Britain is one of the richest countries on Earth. And yet, millions of people live in food and fuel poverty. For the poorest families in our country, the cost of living crisis is nothing new. It has been a consistent reality for decades as they have struggled to afford the basic essentials in life.
In recent years, the poorest and most vulnerable members of society have been impacted by crisis after crisis. From the financial crisis of 2008, to the years of austerity, to the current cost of living crisis, not to mention the consequences of Brexit, the poorest and most vulnerable continue to suffer. Poverty deprives the individual of dignity, autonomy and personhood. It prevents them from developing as an individual and severely limits their life outcomes. There could be nothing more liberal than ensuring that “no-one shall be enslaved by poverty”.
Last weekend, I found myself in the unusual position of being undecided on a conference vote as the party debated its Towards A Fairer Society motion in York. The debate centred around a choice between Universal Basic Income (UBI) and what the party called a Guaranteed Basic Income (GBI). Having previously written for Lib Dem Voice on the merits of a Universal Basic Income, it may come as a surprise that I was not sure which policy option to support.
For me, the choice between UBI and GBI was a battle between heart and head. UBI on the face of it is the ideal policy, it is radical and egalitarian and is based upon the notion of universal shared citizenship. Everyone would be in receipt of it, regardless of background or wealth. The universality of the policy is essential for reducing the social stigma towards the poorest who would need it most. However, fellow UBI supporters need to better respond to the criticism of why the richest should also receive it (even though their UBI would probably be entirely taxed back by the state).
Universal Basic Income is a massive policy, not just in terms of public expenditure, but in terms of its potential to transform society and the economy. In order to do UBI justice, a complex and sophisticated political argument is required. One that would require us to re-examine the nature of work, citizenship, universality, the tax system and the welfare state.
It was clear that the party would currently struggle to advance such a complicated political argument. If party activists cannot easily explain a policy in a Focus leaflet or on the doorstep, it is doomed to fail. Since the party first supported UBI in autumn 2020, the party leadership has been reluctant to advocate for it. This factor was further underlined during the debate when several MPs stood up to argue in favour of GBI and against UBI.
In the end, despite my support for UBI, I decided to vote for the Guaranteed Basic Income option instead. Pragmatism won out over idealism. GBI is a policy that the party will be prepared to campaign on. It is a targeted payment directed at those on the lowest incomes with the aim of abolishing deep poverty within a decade. In essence, this is what can be called a Guaranteed Minimum Income. Why make the best the enemy of the good? The party now clearly has a good policy, in fact more than that, it has a great radical policy for advancing social justice and combating economic inequality. In addition, the GBI option also recommitted the party to abolishing the benefit sanctions attached to Universal Credit.
The party should consider fine tuning its GBI policy by ending the need for claimants to opt-in to receive the payment. Ending the need to opt-in to the policy would minimise both the risk of social stigma towards its claimants and would reduce the need for government bureaucracy. Claimants could be automatically enrolled into receiving GBI by linking it to the tax system that already administers levels of taxation based on earnings. In this sense, GBI would become a form of Negative Income Tax.
In general elections past, the party occasionally listed the top four or five policies on the front cover of its general election manifesto. I do not believe that Guaranteed Basic Income should be in the party’s top four or five policies; I believe it must be the party’s number one policy at the next general election. GBI is the solution to the cost of living crisis. It would lift millions of people in our country out of deep poverty.
Let us campaign to make Guaranteed Basic Income a reality. Let us, as the party of GBI, restore our party’s reputation for being a progressive champion for social justice. Together, let us ensure that we make deep poverty history in Britain, once and for all!
* Paul Hindley is a PhD politics student at Lancaster University and a member of the Liberal Democrats in Blackpool.
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42 Comments
Might it help if our party were to expose the inherently fraudulent nature of currently dominant Neoliberal Economics which is designed to, and does, increase wealth polarisation?
Might at least some of the realities presented by Modern Monetary Theory be drawn to the attention of an under informed citizenry?
Might we also make clear the people to whom the money extracted by bank rate increases goes?
There’s going to be little difference in practice between a Guaranteed Basic Income and Universal Basic income. As Paul Hindley correctly suggests any Universal payment to the wealthy will probably be taxed back. A Guaranteed Basic income will also, by definition, make no difference to the wealthy.
The difference, with both, will be at the other end of the income scale. The least affluent will get their income topped up whether or not they ask for it. Various calculations, see for example Malcolm Torry on the UBI, demonstrate how these can made to be “affordable.”
