Author Archives: Stephen Richmond

Selling UBI: making it a good policy that wins us votes

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This is a follow-on post to the one published yesterday.

The real issue with UBI is not economic; it has been shown to provide no disincentive to work and most people are just paying in cash via taxes and getting that cash straight back. It doesn’t really affect most household finances to any significant degree. Instead the problem with UBI is political. How do we make it popular and keep it simple? That’s what my proposal is about.

The elevator pitch is this: “Voters are clear that they want tax dodgers to pay their fair share. That’s why the Liberal Democrats want to use taxes that are hard for the super rich and corporations to avoid and then, to make absolutely sure everyday voters don’t get taxed unfairly, we’re going to send you each a cheque from the proceeds. Think of it as a VAT rebate.”

Voters really are clear that they want higher taxes on the wealthy and corporations. This reframes the discussion in economically populist terms (something Liberal Democrats tend to hate doing but works) but it doesn’t change the policy at all. It remains good economics and it really does allow us to shift towards using taxes the wealthy and corporations find hard to avoid. The Scandinavian countries, for example, make heavy use of goods and services taxes for this reason.

Now I know Lib Dems are going to want to use Land Value Tax. That’s economically sound obviously, but that’s selling two hard things at once. I’d propose this:

We would give a universal basic income of £40/week to everyone in the first year of the parliament, paid for by raising VAT. That would rise by £40/week each year of the parliament until we hit £200/week in the final year. That’s £10,400 in that final year, presumably 2028 so £10,400 will be worth slightly less than now due to inflation. By the time we get to the final couple of years we can use LVT to get up to the full amount. VAT plus a UBI is progressive and the Scandinavians have shown it doesn’t slow economic growth.

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Which UBI should we support?

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In his recent piece HERE George Kendall asks us which Universal Basic Income proposal we should choose and how can we say if it’s affordable? How should UBI advocates respond?

What I intend to do here is set out how I believe we should assess each UBI proposal that comes our way; however, the first step is to accept the principle of UBI at conference and acknowledge it needs to be a high enough amount to live on. My conclusion will be that an “out of the box” proposal like that from Compass is actually just fine but that Lib Dems should debate several options once we’ve accepted the principle.

What makes costing UBI complicated is that normally governments take in tax revenue and spend it in return for some particular thing. For example we might decide to spend another £100 billion on the NHS and we must decide if that thing, i.e. the extra NHS services we get as a result, are worth the cost, the £100 billion. UBI isn’t like that. In UBI the government takes in, say, £500 billion and then hands out that same £500 billion. We don’t get a product or service and most of us get some amount of the cash we paid in back as… well… cash.

If I hand you £100 and you then hand me £100 I’m not £100 worse off am I? If I hand you £100 and you give me £80 I’m not £100 worse off, I’m £20 worse off. That’s very different from spending £100 and then getting a mobile phone. Is the phone worth £100? Can you get a good phone for £100? Those questions don’t make sense with UBI in the way they do with healthcare.

Instead what we are “purchasing” is a guarantee of no poverty for any UK citizen and the cost is not the whole tax bill but instead it is any loss of incentives to work and any inflation that may result. This is where evidence really matters! We are an evidence based party so lets consider the evidence.

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Part 2: If we want to win elections we have to denounce austerity

So I was hesitant to get into ideological discussions but the argument often gets made that even if austerity is unpopular we must defend the small government “Classical Liberal” tradition. That argument needs to be answered- yes there has always been a laissez-faire strand of Liberalism, however, the idea that Liberalism only means small government and free markets is an idea that dates from around 1980.

Liberalism has a quite complicated and wide-ranging history from being initially associated with generosity (as in the word Liberality, a liberal act meant a generous one), to the alternative association of the French revolution (describing someone as a “Liberal” was an insult intended to suggest they were radical revolutionaries, there was no suggestion that Liberals were aiming for small government as such, just that they were anti-monarchist.). Liberalism went on to include large sections of the early Socialist movement, including such hailed Classical Liberals as John Stuart Mill. Early Liberalism was actually not very much to do with economics at all and was more part of the Whig and Republican movements that were about moving from a feudal system to the beginnings of democracy. (I heartily recommend Helena Rosenblatt’s ‘A forgotten history of Liberalism” for more of that story.)

It’s because of these political instincts and aims that when it became clear that unregulated markets were hurting people in the late 19th century Liberals changed policy rather than changing ideology. That’s where the social reforms of Asquith and Lloyd-George came from, leading into the Social Insurance systems of Beverage and the economic theories of Keynes. That’s how the Liberal party ended up to the left of the pre-merger SDP and how the Liberal Democrats ended up to the left of New Labour. It’s not an aberration, it’s just the natural place that Liberalism ended up.

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If we want to win elections we have to denounce austerity

Part 1

“Never point out your own mistakes” seems like a good political maxim, so why should we ignore it on this occasion?

Of course, not everyone agrees that austerity was a mistake at all, and some say we should embrace our coalition record. That would be a monumental mistake. Trying to embrace austerity would be like Labour trying to embrace the Iraq war, it would be untenable.

Many people point out that all the major political parties were pushing austerity at the time: during the coalition Labour boasted that the government had, more or less, kept austerity to the levels Labour suggested. Clearly this wasn’t something the Liberal Democrats were solely responsible for. That doesn’t mean it wasn’t a mistake though or that no one knew it was a mistake at the time. While it’s true that many economists working for large banks were very clear that government debt was definitely the problem (and noticeably not the banks themselves!) academic economists took a rather different tack- their warnings were clear and broadly, as it turned out, correct. Even the IMF famously chided the coalition for being too reckless with austerity.

Estimates of GDP per household lost due to austerity in the UK vary with from some at £4000 per household and the Oxford economist Simon Wren-Lewis’ guess being more like £10,000 per household. There is no suggestion it did anything positive. (Simon Wren-Lewis’ book ‘The Lies We Were Told’ chronicles this beautifully. Also worth seeing is the recent report from the NEF featured in Bloomberg estimating the cost at £100 billion.) The famous academic paper (by Reinhart and Rogoff) that was used as political cover for austerity in 2010 turned out to be based on a simple maths error and was ultimately disgraced. Traditional macroeconomics won out- if interest rates go to zero, which they did, governments must either increase spending or hold back their own economies- we chose to hold back our economy.

It’s estimated that around 50,000 UK citizens died unnecessarily due to austerity during the coalition with more afterwards. Which is why it sticks in the throat a little when we’re told, and I’ve heard this a few times from more coalition supporting Lib Dems, that the coalition was “the best government since 1945!” I would gently point out that that the post-1945 era includes the Attlee government, which took on the ideas of Keynes and Beverage, both Liberal party members.

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