The Curious Appeal Of Basic Income

basic income 1

 

What if the state stripped away the whole confusing, tangled web of benefits, allowances and tax credits, and replaced them with a fixed weekly government payment to every UK citizen, set according to age and regardless of wealth or employment?

What if an annual stipend of £3,962 for every British adult was the price of ending the endless debate and inaction about Britain’s broken welfare system?

This is the utopian future envisaged by The Citizen’s Income Trust, an organisation that generates ideas and policies around the concept of a guaranteed universal minimum income, or basic income, for everyone – no exceptions.

The New Statesman reports:

The Trust proposes a radical reform of the national welfare system, suggesting the annual spend on benefits should be distributed equally among all citizens, regardless of their income or employment status. Under their proposals, 0-24 year olds would receive £56.25 per week, 25-64 year olds would receive £71 per week and those 65 and over would receive £142.70 per week.

Analysing figures from the 2012-13 financial year, the cost of such a scheme is projected at around £276bn per year – just £1bn more than the annual welfare budget that year –making the implementation of a citizen’s income close to revenue and cost neutral.

Disability and housing benefits would remain intact, but the scheme would replace all other benefits including child benefits, income support and jobseeker’s allowance, national insurance and state pensions. Included in the current annual spend figures is £8bn in Department of Work and Pensions (DWP) administration and £2bn in HMRC tax credit administration and write-offs.

The idea is of particular interest because it is almost revenue neutral. Conservatives and libertarians might argue that the current welfare bill and resultant tax burden is far too high as it is, and that switching one expensive system for another of equal cost would be of no fiscal benefit. This may be true. But it is also the case that four years into a Conservative-led administration, little has been done to effect root-and-branch change of Britain’s welfare system. If not now, when will it happen? Is our current position really the high water mark of what conservatism is able to do to change Britain’s expensive but largely ineffectual system?

An exception must of course be made for Iain Duncan Smith’s Universal Credit programme, which promises to accomplish at least some of the same goals as the Citizen’s Income Trust by streamlining welfare payments into a single payment, calculated by a fiendishly complex formula, designed to ensure that there is a constant financial incentive at every point for citizens to switch from welfare to work when they are able. But Universal Credit doesn’t begin to touch pensions, which remain unreformed and very much the unspoken third rail of British politics. Neither does it address Gordon Brown’s toxic legacy of tax credits, which are essentially government subsidies to business to create more low-paid jobs.

Battle-weary conservatives and libertarians such as Semi-Partisan Sam, long used to a hostile climate for their views, might be forgiven for thinking – with the Cameron government’s popularity at an ebb and with Ed Miliband’s unrepentently unreformed Labour Party ahead in the polls – that the battle for shrinking the state has been lost, and the only scraps left to fight over are questions of how we administrate the massive bureaucracy of redistribution.

Here lies the advantage of the Citizen’s Income Trust’s proposal. The fact that such a radical change wouldn’t cost the treasury any more money forces us to focus not on the costs, but on the other benefits and disadvantages of transitioning to a universal income society. What would be the effects on motivation and incentive to work if the government provided such a floor below which no citizen could fall, unlike the current system of benefits which requires active and continual petitioning on the part of the claimant? And what are the broader moral implications?

A recent article by Noah Gordon in The Atlantic walked through some of these issues as they pertain to the United States, and outlined the beginnings of a conservative case for what they call “guaranteed basic income”:

Apart from lifting millions out of poverty, the plans promote efficiency and a shrinking of the federal bureaucracy. No more “79 means-tested programs.” Creating a single point of access would also make many recipients’ lives easier. If they knew they had something to fall back on, workers could negotiate better wages and conditions, or go back to school, or quit a low-paying job to care for a child or aging relative. And with an unconditional basic income, workers wouldn’t have to worry about how making more money might lead to the loss of crucial benefits.

These are all undeniably advantages that would aid, not hinder, the workings of a lightly regulated labour market such as those in the UK or US. One of the main problems for those on low incomes is that there never arises an opportunity to save and create a personal safety net in case of misfortune. In these circumstances, unforeseen events such as illness, unemployment or even an unexpectedly high bill can lead to disaster, a precipitous drop in living standards, and a return to benefits in an endless inescapable cycle. A basic income would at least do away with this honey trap that keeps so many people mired in poverty.

But a guaranteed minimum income would also perpetuate the scourge of the universal benefit. As the Conservative-led coalition government found when it tried to cap child benefit for higher income earners, there is often huge resistance when something once available to everyone is suddenly means-tested or restricted in any way. But unlike most of the commentary that suggests the solution is not to means-test at all, the problem was that people unneeding and undeserving of a financial benefit were ever receiving it in the first place.

When child benefit was capped in 2012, families with a single earner earning £60,000 or more per year lost the benefit, and the fallout was significant – people still cite the benefit cut high in their reasons for dissatisfaction with David Cameron and his supposed contempt for the Conservative grassroots. Of course, the conservative grassroots should never have been content to pay higher taxes in exchange for getting a fraction of their money back through a universal benefit anyway, but this shortcoming was widely overlooked.

