Fairer Society part 3: Making hard choices to end poverty

Christian Aid's Poverty can be eradicated posterThis is the third and final article in my series on why and how Liberal Democrats can claim the social justice agenda which has been abandoned by both Labour and the Conservatives. The first part is here and the second here. I argued we should abandon the notion of helping only the “deserving” poor, which defines our current welfare system, in favour of two new principles to define our approach to welfare:

  1. The role of the welfare state is to guarantee for every person the minimum standard of living needed to be enabled to have and achieve their human rights
  2. This should be done in a manner which provides a financial incentive to work for all those who are able to

But principles on their own are meaningless unless you have an idea of how you would put them into practice and if we were to adopt these principles as the foundation of a new model of the welfare system, we would have to make some hard choices.

Between working age benefits and tax credits, in 2012 the UK spent £82.8 billion on welfare and tax credits not related to pensioners or sickness and disability. Yet there are still 18 million people unable to afford adequate housing and 4 million people not being properly fed. Since it is not realistic to drastically increase welfare spending to tackle these issues, the only option left is to spend smarter by changing our priorities.

An obvious way to achieve this would be a guaranteed Minimum Income. This is not a new concept (in fact it was Liberal-SDP policy in 1983), and one version of it was temporarily trialled in Canada in the 1970s, but it is one whose time has arguably come. The core of this concept is the idea that household income should be topped up to a minimum acceptable standard and then withdrawn as earned income increases.

Given the wide variation in living costs across the UK, what could be considered a minimum acceptable income level varies wildly and would probably have to be calculated locally but the beginning of what it might look like can be found with the Minimum Income Standard which is calculated by the Centre for Research in Social Policy and used to set the level of the living wage.

Including items like rent and childcare it calculated the minimum acceptable living standard for a single working age adult as being £274 before tax in 2013. However, as it also includes allowances for items like alcohol and cultural participation, a bare minimum “necessities-only” income might be around £200 for a single person household.

Guaranteeing this kind of bare minimum income to each household (at a level appropriate to the composition of each household) could be done by combining existing tax credits and benefits into a new top up payment which was automatically paid to all eligible households and removed gradually as household income increased.  This would achieve both of the principles identified above and could be enhanced by including such a payment as taxable income, thereby bringing the additional progressive element of our tax system (ideally coupled with the merger of income tax and NI to eliminate cliff edges). At the same time all existing sickness, carer and disability benefits could be combined into a single additional top up payment to cover the costs of disability.

And, interestingly, the delivery mechanism for such a system already exists in the form of the Universal Credit system, assuming it is ever made to work properly.

But implementing such a system would involve hard choices. Benefits and tax credit spending would be ruthlessly retargeted at the bottom 30 to 40% of households at the expense of all others. It would also carry a hefty price tag – impossible to calculate without extensive policy research but around £5 to £10 billion if my back of an envelope calculations are any guide – meaning sacrifices elsewhere. And, as welfare is essentially a safety net for government failures in other areas, the repercussions across government policy would be immense. But there would also be gains through reducing the costs of poverty. In the Canadian experiment, for example hospitalisation rates fell by 8.5% and educational attainment increased significantly.

Even so, it wouldn’t be credible for the Liberal Democrats to pledge the immediate implementation of such a system in our manifesto. But we could, and should, pledge support for the underlying principles and commit to developing the policy, in or out of government, to a state where it could be implemented. Additionally, one concrete policy, such as the unification of disability benefits, should be adopted to demonstrate policy substance as well as principles.

None of this would be easy politics by any means and would require courage. But it would also mean redefining the welfare debate on liberal grounds and showing that we alone have the radical policies necessary to truly build a society where no one is enslaved by poverty.

* George Potter is a Vice-Chair of the Social Liberal Forum and a campaigner for Guildford Liberal Democrats, writing in a personal capacity.

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55 Comments

  • Im at a slight loss as to how the above offers an incentive to work rather then claim benefits. If a person doesn’t work and receives the minimum acceptable living standard amount or can work for a low wage and then be topped up to the minimum acceptable living standard amount as well as on top of that organise the likes of childcare etc, where is the incentive. Likewise as you point out their would be cuts at the top end of the tax credits scale meaning those who are working towards a decent standard of living and topped up by the current tax credits will see their income drop towards the minimum acceptable living standard amount completing deincentivising work over benefits.

  • Nonconformistradical 25th Jun '14 - 12:01pm

    “I m at a slight loss as to how the above offers an incentive to work rather then claim benefits. If a person doesn’t work and receives the minimum acceptable living standard amount or can work for a low wage and then be topped up to the minimum acceptable living standard amount as well as on top of that organise the likes of childcare etc, where is the incentive.”

    Quite. What is to stop someone from putting their feet up without even trying to make a living for themselves knowing that they’ll have the basics paid for by those who don’t just put their feet up?

