrophe in the idea I’ve not thought about yet.  I’d be grateful for comments.

A debate on Universal Basic Income

From one point of view, I ‘won’ a debate in the Chartered Institute of Housing’s conference on Tuesday, when I was sounding a sceptical note about the idea of Universal Basic Income.  There’s a clip on Youtube where I and others outline the arguments.  After hearing the case, people were much more critical of the idea.  There’s a short (and not very balanced) report on a CIH blog here.   If you read it, you might get the impression I had swayed people with my fiery rhetoric and compelling oratorical powers.  But the truth is that the case was largely won for me before I opened my mouth.  At the outset the CIH Chair asked people to vote electronically.  The first question was whether or not people were generally in favour of the idea; 75%, of an audience of about 200 said they were.  Then he asked if they would still support it if they had to pay more in tax, and approval fell to 51%.   Laughter in the hall.  Job done.

Basic Income continued

It’s a problem with social media that there are so many ways to respond, so people following this blog won’t necessarily get to see the comments that people make on Twitter and in other ways.  Some of the criticisms that people made yesterday were directed at my Evil Assertion that the best way to deal with the loss of jobs was to make jobs.  Another  person challenged my argument that Basic Income wouldn’t leave poorer people better off if it got knocked off their benefits – we’ve seen this before, because it’s what used to happen to Child Benefit.  “I’d like to see Professor Spicker’s basic income proposals that leave poor people no better off, as I have seen none-such that do that.”  So here are a few.

Reed and Lansley, authors of the Compass schemes, do their best to hold losers to the minimum (7% of the second income decile for their Scheme 1, while about a third are no better off.) They explain:

“it is not possible to design a scheme that is revenue neutral, pays a decent sum and withdraws most means-tested benefits without significant numbers of losers.”

Malcolm Torry is Director of the Citizens Income Trust, and the author of a clutch of recent books on Basic Income.  He has produced three schemes for the CIT, labelled A, B and C. (The RSA scheme is also based on the CIT models.) He acknowledges that there will be losers:

“A feasible way to implement a Citizen’s Income showed that in 2012/13 a Citizen’s Income of £71 per week (with less for children and young people, and more for elderly people) could have been largely funded … but that at the point of implementation such a scheme would have imposed losses of over 10% of disposable income on 21.12% of low-income households (defined here as households in the lowest disposable income decile). … In relation to schemes A and C, while it is true that the high losses imposed on households at the point of implementation are the result of the complexity of the current tax and benefits scheme, and not of the Citizen’s Incomes, such losses would make the schemes impossible to implement.”

Scheme A would leave 28% of the lowest paid households worse off by more than 10% of current income, Scheme C would leave 29% worse off. Scheme B is the one that leaves existing benefits in place, and takes BI off them; while scheme B largely avoids losers, the poorest who currently receive benefits will remain in the means tested system.

That’s six schemes so far. Neither Reform Scotland nor the Green scheme do the same kind of modelling, but while they aim to be more generous, which is one of the ways of reducing dependence on means-testing, both abolish Tax Credits. There will be losers as well as gainers.

Some comments on Basic Income schemes; it’s not the answer to automation

A couple of days ago I spoke to Anas Hassan, a journalist for Common Weal, about Basic Income.  His article is on Common Space.  He recorded the conversation, and what’s presented, while it looks a bit like I’ve written a contribution, is actually a selection of the things I said over the phone.   Part of my comment, which is about the distributive problems of Basic Income, is stuff I’ve already covered in this blog, so I won’t repeat it now.  The other part is something I think I haven’t tackled elsewhere, which is about the idea that Basic Income can make up for the loss of jobs in an automated age.    What I told Anas, more or less, is this:

There are ways of absorbing the loss of jobs. As it happens, I think that there are lots of jobs that we ought to be providing and we ought to be doing. Many of those jobs are public in one sense or another – either they are paid for publicly or they are directly employed in the public sector.  Examples might be police, nurses, people involved in fire and rescue, gardeners. We need a massive number of carers both for older people and for younger people. We need more road menders [My correction: Anas has written ‘members’]. We need more people protecting the civic environment.  … We also have countries that simply employ more people doing things that are socially useful. My model for that would be some of the Nordic countries, but particularly Norway. And what we find is that the number of people who are involved in public service is directly associated and related to the amount of residual poverty that then remains in that economy, because what you are giving people is respected, worthwhile jobs. We could do that. Government has created many jobs. They are worthwhile jobs. They’re important jobs. And it could create an awful lot more if we had the will to do so.  That’s the answer to this question of what happens to people not having jobs.

