Way back when I was first involved in politics, the ideas that everyone should have a basic income and that tax and national insurance should be integrated were mainstream SDP/Liberal Alliance ideas.
The Greens have in recent years been the only party to advocate such a change but during the General Election, Natalie Bennett was unable to convince people that it was affordable.
This week, think-tank Reform Scotland has come up with a costed scheme to give every adult a basic income of £100 per week and every child £50. The authors, Liberal Democrat Siobhan Mathers and Scottish Green candidate James Mackenzie, acknowledge that there would be a cost, around £2 billion in Scotland, £12 billion across the whole UK and that personal taxation rates would have to rise by about 8%, but that nobody earning under £26,000 a year would be worse off. However, with 2 children, a £100k household would be over £1200 a year better off
It’s certainly radical, with those on lowest incomes gaining and those on £100,000 without children being around £2,200 a year worse off, but isn’t that what a progressive tax system is supposed to do? There is a question, though, around whether a £100k household needs to be mae £1200 a year better off courtesy of the state.
The report argues that there are seven big advantages of such a scheme:
Simplification: The current system is overwhelmingly complicated. The Basic Income is very straightforward, as all citizens receive a payment. This also hugely reduces the administration involved, as means testing is removed and the payment can be automated.
Individualisation: Every citizen would have a small independent income, whether or not they were in paid employment, since the individual would be the unit, as opposed to the household. As a result, people would be treated equally irrespective of gender, and marriage or cohabitation would not be subsidised or penalised.
Incentivises those who can work, but additional benefits remain for those who cannot: The income is non-withdrawable and is not means- tested. As a result, work always pays. It guarantees, unlike at present, that every hour worked generates additional income for an individual. However, additional benefits aimed at housing and disability remain in place.
All work pays: Not all work is permanent or full time, and some work is seasonal or sporadic. As a result, it can be difficult for individuals at present to accept such work without losing out on benefits and facing uncertainty as to what such work opportunities mean. However, all work, no matter the regularity or permanence, would bring additional income to an individual. There would be no constant changes to benefits as working hours changed.
Income Tax and Basic Income would balance each other: Although everyone would receive the Basic Income there would be limits to the pressure for it to be increased. It is likely that increases in the level of the Basic Income would need to be paid for by increases in Income Tax. As a result, Income Tax and Basic Income levels should keep each other in balance.
Would increase employment: The safety net which ensured all work, no matter the hours or permanence, would pay removes the current welfare trap therefore boosting employment.
No availability-for-work rule: Currently, some people who study or train for more than a few hours a week can forfeit some benefits. This would not be the case with a Basic Income. As a result, there would be no disincentive to train/retrain or carry out voluntary work.
I wondered what would happen to those people who weren’t able to work as the BIG is nowhere near enough to live on:
It is important to remember that a number of benefits, such as Employment & Support Allowance (which is aimed at the sick and disabled) and Housing Benefit are not included. Therefore, households which include those with disabilities or carers, for example, would still receive additional income and they would not be subject to any benefit cap.
In a blog post on the Reform Scotland website today, Siobhan Mathers wrote:
The beauty of the Basic Income Guarantee to me is that every man, woman and child is entitled to it (we use the example of £100 per week for each adult and £50 per child) whatever they do and what they earn. It is a security and an absolute. And every pound earned on top of it is worth it. No more ridiculous complexities meaning that it sometimes isn’t worth taking on certain jobs. It could also allow for a more flexible labour force which could particularly benefit Scotland’s Small and Medium Sized Enterprises.
The scheme we have proposed is demonstrative rather than definitive, an opening gambit in the debate about a new welfare system for Scotland. Yes some would pay more tax; disruptive change always has consequences. But after the heat and light of the referendum debate, do we really want to settle for tweaking at the edges an outmoded UK welfare system? Or do we want to create a welfare system which could be the envy of the world in responding to changing economic realities while supporting our citizens and encouraging a dynamic economy?
This is a proposal that comes with a significant price tag, though. What would have to be cut to pay for it? It’s tempting to look at things like Trident to make up the shortfall, but the annual expenditure on that, correct me if I’m wrong, wouldn’t be enough to cover it. There may well be some savings in administration, but there would still be a significant bureaucracy involved. You would certainly eliminate all the issues around tax credit overpayments because this is a payment that is made regardless of income. However, it may well be that this overall might impact heavily on the poorest simply because public services that they rely on more than more affluent people, would have to be cut to pay for it. More work needs to be done on the wider effects in a more holistic manner. What the report does do, however, is give credibility to an idea that had been widely, and rather lazily, dismissed.
What do you think?
* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings
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25 Comments
“£100k household would be over £1200 a year better off”
“those on £100,000 being around £2,200 a year worse off”
I’m just confused now!
I personally feel like some sort of negative income tax might work better though I’m unsure. My worries about a centrally administered basic income for all are that the state’s power over individuals’ incomes would increase significantly, giving a massive tool for the sort of “stop-go” economics, ramping up people’s wellbeing in the lead up to elections, that the Tories used pretty successfully electorally in the 1950s/60s.