  • Jenny Barnes 25th Jun '14 - 12:23pm

    “What is to stop someone from putting their feet up without even trying to make a living for themselves knowing that they’ll have the basics paid for by those who don’t just put their feet up?”

    Possibly because living in any kind of society that you do nothing to contribute to feels peculiar. I know there are plenty of trustafarians and millionaire old Etonians, members of the HOL etc who apparently do nothing – it’s probably just as well. Work – meaningful, creative if possible, is a necessary part of being human. Look at all the people who volunteer to do things, people who join political parties, for example?

    I think the idea of a citizens income which you get whether or not you work, and ALL income after that being taxed – no personal allowance, no exemption for inheritance or capital gains, would work better. Every additional pound you earned would be worth something – 80p or so to start with. And assuming the citizens income was set quite low, say 60% of a 40 hour week at living wage (£7.65/hr) so £184/week.

  • “…impossible to calculate without extensive policy research but around £5 to £10 billion if my back of an envelope calculations are any guide”
    I think we’re going to need a bigger envelope,… and a heck of a lot more thought through detail?

  • Little Jackie Paper 25th Jun '14 - 1:05pm

    You could do worse than look at some of what the Swiss have been doing. Notably 12:1. Whether a Thomas Minder type would get anywhere here in the UK is hard to say http://en.wikipedia.org/wiki/Thomas_Minder.

    They have also had a referendum (rejected) on the highest minimum wage in the world and were certainly looking at a referendum on basic income http://www.bbc.co.uk/news/business-25415501. I’m not sure what happened to that. It is also worth pointing out here that the Swiss appear to have voted for some reasonably mild caps on free movement with the EU.

    Worth just pointing out, that this is the same Switzerland where I’m told all those London bankers want to go to to escape the evils of UK socialism.

  • Firstly I don’t accept that £274 is a living wages for everyone in the UK. To reduce it to £200 just makes it worse. However you might be able to make out a case that for a single person between £200 and £274 is a living wage assuming their housing costs are not very high. Therefore the idea that one rate will fit all is flawed and without extra payments for children and housing costs will mean there will be an increase in the number of children living in poverty.

    You have said it will cost between £5 and £10 billion to bring, but it will have a withdrawal rate. Do you suggest 100% as with say Jobseekers Allowance or 65% as with Universal Credit? It is because of these high withdrawal rates that there is for many a disincentive to work.

    However a Citizens Income will cost nothing more, will also have the possible health effects, will empower people, will have no withdrawal rate, also merges income tax and IN, includes the current top up rates for those ill or disabled, includes payment for children, leaves pensioners unaffected, includes keeping housing benefit and council tax support. In fact in meets the individual needs of each person and isn’t a one size fits all.

    @ George Potter – “The only problem with such a citizens income is that it would mean a large amount of welfare spending going to people wealthy enough not to need it”

    This is not true. The Citizens Income is not taxed, but it is reduced as income tax is due. It therefore replaces the Income Tax Personal Allowance and so someone earning say £15,000 would not be in receipt of any net benefit.

  • Richard Dean 25th Jun '14 - 1:19pm

    While a nice idea, I think it has major problems.

    Most work isn’t that “meaningful” at the low pay end. I know many people willing to “feel peculiar” if they get something free for doing so, and I know people who prefer to claim JSA while working free for a charity, rather than do meaningless work that makes someone else rich.

    Tapering off can be done within the current system. Like Citizen’s Income, the minimum income idea doesn’t seem to be easily mesh with “to each according to need” – different people having different needs. And ideas have to be sold to a cash-strapped electorate ready to cry “Welfare Cheat!”. Things with “a hefty price tag” aren’t that welcome.

  • It’s a good series of articles, George and your back of the envelope costs of up to 10 billion are about the same as it would cost to increase the personal allowance to £12,500 per year.

    The minimum guaranteed income program that was run in Canada is notable for the beneficial heath and well-being effects it produced. This article sites the example of a family that received $1200 per year when the official poverty line was $2100 http://www.dominionpaper.ca/articles/4100. The article notes:

    “GI (Guaranteed Income) programs exist in countries like Brazil, Mexico, France and even the state of Alaska. Although people may not recognize it, subtle forms of guaranteed income already exist in Canada, says social work Professor Mulvale, pointing to the child benefit tax, guaranteed income for seniors and the modest GST/HST rebate program for low-income earners.

    However, a wider-reaching guaranteed income program would go a long way in decreasing poverty, he says. Mulvale is in favour of a “demo-grant” model of GI that would give automatic cash transfers to everybody in Canada. This kind of plan would also provide the option of taxing higher-income earners at the end of the year so poorer people receive benefits.