The Maseres scheme for life annuities

I found a copy of Nicholls’ History of the English Poor Laws in a second hand shop, and it’s taken me a few months to get round to it.  My attention was caught by a couple of references to schemes for avoiding the Poor Law, which I hadn’t come across before.  One was Acland’s Universal Benefit Society, effectively a proposal in 1786 for  a scheme of National Insurance.  Another was proposed by Baron Maseres, who attempted in 1772 to create a universal savings plan which would deliver a lifetime annuity of between £5 and £20 a year for men over fifty, and women over 35.

Maseres worked out the costs scrupulously on the basis of actuarial tables of life expectancy.  He argued that

 The design of this bill was to encourage the lower rank of people to industry and frugality, by laying before them a safe and easy method of employing some part of the money they could save out of their wages, or daily earnings, in a manner that would be most strikingly for their benefit. …  if they saw an easy method of employing the money they could spare in such a manner as would procure them a considerable income in return for it in some future period of their lives, without any such hazard of losing it by another man’s folly or misfortune, it was probable they would frequently embrace it: and thus a diminution of the poor’s rate on the estates of the rich, an increase of present industry and sobriety in the poor, and a more independant and comfortable support of them in their old age than they can otherwise expect, would be the happy consequences of such an establishment.

The measure, watered down to allow for reluctant parishes to opt out,  passed the House of Commons,  but it was blocked in the Lords.  It’s not a Citizens Income scheme, but it has some of the characteristics and aspirations of a partial basic income, nearly twenty years before Thom Paine’s more radical and more universal approach.

Additional note:  I’ve appended an extract from Maseres’ text, where he explains the scheme,  in PDF form here.  

The Big Questions

I was part yesterday of a studio discussion for “The Big Questions”, a Sunday morning TV programme. I’d been asked along to say something about Universal Basic Income, which was being put forward by Guy Standing and Glasgow councillor Matt Kerr. Other questions considered in the programme (each question gets twenty minutes) were about Scotland’s voice in Brexit, where I did get my oar in, and reparations for slavery, where I didn’t.  (There’s a hilarious take on the programme’s format here – I went in the full knowledge that it was going to be tough.)  The programme is on Iplayer for a little while.

I’ve said plenty about both Basic Income and Brexit on this blog, so let me fill a gap by saying where I stand on reparations for slavery.  While there’s no doubt about the depth of the historical injustice, I don’t think we can rewrite thousands of years of world history to rectify it.  I come from a long line of refugees.  I can’t accept the principle that I should be compensated for the injustice they suffered; I’ve done nothing to justify that.  (That also means, by the way, that I think the UN’s current position on hereditary refugee status is nonsense; if they’re right, I should be thought of as a refugee from three other countries.)  When my great grand father, grandfather and father came to Britain, the first in the 1880s and the others in the 1940s, they didn’t come to join a slave-traders’ club; they came to one of the few countries that had stood against slavery and oppression.  Britain has things to be ashamed of, sure enough, but it’s also got something to be proud of.

Some problems with Basic Income schemes, and how to fix them

Ian Gough has condemned Basic Income schemes as ‘deluded and diversionary.’  I’ve been working over the last couple of weeks on a paper looking at these schemes.  The arguments are more detailed than I can conveniently put in a blog, but in a nutshell I can see five key problems with current proposals:

  • Resources cannot effectively be transferred from other benefits in the way that schemes envisage.  The objections are partly distributive, and partly related to the criteria by which existing benefits are distributed.
  • The issue of housing, and Housing Benefit, cannot be set aside.
  • The models applied to personal taxation and National Insurance are not viable.
  • The costs are primarily directed at people of working age and higher incomes, who have the lowest priority.
  • The costs are massive.

I do not think I can offer direct solutions to these problems, but I have identified some approaches that could at least help to lessen their impact. In particular,

  • Basic Income could be accepted as a partial income, rather than an all-encompassing solution.
  • It needs to be developed in tandem with directly provided services, not just income.
  • Personal taxation can be integrated with parts of benefit delivery; National Insurance could be the basis of a different kind of scheme.
  • Direct costs can be reduced through alternative methods of delivery.