Everyone squeals when a universal benefit is taken away, even when the payments are only subsidising violin lessons, wine club memberships or second holidays abroad. And the fact that a payment intended to help with the purchase of essentials such as children’s clothing or nutritious food is co-opted by the middle classes and those on upper incomes to subsidise luxuries speaks to the tremendous waste that such benefits represent.

The one other area where a minimum universal income holds some appeal is the fact that it attempts to reward work and contributions which are not recognised by the market. From the New Statesman:

A citizen’s income also helps compensate for people’s non-financial contributions in a society and culture such as caring for children or elderly parents, undertaking voluntary work or pursuing hobbies and creative interests. Given the safety net of a small guaranteed income, there’s more room for career changes, education and enterprise projects too.

This side of the argument is one too often overlooked by those on the right. Of course it is right and proper that conservatives should support and defend the role of the free market in Britain – that much is crucial. But sometimes – perhaps forgivably, since the free market is under such constant attack by so many voices on the left – we can overlook the fact that the market does not account for everything, and that there are externalities to be considered too.

At present, negative externalities such as environmental pollution or the social harm caused by bad parenting are inadequately accounted for, if at all. Just because it is difficult to apportion costs to such things doesn’t mean that we are granted a licence to throw our hands in the air and make no attempt – but time and again, this is what we do. Therefore, there is some argument that a minimum income could address this shortfall, though it would certainly be a very blunt instrument with which to tackle a problem that likely needs more surgical – or radical – intervention.

As Gordon writes in The Atlantic:

Yet the effort to create a reform conservatism and reconstitute the GOP as the “party of ideas” seems to demand contemplating legitimately radical new ideas on welfare reform.

Radical thinking is certainly required, in Britain as well as in America. If Iain Duncan Smith’s Universal Credit experiment ever actually rolls out on a significant scale and beds down sufficiently that it cannot be immediately unpicked by an incoming Labour administration, then this might be the start of a different radical solution. But at this point, it seems equally likely that Universal Credit will collapse under a mountain of bad headlines, negative spin from Labour and the ubiquitous government IT contract failures that seem to blight any ambitious effort of any scale. If this becomes the case, could a future British Conservative government turn instead to universal minimum income as an alternative?

The view of this blog is that a basic or universal minimum income should indeed be considered in the event of the failure of Universal Credit – though a higher payment incorporating (and doing away with) housing benefit, making it a truly single payment, would be preferable to the model proposed by the Citizen’s Income Trust. Arriving at this viewpoint requires the realisation that the libertarian ideal is not achieveable in modern day Britain, at least not in the short to medium term – there are simply too many people beholden to the idea of a big, activist state.

But in proposing a basic income, conservatives and libertarians can at least make all of their concessions in one unpalatable gulp. Subsidising those who choose not to work may be distasteful, but it is a concession that has to be made only once, as opposed to endless tweaks and patches to a leaking and inefficient welfare system with numerous defined benefits. The mere fact that the dull debate about the extent and cost of benefit fraud would be eliminated at a stroke is in itself almost enough of a reason to support the idea.

Accepting a basic income could thus be acceptable, and even desirable,  if concessions were won from the left ensuring that other regulations (particularly in the labour market) would be reduced commensurately, leading to a more flexible labour market and a more competitive economy. The left can have their cherished goal of a safety net and minimum guaranteed standard of living below which no citizen may fall, but only if the right can have their prize of light-touch regulation throughout the economy. And as with all the best political deals, both sides could legitimately claim victory.

The Swiss will be the next to decide on whether or not to adopt a guaranteed basic income for all citizens. Theirs will be an interesting test case. But opportunities could soon arise for the radical policy to find its way into the manifestos of Britain’s main political parties – Conservatives in the event that they lose in 2015 and are forced to return to the drawing board, Labour if Ed Miliband decides to actually stand for something at the election, and even UKIP as they seek to square the circle and please their newfound ex-Labour supporters while retaining the backing of their energetic conservative-libertarian wing.

Of these, UKIP would seem the most likely buyers at present. Nigel Farage’s party need a strong narrative to cling to as their core messages on the EU and immigration tumble down the list of voters’ priorities in the general election campaign. What better way to eclipse the shambles of their 2013 party conference than to storm out of the gate with a bold policy proposal that could unite both left and right, whilst simultaneously wrongfooting the two legacy parties?

If we cannot have our libertarian Jerusalem in England’s green and pleasant land, perhaps we could at least be partially satisfied with the curious compromise of universal basic income.

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8 thoughts on “The Curious Appeal Of Basic Income

  1. Ed Dolan August 25, 2014 / 6:43 PM

    Thanks for this analysis of a basic income from a British point of view. You have one big advantage in considering this program that we Americans don’t–you already have a working (not perfect, but working) system of universal health coverage in place. We don’t, and it would be hard to integrate that in American conditions.

    In the US, probably the biggest objection to a basic income is the worry that it would create a nation of layabouts. I have spent some time looking at the economic theory and evidence on that point, and my conclusion is that properly implemented, a universal basic income would encourage, not discourage work effort. Anyone who is interested in my analysis can read it starting here : http://tiny.cc/gtwrkx and continuing here http://tiny.cc/5cr4kx

    Like

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