    A model such as this has a higher chance of broad support because it goes out to everybody, according to Mulvale. GI can also be administered as a negative income tax to the poor, meaning they’d receive an amount of money back directly in proportion to what they make each year. “GI by itself wouldn’t eliminate poverty but it would go a heck of a long way to decrease the extent of poverty in this country,” says Mulvale.

    Conservative senator Hugh Segal has been the biggest supporter of this kind of GI, claiming it would eliminate the social assistance programs now administered by the provinces and territories. Rather than having a separate office to administer child tax benefits, welfare, unemployment insurance and income supplement for seniors, they could all be rolled into one GI scheme.

    It would also mean that anybody could apply for support. Many people fall through the cracks under the current welfare system, says Forget. Not everybody can access welfare and those who can are penalized for going to school or for working a job since the money they receive from welfare is then clawed back.

    If a guaranteed income program can target more people and is more efficient than other social assistance programs, then why doesn’t Canada have such a program in place already? Perhaps the biggest barrier is the prevalence of negative stereotypes about poor people. “There’s very strong feelings out there that we shouldn’t give people money for nothing,” Mulvale says.

    Guaranteed income proponents aren’t holding their breaths that they’ll see such a program here anytime soon, but they are hopeful that one day Canada will consider the merits of guaranteed income.

    The cost would be “not nearly as prohibitive to do as people imagine it is,” says Forget. “A guaranteed minimum income program is a superior way of delivering social assistance. The only thing is that it’s of course politically difficult to implement.”

    There are several variations of basic/citizens/guaranteed/minimum income programs and like Michael BG, I would favour a revenue-neutral approach at this point-in time.

    I agree with your assessment that a basic income will not remove the incentive to work for the great majority of people. However, I think a habitual employment condition for eligibility for social housing/housing benefit for the able-bodied coupled with a minimum wage job guarantee program would be a useful policy addition to both satisfy the work incentive concern and target scare social housing support on the most needy.

  • Jenny Barnes 25th Jun '14 - 5:06pm

    george “The only problem with such a citizens income is that it would mean a large amount of welfare spending going to people wealthy enough not to need it ”

    I’m pleased that’s the only problem. So what? NHS benefits go to such people, the police look after them (better than poor people, usually) they can get into the best state schools. The point of a CI is that there’s no mucking about with it,, no worries that it will disappear if one takes a short term job. A lot of food bank usage is around delayed social security payments.
    And, I suggest that all income gets taxed, including capital gains and inheritance. Those wealthy enough not to need their CI would effectively be funding their own and others CIs. I can see the abstract attraction of avoiding the deadweight cost of CI for people earning , but the administrative complexities, for people who have little time and patience left for filling in multi page forms make it not worthwhile. Keep it simple, my view.

  • Jenny is right on this point. – “those wealthy enough not to need their CI would effectively be funding their own and others CIs”

    Also, for those with annual incomes above £100k, the CI would effectively be tapered away as the personal allowance is now.

  • George,

    all the proposals I have seen for Citizens Income are that it would be non-taxable income. The amounts paid to pensioners are the same as basic state pension plus pension credit, for children the amounts are equivalent to child benefit and child tax credit.

    Whilst £71 is not a large amount, they would produce transfers of income to the poorest sections of our community, because take-up would be virtually 100 per cent and non-earning carers (including many mothers) would receive a secure cash income of their own for the first time. Students reliant on tuition fee and maintenance loans are often dependent of parents for non-accommodation and travel costs.

    However, the introduction of a minimum wage job guarantee scheme administered via local authorities and the social enterprise sector provides enough to live on and is largely financed by redirection of existing benefit and housing support/rent subsidy payments.

  • George,

    you note above that “The Manitoba experiment showed that, for the five years it was running, most people continued to work like before with the exception of primary carers, who’d usually delay returning to work after children were born, and school leavers who generally left school later or continued in education longer than before the experiment started. Overall, workforce participation dropped slightly, but not massively.”

    Few people who are able to work would be satisfied with a sole income equivalent to the current JSA/ISA. A minimum wage job guarantee program coupled with this basic income (and housing benefit support where required) provides the means for everyone to earn sufficient income to live on.

    For a policy to be adopted, people have to vote for it. In the UK, as in Canada, “there’s very strong feelings out there that we shouldn’t give people money for nothing.” If people are doing useful work in the social enterprise sector for a reasonable wage, then that resistance is largely overcome.

    A individual doing 40 hours per week @ £6.30 earns £252 per week. Tax and Ni @32% is £80, the CI/tax credit is £71, take-home pay is £243 i.e. above your £200 minimum for a single person household and equivalent to the minimum acceptable living standard for a single working age adult – being £274 before tax (£240 after tax) in 2013.

  • George,

    the minimum wage job guarantee program ensures that everyone can have a job. A job is ‘guaranteed’

    The CI proposal mirrors the existing age differentiation for JSA/ISA for under 25’s. You don’t need to have wealthy middle class parents to be living at home with few bills to pay or in student accommodation, as the great majority of unemployed under 25’s do.