That leaves the problem of the scheme’s distributive impact.  Some of the proposals begin by taking money away from people in need.  The reason for doing this is built in to the idea, but even if the poorest are protected, any scheme designed to extend income support to people on higher incomes has to start by directing resources to those people.  To pay for the scheme, and to make it operate fairly, there has to be some way to claw those payments back.  That cannot be avoided; it is the price of introducing a Basic Income for everyone.

I’m not going to put up the paper at this stage, but if anyone would like to see the draft, I’d be grateful for comments; please email me.

Meeting the costs of Basic Income

Howard Reed and Stewart Lansley have prepared a new report on Basic Income, for Compass.  The options they examine go some way to crystallize the disquiet I sometimes feel about Basic Income.  They write:

It is not possible to design a scheme that is revenue neutral, pays a decent sum and withdraws most means-tested benefits without significant numbers of losers.

Basic Income would probably leave some very poor people worse off.  It would be necessary to retain a raft of existing benefits, which tends to undermine  the beguiling simplicity of many Basic Income schemes.  That is not a fatal objection, because (as Child Benefit does) a partial Basic Income could at least help to offer some security and stability of income; but it falls some way short of what the most passionate advocates of Basic Income would like to believe about the scheme.

Once we accept that Basic Income is going to be partial, we then have the question of what kind of partial scheme would be best.  We could improve the Basic Income scheme relating to children, fairly simply, by doubling Child Benefit: it would cost £12bn.  We could extend a Citizens Income to all Pensioners at relatively low cost.  We need then to consider what priority to attach to the extension to people of working age, at what level such a benefit could be introduced, and how it could be financed.

The abolition of the personal tax allowance implies a level of intrusion and penalties for people working in marginal employment.  But it doesn’t all have to be done by  Income Tax – it’s not the only option that governments have to raise money.  Other options include, for example,  purchase taxes, property taxes and public income generation.  I’ve suggested before a way of combining a contributory element into a scheme for Citizens Income.  Currently the National Insurance Fund pulls in £113bn p.a.  If we upped NI contributions to 20% and removed the upper limits, that could go some considerable way towards funding a benefit based on a combination of solidarity and work record.

Guy Standing: Basic Income as a response to insecurity

I went tonight to hear a lecture by Guy Standing, who was talking to the RSA in Edinburgh about precarious labour and the case for Universal Basic Income.  He argues that the model of secure income which predominated in the mid to late 20th century has now broken down.  The combination of global labour markets and huge increases in the supply of labour worldwide have led to unstable lives, heavy dependence on money wages.  This has been accompanied by a neo-liberal agenda that has led to commodification of services, an erosion of the commons and a loss of citizenship rights.  I do not think this is universally true – it might equally be said that there have been major improvements in civil rights and living standards in recent years; nor is precarious labour  a recent phenomenon; but he is right to point to the emergence of the precariat as the basis of an economic class.

Standing’s argument for Basic Income is based partly on social justice, and partly on its instrumental role in furthering economic stabilisation.  He has drawn some persuasive evidence from his own work in a pilot in Madhya Pradesh, where a basic income led to improved health, nutrition, sanitation, school performance and economic activity.  He emphasised in particular its role in emancipating people – two of his strongest examples related to the position of women, who are empowered by having their own income – and strengthening their hand in wage negotiations.   The only group who did less work were the children, who went to school instead.  He sees the Basic Income as liberating people, and, he told me, as a means of decommodifying labour.

Both of these elements are persuasive in their own terms, but I am not yet convinced that the problems he rightly identified in the first part are addressed by the solution he was proposing in the second.   The core of his argument for Basic Income is based on evidence that poor people do better when they have more resources.  There are other ways that resources can be provided.  A basic income is an individualised response; it gives people money to spend in the market.  If we want to strengthen the commons, there are alternatives – making communal provision for services such as health and education, looking for collective responses to social needs such as communications, roads and water supply.  There is a reason why Basic Income has also commanded support from neo-liberals and free marketeers, who see it as an alternative to public services, not a way to strengthen them.

Equally, while it must help to offer incomes that are more secure, it is far from clear that Basic Income will produce greater stability in people’s lives in other ways, such as the loss of the ‘occupational narrative’ Standing is concerned with.  If we want people to have dignified, stable, secure employment, we need the community to create the right sort of jobs.  Basic Income can only be a partial response.