Tagged: Citizens Income

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.

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:

 

Contribution
(years)
Indicative
age
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 – any 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.

Reform Scotland proposes a Basic Income

Reform Scotland have published a report with detailed costings for a Citizen’s Income  scheme – they call it a Basic Income Guarantee.  Unlike most of these schemes, it doesn’t rely on the wholesale abolition of other  benefits for its costings.  Income Tax would stand at 40p in the pound from £0 to £41,786, then be 60% to £150,000.  This is higher (and more transparent) than the Citizen’s Income Trust approach, which tried to retain National Insurance contributions delivering no benefits and to abolish many benefits that shouldn’t be abolished.

There are lots of small niggles I could raise about the details of specific benefits mentioned in the report. (For example, the abolition of Income Support would lead to some increase in costs for Carers Allowance; the provision of basic income would reduce some costs for ESA; DHPs shouldn’t be removed).  These aren’t especially important for understanding the scheme in broader terms.  There are bigger issues in the detailed scheme which ought to be be resolved:

  • the position of pensioners
  • the interaction of BI with means-tested benefits such as HB and CTR, and
  • alternative methods of finance – the tax rates mentioned are too high, but it doesn’t have to be done all by income tax

I’ve never accepted the argument that Basic Income could resolve all the issues that bedevil our social security scheme.  What it could do, however, is to offer people a stable, secure, predictable income to cover essentials – as Child Benefit does.

 

 

 

 

Basically unaffordable: The Economist gets its sums wrong on Basic Income

An article in The Economist last week condemned Basic Income as being “prohibitively expensive”; but the criticism  makes some very basic mistakes.

In 1970 James Tobin, an economist, produced a simple formula for calculating their cost. Suppose the government needs to levy tax of 25% of national income to fund public services such as education, policing and infrastructure. Paying for a basic income worth 10% of the average income requires average taxes to rise by ten percentage points, to 35%. A basic income worth 20% of the average income requires average taxes to be 20 percentage points higher, at 45%, and so on. Eradicating relative poverty, defined as income beneath 60% of the median, would require tax rates approaching 85%.

Tobin’s calculation is based on national income. The figure of 35% comes from adding 10% in Basic Income to 25% for public services.  The article’s key mistake comes from confusing national income with average income.  In the first place, almost discussions of average income refer to the median, not the mean.  The median average income accounts for  less than the mean average,  because people in the top half of the income distribution get more income share than the bottom half.   In the UK,  the population median income is £404 pw; the population mean income is £504.  60% of the median share distributed to everyone would be 48% of all personal income, not 60%.

This in turn is less than GNI because GNI is not held exclusively by individuals – a good quarter is corporate.  48% of personal income is 36% of GNI.  Add that figure to the basic 25% tax and we get to 51% of national income, not 85%.  The three figures in the Economist article should not be 35%, 45% and 85%, but 31%, 37% and 51%.

These are very broadly rounded figures, but I don’t think there’s much point in trying to refine them more closely at this stage: the actual cost would depend on the design of the benefit. Costs should be offset against social security reductions (which is one of the key reservations to make about Basic Income schemes) and the abolition of tax allowances.

I’m not an advocate of Basic Income; the apparent simplicity of the scheme is liable to be undermined in practice by the terrifying complexity of people’s daily lives. If we’re looking for a Basic Income to be an element in people’s income packages, however, the problem is not the cost.

Further note, 18th May 2017.  I’ve just been reading Basic Income, by Phillipe van Parijs and Yannick Vanderborght, published 2017 by Harvard University Press.  They do suggest, several times, an indicative level of basic set at 25% of GDP, and that would be indeed be open to the objection that Tobin raises. 

Arguments about Citizens Income

The proponents of a Citizens Income are getting a rough ride at the moment.  Natalie Bennett, the Green Party leader, is supposed to support the idea, but her truly awful interview with Andrew Neil showed up her reluctance to engage with the core arguments.  She just wasn’t ready to say that much of the funding comes from replacing existing benefits, scrapping basic tax allowances and wiping out Tax Credits.  Now the Joseph Rowntree Foundation has published a sceptical report by Donald Hirsch, complaining that the scheme would cost too much, that people wouldn’t approve of it, and that it’s never been done.  Well, it doesn’t have to be paid for entirely in direct taxation – why would you want to do that?  – and as for practical experience, the precedent already exists in Child Benefit.

I’d question many of the arguments made for Citizens Income, and I detailed some of the problems in a previous post.  Any Citizens Income would need to be partial – that’s not a bad thing – and introduced to cover segments of the population.  Pensions can’t be left out; I’m not sure it makes sense to leave out Housing Benefit either.   The main problem with a Citizens Income is common to any scheme that over-simplifies; if you’re replacing complicated benefits with simpler ones, you will have to be ready to cut benefits to some people with complex special needs.   That doesn’t  mean, however,  that the system is either unworkable or unaffordable.  The question is whether we should do anything like it, and if so how far it should go.

A proposal for Basic Income in Scotland

There are those who’d like to see a Citizens Income in Scotland, or in the UK, and there were several submissions on that basis to the Expert Working Group on Welfare, who made a nod in that direction after representations from Ailsa McKay, sadly missed, who had been firmly committed to the principle.   A report this month from the Centre for Welfare Reform develops many of the arguments.    They don’t offer costings, but they do write:

“In the current UK system the least generous rate of Income Support is £2780 per year.  If this was extended as a benefit to all 63 million people in the UK the total cost would be £169 bn.  This is less than the current costs of all benefits and pensions in the UK (£185 bn).”

I ‘ve been doing some back-of-the-envelope calculations for Scotland.  As things stand, benefits in Scotland cost £17.7 billion, and personal tax allowances – an important part of the potential funding pool – cost probably £6.8 billion.  That makes £24.5 billion, but from that we probably have to knock off some benefits that can’t be replaced by a basic income, such as £0.9m disability benefits or £0.3m payments to expatriates.  The population of Scotland has roughly 1.1 million pensioners, 3.3 million people of working age (16+) and 0.9 million children.  I’ve argued in previous writing for a simple equivalence scale:  1 for the first adult in a household, 0.5 for each subsequent adult and children.  There are 2.4m households, so there are 2.4m first adults.  The pot needs then to be divided into 7.4 million shares, and comes to £3135 pa, or £260 pcm.  Let’s call it £250 a month, because this is after all a quick demo.  There’d be £250 for each household, £250 for each adult, and £250 for each child.

It sounds attractive at first, but I’m not at all convinced.   This would be good for lots of people, but bad for others.  As the figure includes a replacement for Housing Benefit, people on high rents wouldn’t get their rent paid.   Getting rid of personal allowances means that all income will be liable to tax.  Getting rid of Tax Credits may appeal but there have to be different arrangements for low paid work (a higher minimum wage)  and for child care.  On £500 pcm for a single pensioner, and £750 for a couple, pensioners would lose out – Scotland’s Future promises a single pension of £160 pw – and try to explain to anyone  why a blind pensioner should get less benefit so that we can have a simpler system.  Benefits are complicated for good reasons, and while there is certainly a case to offer more benefits like Child Benefit on a simple, unconditional basis, this kind of short-cut won’t meet people’s needs.