    There needs to be a good hard headed rationale for redistribution and spending taxpayers money. Youth unemployment needs to be tackled with apprenticeships, skills training and job guarantees that equip people to become self-reliant as they get older.

  • @ George Potter

    Firstly I didn’t see that your minimum income would be set locally. I haven’t seen you define what you mean by “local”. Also I am not clear if it includes housing costs on top as the Citizen’s Income does. When you talk of a withdrawal rate of 60% is this including or excluding Income Tax and NI?

    The Citizens Income is introduced at the current rates of benefit, but there is an expectation that they would increase in line with the growth of the economy. As the Citizens Income replaces the Income Tax Allowance and NI threshold there would be pressure for governments to ensure that it is increased every year as Income Tax Allowances have been.

    Perhaps I have just misunderstood you. I think you are saying two adults would receive £300 per week and if they had two children they would receive an extra £80. We should assume that rent and council tax are £100. Therefore your family of 4 has £280 a week after rent and council tax.

    With Citizens income two adults would receive £143.40, two children £114.70 making £258.10 and if we assume 100% housing benefit and council tax support they end up with £258.10, which is £21.90 less than your couple.

    Now if we assume that they both receive £300 in wages the situation will change. If we assume Income Tax and NI of 32% then your family receives £204 and their benefit is cut by 60% of this leaving £81.60 extra so after rent and council tax they have £361.60.

    My couple have their Citizens Income reduced by £96 for tax and NI. Their Rent and council tax benefit are scraped so they end up after rent and council tax with £362.10 thus they keep £22.40 more of what they earn. However Citizens Income hasn’t cost the state any more than at present.

  • Richard Dean 26th Jun '14 - 3:00am

    An assumption of these apparently nice CI and MI schemes seems to be that giving poor people money solves the problem of poverty. But I wonder if any of the smart calculating idealists have spoken to some really poor people recently? There’s a piece by someone with real experience here: http://www.bbc.com/news/magazine-20517171.

    About 2/3 of the way down, the writer writes “Poverty isn’t only about a lack of money and resources. The worst poverty is found when there is a lack of education, understanding, hope …” and at the end he writes “It seems to me poverty is a state of mind.” The last comment is understandable in this article, but is heavily criticised when a rich person makes it http://www.nytimes.com/2014/05/19/opinion/blow-poverty-is-not-a-state-of-mind.html?_r=0

    In my personal experience, giving people money relieves poverty for some but not for all – far from it. Some of the people who are down won’t know how to get up no matter how much cash you give. For many, the need can be as much for leadership and meaning as for money. A few have surprising spending priorities – a cellphone and a widescreen TV for example, rather than support for the children’ s education.

  • So we all work hard and pay exta taxes so that people who are happy to get £275 a week for doing nothing can do so. I’m sure ‘White Dee’ would like it,

  • Jenny Barnes 26th Jun '14 - 8:39am

    simon “So we all work hard “. I’m sure you do. I’m equally sure that most of the people on benefits – ignoring of course those who are already working and on such low pay that they need topping up – would like the opportunity to work. But there have to be jobs. As a society, we don’t seem to be so good at providing suitable jobs.

  • Neil Sandison 26th Jun '14 - 9:31am

    I think you are Gorge and Joe are both moving in the right direction but agree with Richard that public perception is important .This must be seen as a hand up not a hand out policy .It should cearly be related to ending child poverty ,a line in the sand that Liberal Democrats will not allow the state to cross where too many hoseholds are being allowed to fall below a level of income that leads to massive indebtedness and yes in this country in the 21st Century hunger and impoverishment.Dont get too hooked up on a name or the fine detail of your proposal that leads to inflexability .Many a good liberal proposal has floundered on the rocks of purism.

  • If a person doesn’t work and receives the minimum acceptable living standard amount or can work for a low wage and then be topped up to the minimum acceptable living standard amount as well as on top of that organise the likes of childcare etc, where is the incentive.

    What you describe is pretty much the system now. That’s why there needs to be tapered not cliff-edge or 100 percent removal.

  • Tony Rowan-Wicks 26th Jun '14 - 12:26pm

    I know George is looking at UK and our GDP but what about the wider context of these aid numbers?

    We are all aware that there is a good purpose to donating a percentage of GDP to assist the ‘disabled’, in every sense, i.e. to those who cannot work in other countries and need support to live. Is there any balance within this principle, in the international community, with what we donate to the welfare of other countries and what we donate to those in our own country who rely on welfare? Not sure if ‘donate’ is the right word but it is giving to those who cannot survive without it. And we seriously consider support for those in such need.