I think it is a very interesting idea. There is a pilot of it being done in Utrecht. It will be interesting to see what happens there.
This is good see. Well done the authors.
It doesn’t have to be hugely expensive. One can design something which tappers off as someone gains more income from employment.
Sam Bowman recently published this: http://www.adamsmith.org/blog/welfare-pensions/the-ideal-welfare-system-is-a-basic-income/
I put something forward similar to this to the 2015 manifesto working group a few years, but didn’t even get the courtesy of a reply.
One could design a scheme in which people volunteered to enter the scheme in return for an availability for work at a moderate wage – using an ebay kind of scheme to ‘sell’ their skills – with a ratings system for employers and employees.
As individuals managed to sell more of their time and for greater hourly rates (as they became more skilful and more highly rated by employers) the proportion of their income coming from a basic income would taper off.
Bowman comes to this as a libertarian approach to redistribution. The excellent Lars Christensen suggests there is a pragmatic case http://marketmonetarist.com/2013/12/08/there-is-a-pragmatic-but-not-a-libertarian-case-for-a-basic-income-guarantee/
I hope the authors get a chance to look at these two pieces of work. Perhaps for those with limited time, go straight to Lars’ piece.
I think it would be impossible to sell this, what we could sell would be negative income tax. People below the tax threshold would get extra money related to any money earned legitimately, there would always be some extra incentive to earn money up to the threshold.
James, I have just seen your comment. Apologies. But if you just tendered for ebay or gumtree or the like to run such a scheme there would be little bureaucratic interference.
Each person could have their own web page ‘selling’ themselves. Employers entering the scheme could bid for the labour. There could be a minimum requirement of making one day a week available to the scheme. If no one bid the member would still get the basic income. Any employers trying to abuse the system would quickly be exposed by reviews.
I just thought it worth a group of committed Lib Dems (like the manifesto group) seeing if they could design out any faults in this simple proposal.
Caron , James is correct in the figures , phraseology a bit hard to grasp , do you mean those 100 k and under better off , those 100k and over , worse off ? O I do not know if people realise the extent to which this was once and many times Liberal policy . As with the excellent local income tax plan , it went walkies ! I must say two things of importance . Firstly , this shows why Paul on the other thread today is wrong , at least with regard to the specific issue of migrants being able to immediately access in work benefits . This policy would mean we must either completely limit it to citizens and permanent residents , the latter based on the old settlement by work or marriage , ie five years residence as a minimum , or it is unworkable and a magnet for more immigration. We have very many coming from Europe now , this guaranteed income would be a pull for keen migrants , and who could blame them ?!
P.S. As a Europe wide harmonisation paid for by member states for its own citizens and permanent residents ,with the criteria I mentioned ,received in all EU countries ,it could work . Another thing it could do is save a lot of money , but put many out of a job who work in the DWP, with a very few ,specialist and caring staff ,needed , to motivate and advise the clients who want or are keen to access their advice ,and not the conveyor belt “NEXT!” , variety , with their target driven mania, for they would not be needed chasing and brow beating claimants at the command of increasingly authoritarian governments ! However ,we would have their union, one of the more staunch ones , against it ! As a policy with the above mentioned , sorted out , it would give individual dignity and autonomy back to the jobless , and greater independence .
On £100k figures – if they have children they could be better off, if they don’t have children, they could be worse off.
“I think it would be impossible to sell this, what we could sell would be negative income tax. People below the tax threshold would get extra money related to any money earned legitimately, there would always be some extra incentive to earn money up to the threshold.” (paul barker 3rd Feb ’16 – 2:07pm)
I agree this is going to be a hard sell; as for negative income tax, wasn’t that what tax credits were originally all about, before they got put through the benefits system mincer?
Those earning just over £100K a year have an effective marginal tax rate of 60% as the personal allowance is withdrawn. Does this proposal correct that anomaly in progressive taxation?
David, the proposal document suggests the removal of the tax free allowance on earned income for all earners, so the anomoly you reference is removed, yes.
“As additional benefits aimed at housing and disability” will “remain in place” I fail to see how BIG will provide much simplification as housing benefit will surely continue to be means tested. Moreover, in many parts of the country, particularly London and the South East, housing benefit could actually constitute the major part of a household’s total income. Mean-testing this is likely to to be as much a disincentive to work as the present means-testing regime.
Caron,
What about the idea also of guaranteeing everyone some paid work? If we were to ask every local council for a list of things they would like to do but don’t have the money for, then I’m sure we wouldn’t run short of suitable projects. Areas of derelict land could be turned into community gardens. Old people could be helped with their gardens. Everyone with some kind of skill could attempt to put it to use. Many supposedly disabled people often turn out to be very able at doing something.
Young people could learn new skills which could even form part of an apprenticeship. Everyone participating in the scheme would build up an employment record to present to a future potential employer.