    I read numbers like 0.7% and 3% respectively for UK’s international and homeland aid. Are these percentages fixed internationally? Of course we know they are not even recognized – but can they be helpful for the above back-of-envelope discussions which are only looking at the British percentage? What of our responsibility world-wide? And the same responsibility of other so-called rich countries to assist world-wide?

    If we are an internationally responsible party, we should consider the world’s needs, including the needs of our own ‘disabled’ citizens.

  • I think public perception is very important. The purpose of CI is not to eradicate poverty per se, it is to restructure how benefits are withdrawn, with the aim of removing the poverty and unemployment traps so that people are afforded the opportunity to work their way out of poverty and escape benefit dependency.

    The Liberal post-war breakthrough came in the 1974 general election when we polled 19.7% of the vote. The manifesto for that election included the following policy:

    Security without Means Tests – A Credit Income Tax Scheme

    Liberals have long advocated a system of credit income tax whereby social security payments would automatically be paid to those in need. The Government’s tax credit scheme, however, falls well short of the Liberal ideal because it values administrative efficiency above adequate provision for social need, while the Labour Party still pins its faith in the paternalism and stigma of the old means tested welfare system.

    The Liberal scheme represents a major onslaught on the Means Test Society and would replace most of the 44 means tests to which under-privileged and handicapped people are subjected.

    The Liberal credit income tax scheme would sweep away existing tax allowances, family allowances, national insurance benefits, nearly all supplementary benefits, housing subsidies, rent and rate rebates, family income supplements and a wide variety of miscellaneous benefits. All income would be taxed according to a progressive scale from the very first pound, but everyone would be entitled to various ‘credits’ or allowances depending on circumstances. Where the liability to tax exceeded the value of credits there would be net tax to pay. Where the value of the credits exceeded the liability of tax the difference would be paid to the individual. automatically, through the tax system. Thus a redistribution of income could automatically be effected in favour of those needing help. There would be three types of credit – personal, housing and social. The most important would be the personal credit. This would be paid to every person and would be fixed at a level sufficient to guarantee a subsistence living to that individual. The credit for an adult would be greater than for a child. In the case of children under 16, the credit would be paid to the mother.

    Then there would be a universal housing credit, paid regardless of whether the individual lived in rented or owner-occupied accommodation.

    The third category of credits would correspond to national insurance benefits. There would be a credit for pensioners and for short- and long-term unemployment, sickness and disablement.

    Whereas the Government scheme helps to tackle the poverty problem it has no intention of guaranteeing in every case that a family with no further help from the state would have enough to live on. The Liberal scheme does just this. It has estimated that a combined income and social security tax of 40 per cent (against the present 36 per cent) plus a recasting of VAT (but not on food) would be sufficient to operate the scheme. In the transitional period before the full introduction of our credit income tax scheme we propose that family allowances should be extended to the first child, and social security benefits proportionately increased with increases in average earnings. This is particularly urgent in the case of those such as widows whose circumstances can change so dramatically.

  • The 1992 Libdem manifesto also include integration of the tax and social security systems as policy and the creation of a ‘Citizens Income’. We polled 17.8% in the 1992 election.

    Ensuring a Decent Income for All

    The tax and social security systems are long overdue for reform. Our objectives are to simplify and integrate the two systems, to mount a determined assault on poverty and dependence, and to protect our citizens from want.

    We will work towards the eventual creation of a new ‘Citizen’s Income’, payable to all irrespective of sex or status. For pensioners, the Citizen’s Income will be well above the present pension, and for everyone else it will be about GBP 12.80 a week (at present prices). Unpaid work will at last be recognised as valuable. Women caring in the home, for example, will receive an independent income from the state for the first time. The Citizen’s Income will be buttressed by a single benefit for those in need, unifying income support and family credit, with supplements for people with disabilities and for child-care support. These reforms will ensure that every citizen is guaranteed a decent minimum income, whether or not they are in employment. Our immediate priorities, which will act as steps towards the Citizen’s Income, include:

    Immediate improvements in benefits. We will increase Child Benefit by GBP 1 per week for each child. Income support for under-25s will be paid at the full rate, an increase of GBP 8.50 per week. We will break to 16 and 17 year olds the right to claim income support. We will end immediately the minimum poll tax level of 20%, prior to the abolition of the tax itself. We will reform the Social Fund, removing its cash limit and converting most loans into grants.
    Increasing the basic state pension immediately by GBP 5 a week for single pensioners, and by GBP 8 a week for married couples. This higher basic pension will be paid to every pensioner, regardless of their contributory record, to end the indignity of means testing. After the initial increase, we will uprate the basic pension every year in line with average earnings. This will be paid by abolishing SERPS, which does not help the poorest pensioners. People who have already built up SERPS entitlements will of course still receive their SERPS pension.
    Protecting the rights of members of occupational pension schemes. We will provide a statutory framework of protection, including employee representation on occupational pension trusts.
    Creating a comprehensive disability income scheme to give peope with disabilities real financial freedom. We will increase Invalidity Benefit by 15%, extend mobility allowance and base payments on medical records rather than National Insurance contributions. In the longer term we aim to reimburse individuals in full for the additional costs of their disability.
    Creating a Carer’s Benefit for the many individuals who forgo normal earnings to look after elderly or disabled relatives. We will convert Invalid Care Allowance into a Carer’s Benefit, increasing its value by an immediate 15%, indexing its future level to earnings and altering the entitlement rules to enable that people will still be eliglble even if the caring starts after the carer reaches pensionable age.
    Further improvements in benefits. We will, over the lifetime of a Parliament, phase out the differential in child benefit between the first child and subsequent children; reintroduce death and maternity grants; increase the family premium for income support and family credit, and reform the system of cold-weather payments.
    Unifying income tax and employees’ National Insurance contributions so that the two taxes are collected and administered together and paid on the same income, whether from earnings, investments, capital gains or perks.
    Making the investment needed to end the recession, using the money borrowed by Conservatives to pay for their pre-election tax cuts. We will also raise the basic rate of income tax by one penny in the pound to pay for the improvements essential to education. Our new tax rates will be as follows:
    About 80% of tax payers will pay 26% income tax plus 9% from National Insurance (a combined rate of 35%).
    On earnings above GBP 33,000, a combined rate of 42% will apply.
    On earnings above GBP 50,000 a combined rate of 50% will be paid.
    Pensioners and ordinary savers will not pay the 9% National Insurance element on their incomes. Special provisions will also ensure that those on modest incomes most of which comes from investments, such as people who have been made redundant, do not pay this 9%, on their savings.
    A Citizen’s Pension

    At present many people do not receive the full basic state pension. If they have not paid enough tax because they have not earned enough during their working lives, people have to rely on means-tested benefits when they retire. Women in particular are badly affected, because they tend to have the lowest paid jobs and to spend several years looking after children.

    Liberal Democrats believe that a pension should be a right for everyone. We will ensure that the basic state pension is paid as of right and end means testing for our poorest senior citizens.

    We will introduce Housing Cost Relief, weighted towards those in need and available to house buyers and renters. People holding mortgages will have the choice of moving to housing cost relief or continuing to receive mortgage interest tax relief.

  • Richard Dean 26th Jun '14 - 2:28pm

    The “traps” can be readily avoided by improved tapering off schemes. So why choose the much more difficult task of re-structuring the whole system?

    Especially since the experience of UC, for example, shows that huge changes all at once are prone to generating initial confusion and many errors by those who operate it as well as those who benefit or otherwise from it.

    Why not simply do the tapering off properly? Relatively simple, and will resolve the “traps” relatively quickly.

  • Richard,

    the traps remain under universal credit . A withdrawal rate of 65%, the loss of council tax benefit and the additional costs of travel and other work related costs continue to make it uneconomic to enter employment for far too many people currently reliant on benefits.

    CI not only deals with these traps, it provides a positive incentive to engage in employment to supplement a £71 per week income or tax credit. Tapering would continue for housing benefit and rent subsidy claims.

    Welfare reform is about simplifying a hugely complicated and demeaning system that is the source of distress and harm for millions of our fellow citizens and likely to become increasingly so under Conservative or Labour party proposals for the next parliament.

  • Richard Dean 26th Jun '14 - 3:38pm

    CI and MI does really give the impression of idealists tinkering with a system for the intellectual pleasure of it! Hey, those jihadists have the same idea – don’t bother adjusting the present system/country – instead, scrap/leave it and start an entirely new system/country!

    If the traps remain under UC, then the immediate task is to reform UC. That reform would achieve many of your stated objectives far quicker that a reform of the whole system. As regards system, let’s no throw the baby out with the bath water. The complicated nature of the system is partly due to the complicated nature of different people’s needs and the way these needs interact with the priorities of those providing the support.

    As regards being “demeaning” and a “source of distress and harm”, you must be joking! Being demeaning really is a state of mind that can be addressed without changing everything, and if it’s a source of distress and harm then your recommendation should obviously be to scrap the system entirely. In fact, the present welfare system does deliver on many objectives that LibDems can support.

  • Richard Dean 26th Jun '14 - 5:02pm

    … so, to clarify, if all the stated objectives can be achieved by modifying the tapering formulae in the present system, and improving the assessment and delivery procedures, then why go for the huge upheavals of MI or CI?

  • Richard,

    what you call idealists proposed it in the Liberal manifesto of 1974 and the Libdem manifesto of 1992. There is a wide body of economic research, going back to the time of the Beveridge report, available to underpin the proposals and real life examples of how it works in other jurisdictions where some form of CI has been introduced – such as Alaska.