It’s not a particularly new idea so there is no reason why not!
I tend to favour Negative Income Tax – mainly because it avoids benefiting those who are already wealthy and, by doing so, lets it be far more generous.
Let’s face it, £100 a week, replacing most other benefits in the process, really isn’t enough to be able to pay for food, utilities and rent for the average person.
Reform also makes a pretty bold and unsubstantiated claim – that NIT would be worse because it’s based on households. That’s absolutely not necessarily the case by any means.
Don’t we already have a kind of negative income tax? Isn’t that also what Universal Credit was aimed at achieving in simplifying the tax system? We’ve seen how that worked out…
I’m not too fussed about the idea of a universal basic income. I’m fine with it as long as people cost it and they don’t go onto interviews with Andrew Neil making a show of themselves with sky high costings.
This is a great idea Caron, and well worthy of a Liberal.
A surprising side benefit would be a significant freeing up of housing units in many parts of the country as well as encouraging people to take up marriage or a civil partnership.
You see, for a half century or more, welfare payments have automatically been reduced if a single person lives with a partner.
If both are on benefits, living together does not mean two benefit claims but one that is 1 1/2 times a single person’s claim.
Thus, to get over this, the man rents a room somewhere to claim from – ‘dole drop’ address – claiming also housing benefit for it of course.
He shacks up with his woman and without tying the knot in any way – they have children as normal.
They gain many more benefits but we all lose because his housing unit is empty and we out the rent for no value.
The kids of the family, of course, do not have the stability of coming from married/committed parents and are shown how to ‘fiddle’ the dole.
So it is lose, lose, lose…
I tell you that this situation is rife as I speak as an ex-social worker, a Welfare Rights officer and for some decades, a legal aid lawyer.
These are my people and this is what they do.
At a stroke, your idea Caron will kill the incentive for this sort of waste and criminality, and free up the single person accommodation that we are so lacking at the moment.
So well done…
Brilliant.
Just looked at the costings, they look fine. But the if the rich don’t get it too then it kind of defeats the object of the policy (simplification) and would create more resentment towards paying it. It would basically be going back to the old Gordon Brown welfare system. But I’m not a fan of welfare sanctions, so I’m kind of in favour of it, as long as tax credits don’t start increasing too.
When it comes to spending defence money on it: I think it is important to send the message that we are a society that will defend ourselves and our allies. Taxes could go up perhaps regulation could go down to pay for it (if that works). What about public money going to foodbanks? That won’t be necessary if we have this policy instead.
Sorry, the 8% increase in taxes is absolute, I thought it was relative. This is going to be hard to sell. Even if people hear about an extra £5,200 a year, a lot will just bash it as an 8% increase in the tax rate. So a 40% taxpayer is effectively going to get a 20% increase in relative taxation.
If it’s not enough to live on, what’s the point? If it doesn’t replace the state pension, housing benefit etc. then it doesn’t sound much like a simplification. If you do replace those things then inevitably some people with not very much are going to lose out. I’m in favour of the principle, but actually designing a system which is both simple and pays out what people need I fear may be almost impossible.
James Murray Law. Aside from the issue of benefit fiddling, it is not the state’s business to try to influence whether people marry, have civil partnerships or cohabit. And to suggest that people choosing not to take up these options are de facto all less committed is insulting and inaccurate.
I’d leave the party if this became our policy.
Firstly that hefty price tag would probably involve taking cash out of public services. It gives money to people who don’t need it and at the top end of the income scale and probably takes away money from those who do need it at the bottom.
@Kay Kirkham – I think you have misread James’ observation. The current arrangements, set by the state, encourage a particular style of relationship. Getting rid of this distortion may actually result in people doing what they would have done if it wasn’t for the negative impact of the current benefit rules. I don’t see in James’ piece any judgement being placed upon those who engage in the practises described.
However, what James does illustrate is that it is going to be in the estates where the current benefits system creates a distorted way of life that a citizens income is going to succeed or fail. Hence we perhaps need to run some trials…
This is basically a good idea.
Take the issue of 2 people both on an income of £200 each today. One qualifies for council tax benefit because this income comes from the state or employer. The other has to pay the full council tax as his/her income comes from ISA or dividends.
One might say that in the 2nd case the dividends are earned from capital investments but when that capital is depleted you will have 2 people (instead of 1) in the benefits trap. BIG will instantly remove the benefit trap by removing means tested benefits.
The point is are the Libdems radically liberal enough to consider the BIG.
The simplest way to introduce a basic income scheme is simply to allow people who do not make the tax limit can claim back 20% of the difference. Primary benefits would be reduced by a corresponding amount. Do the same for NI and you have a basic income of about £60 per week. Nobody currently on benefits would lose so there would be a cost which would need to be made up by raising tax rates. Each subsequent rise would reduce the number of people who can claim means tested benefits until you are left with only housing and some disability benefits still means-tested. They should then be devolved.