    UC integrates benefit delivery only – its weakness is its lack of integration with the tax system and failure to achieve its stated aims of eliminating the poverty and unemployment traps. The welfare reforms introduced by Ian Duncan Smith and the early results of the changes are there for all to see.

    My favoured approach would be to scrap means testing entirely and introduce CI together with a job guarantee program and linking of housing support to an employment condition for the able-bodied.

    George’s alternative approach abandon’s the notion of helping only the “deserving” poor, which defines our current welfare system, in favour of guaranteeing for every person the minimum standard of living needed to be enabled to have and achieve their human rights in a manner which provides a financial incentive to work for all those who are able – along the lines of the Manitoba program. That program was ditched when recession hit Canada, just as much of the UK benefit system has been rolled back in this parliament following the recession

    CI is a universal benefit/tax credit allowance and coupled with job guarantees program serves as an automatic demand stabiliser during recessions.

  • Richard Dean 26th Jun '14 - 5:14pm

    @Joe Bourke
    Yes, I understand all that. But if people are suffering now, then action is needed now, not in some dim and distant future when your idealistic system might or might not deliver its stated objectives. If you can achieve those objectives quickly, by small changes to an existing system, then why force the suffering people to wait?

  • Richard,

    the benefits system as it is currently structured is fundamentally flawed. That flaw derives principally from an ideological reliance on means testing. It won’t be resolved by small changes to the existing system.

    To change it requires sufficient political clout in a balanced parliament – perhaps the Libdems and/or the Greens holding the balance of power and jointly committed to introducing the legislation in the first budget.

    Most of the benefit administration (excluding disabilities and housing) could be done by HMRC without missing a step – just as they implement annual budget changes as and when they are passed.

  • Richard Dean 26th Jun '14 - 6:17pm

    @Joe Bourke
    Ok, so now you’re saying that the proposed changes actually have nothing at all to do with the tapering off problem, which can be solve fairly easily. Good thing I pressed the point then!

    The benefits system as it currently stands delivers benefits to millions of people. Of course it has flaws. But how do you get from “having flaws” to “That flaw derives principally from an ideological reliance on means testing”?

  • Richard,

    removing means testing removes the tapering problem altogether. The tapering problem derives from a flawed reliance on means testing.

  • Richard Dean 26th Jun '14 - 6:28pm

    What is “flawed” about means testing?

  • Richard Dean 26th Jun '14 - 6:32pm

    A world without means testing is, of course, a world where everyone can be a welfare cheat without anyone knowing. Is that what LibDems want? Is it a “fairer society” if some people are enslaved – required to pay money – for benefits that the recipients don’t need?

  • Richard,

    there is an article here that goes into some length http://www.theguardian.com/social-care-network/2013/jan/14/means-testing-benefits-not-efficient-fair. The author writes “One of the great strengths of universal benefits is that they create a sense of solidarity and shared understanding. Means tested benefits create the opposite, divisions and misunderstanding. When benefits are universal it means that there are better placed people concerned to fight for them. That has always been one of the strengths of child benefit. When benefits are means tested, they lose these advocates and the most disadvantaged, with much weaker voices, don’t have the political clout to ensure that they stay sufficiently resourced and constantly uprated. It’s a vicious circle.”

    Also this short piece from the Child Poverty Action Group http://www.cpag.org.uk/content/move-away-means-test highlighting the costs and quality of administration, problems with take-up and the work and savings disincentives associated with the current system.

    From the 1974 Liberal Manifesto – “The Government’s tax credit scheme, however, falls well short of the Liberal ideal because it values administrative efficiency above adequate provision for social need, while the Labour Party still pins its faith in the paternalism and stigma of the old means tested welfare system. The Liberal scheme represents a major onslaught on the Means Test Society and would replace most of the 44 means tests to which under-privileged and handicapped people are subjected.”

    You cannot be a welfare cheat if Citizens Income is Universal – unlike the present system where you are criminalised for non-declaration of even the smallest casual earnings.

    No-one is required to pay money for benefits that recipients don’t need. People will receive their existing tax and NI thresholds as a tax credit instead of an allowance – their take home pay is unaffected . Those on incomes over £100k have their personal allowance tapered away. That would continue to be the case. The CI proposal is revenue neutral – whereas increasing the personal allowance to £12,500 is likely to cost around 10 billion.

  • Richard Dean 26th Jun '14 - 10:39pm

    Means testing may not be ideal, or even wholly reliable, but the absolute first priority of a benefits system is that it has to be acceptable to the people who pay for it, otherwise they won’t. Means testing represents is a method by which taxpayers can be reassured that their tax money is not being wasted.

    Means testing may be irritating for some, particularly those who don’t want to recognize the mess they’re in, and there’s been lots of to-ing and fro-ing on this over the last several decades. But the irritation is nothing compared to the actual experience of poverty, and it’s the actual experience that needs addressing, not the minor irritation.

    I know it’s probably more difficult to cheat if CI is universal, but that’s like saying the way to reduce crime is to re-define it as legal!

    The UK’s national debt is presently something like 99% of GDP, and it seems to still be rising – the deficit is still a deficit. Household debt is rising too, so there’s a real problem about where the government is going to get the money to get the debt down. We pay more to service the debt than we pay to defend the country. In this context, should we add to debt by giving people free money? Will a helicopter fly if it the fuel isn’t worth anything?

  • jedibeeftrix 26th Jun '14 - 10:56pm

    If it costs less to administer than the current set up, then yes. which, i thought was something that Joe said would be so…

  • Richard,

    means testing creates an expensive and unnecessary bureaucracy. The big saver in cutting these means testing costs is the taxpayer. The CI scheme does not require additional exchequer funding – it is funded from existing benefit payments and tax allowances.

    What is free money? Everyone pays tax on all income and all Citizens gets a CI/tax credit. Anyone earning over £11,500 will pay more in tax then they receive in CI/Tax credits. Anyone earning below this level will get more in CI/tax credits then they pay in tax.

  • Richard Dean 26th Jun '14 - 11:25pm

    @jedibeeftrix
    Really? What if it costs less to administer but costs a whole lot more in payments? Then it’s going to add to the deficit. Plus there will be changeover costs and risks, won’t there?

    How long is it going to take to get the national debt down to an acceptable level? It can be very hard for a household to pay 10% of its income in debt repayments, so by analogy it will be hard for the government to get the debt down to acceptable levels within even ten years.

  • George,

    I came across this video of Professor Forget discussing Mincome and the Manitoba experiment

  • @ Richard Dean
    You make a valid point about hope. This is why I also advocate valuing each person and providing all people on housing benefit with the support of somewhere to go to talk about what they are doing, what they wish to do, how they can achieve what they want and providing the assistance of work experience or training to achieve it, without judging them.

    @ George

    Sorry about my mistake.
    Your couple would be on £420 after paying the rent and council tax (when earning £150). (Starting at 460-100 = 360 going to 150 + 460 – (60% of 150 [90]) – 100) I hadn’t realised that your Minimum Income didn’t count towards their income with regard to income tax. Therefore you have increased the personal allowance of the working person in this example by £18,720 from £10,000 to £28,720 which then reduces by 60% from there as the Minimum Income is withdrawn.

    My couple would not be on anything like that. From £150 they pay £48 tax and NI and then lose their Council Tax support at the current level of 20% and housing benefit at 65%. If we assume Council tax is £20 then they have to pay all of it, and £66.30 of their rent so they end up £15.70 better off on £273.80. This is why I advocate combining the withdrawal rate for housing benefit and council tax benefit into one rate of 50% (this would increase the costs) which would mean that my couple would have £309.10. I do accept that you are advocating giving more money to those on benefit than I am. I am hoping that with economic growth those on benefits should share in the benefits of growth year on year.

    As you don’t take into account people’s housing costs your Minimum Income will be highly advantageous to people who have brought their own homes and have no mortgages. My mother would be a particular winner. Instead of the pension credit rate of £148.35 from which she manages to save, she will have £200 a week and in a year will have saved more than £2600 extra.

    You don’t seem to understand that for those in work, earning more than the Citizens Income, the Citizens Income acts like the Personal Allowance does now. Therefore increasing the Citizens Income for the majority of people will reduce the amount of income tax they pay.

    @ Joe Bourke
    I notice that in 1974 the Liberals were advocating universal housing credit, which seems not to be related to one’s rent or mortgage, while in 1992 the Liberal Democrats were advocating Housing Cost Relief that seems to be for renters at least to be according to their needs. The Citizens Income as we are advocating doesn’t include a housing element and the current withdrawal rate for housing benefit is 65% and I assume for Council Tax support it is the old Council Tax benefit withdrawal rate of 20%.

  • I hope the SNP don’t beat us to it. This is from their 2005 manifesto:

    A Citizen’s Income
    The UK tax and benefit system creates many poverty and unemployment traps that keep individuals and families in a state of dependency. This is not just bad news for the people affected; it is bad news for the economy and for society as a whole. The underlying level of dependency and unemployment in Scotland is a lot higher than is suggested by the official figures. On average 17 per cent of the working-age population in Scotland claim benefit and in some areas this figure is much higher. Many of these people want to work but the operation of the benefit system acts as a disincentive to finding employment. For example, there are many thousands of people claiming Incapacity Benefit in Scotland who would like to look for work but risk ending up worse off as a result.
    With Independence, we will work towards a fully integrated tax and benefit system designed to guarantee every citizen a minimum income, remove financial barriers to work, and help people out of poverty. A Citizen’s Income will create a system of social security that provides a safety net for all citizens, without stifling initiative and enterprise.

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