The usual assumption, for both, is that everyone will carry on as previously. That is doing what they are currently doing. Is this a good assumption? We need to ask if, with an annual income of say £N, everyone will carry as before if it is split into £(N-B) and £B where £B is the amount paid out either as a UBI or a GBI.
If N is large and B is small then probably they will. However, for the lower paid with a small N and a large enough B to take everyone out of poverty then they almost certainly won’t do that! Whether or not we think this is a good thing, we do need to factor the effect into our calculations.
As disposable incomes increase, whether from increased pay or benefits, so too do rents, house prices and the cost of commodities and energy rise to absorb those increases. This is an inevitable consequence of the “Law of Rents” formulated by Ricardo two centuries ago.
To address poverty, both disposable incomes and the cost of living need to be addressed simultaneously. That requires an integrated suite of policies designed to ensure an adequate supply of affordable housing, full employment, fair energy prices, sufficient food at reasonable prices and clean readily accessible water.
While redistribution and land taxation is an integral part of the solutions; it is the holistic combination of these policies that holds the answers to addressing both urban and rural poverty.
So a family in poverty gets Guaranteed Basic Income. A parent then gets a part-time job and starts earning, meaning the family is now in receipt of more income than the Guaranteed Basic Income, so the payment made by the state is reduced until the family returns to an income that is the level of Guaranteed Basic Income (though now made up of a combination of earnings and State top-up). The parent now realises that their work has made no difference to family income so quits the job…and remains on Guaranteed Basic Income. This is the central weakness of Guaranteed Basic Income compared to Universal Basic Income – under UBI, people are always financially better off by taking a job or increasing their hours.
That would be the problem with an actual Guaranteed Basic Income. What we adopted was just a massive hike in Universal Credit to a level which we won’t specify but presumably the Tories will.
@Mel Borthwaite,
This is essentially the same criticism I made of GBI before the conference
in response to Kevin Langford’s article in LDV
https://www.libdemvoice.org/towards-a-fairer-society-universal-basic-income-
vs-guaranteed-basic-income-2-72801.html
The point I made in response to Kevin Langford’s article before conference
is that if nothing is done about the taper rate GBI will suffer from exactly
the same problem as UC does now, that people receiving it can pay effective
tax rates far higher than the highest earners. The motion as passed does
nothing for the relatively poor, only for what the author here has called
‘deep poverty’.
” if nothing is done about the taper rate GBI will suffer from exactly
the same problem as UC does now”
The UBI also has an effective worsened “taper rate” compared to the present system. Any scheme which proposes increased and unconditional social benefits for those on the lower incomes has to claw those back for those on higher incomes. This increases the effective tax rate. Lib Dems don’t say why this is a bad thing in itself , but the only possible reason has to be that it is a disincentive for anyone to go out and do the jobs which we all require to be done.
So Lib Dems are nearly all agreed that the present system needs to be changed to eliminate poverty but there is no consensus on how to do that. There are just too many disadvantages to any of the proffered alternatives.
Can I suggest that this is due to an extreme reluctance to require anything in return from those whom kind-hearted Lib Dems are trying to assist? Once you get over that everything falls into place. Everyone should be required to make some contribution to society according to their abilities, and once they do that they are entitled to an income which keeps them out of poverty.
“they have struggled to afford the basic essentials in life.”
It seems to me that it would be better to ensure that all have access to the basic essentials. Somewhere to live, food, water, toilets, basic health care. This feels more appealing than rather arcane discussions about a basic income, which would probably get sucked away by increased rents or inflation or something
Paul Hindley,
I am pleased to read that your head won over your heart and you voted for the Guaranteed Basic Income option.
I hope that ending deep poverty in the UK within this decade will be one of our core policies in the next manifesto.
Peter Martin,
Currently those earning over £100,000 lose their Income Tax Personal Allowance until it disappears when they earn £125,140. They have an effective Income Tax of 60%. Therefore if we had gone with a UBI we should have linked it to a 60% Income Tax rate on earnings over £100,000 and to try to claw back the UBI from the non-earning partners of those earning above £100,000 this 60% rate would need to continue to earnings of £150,280.
The party’s policy is to set the Guaranteed Basic Income at 50% of the median income for household types excluding housing costs. Therefore most people will want to work to earn enough to live out of poverty (60% of the median income for household types excluding housing costs) and to cover their housing costs.
Mel Borthwaite and Laurence Cox,
In the policy paper – ‘Towards A Fairer Society’ we are not proposing changing the benefit taper of 55%. So a person who works will keep 45 pence net of every pound they earn after their benefit is reduced.
For example a single person would receive £144.90 a week in Guaranteed Basic Income and if they were employed for 16 hours a week at £10.42 an hour they would be £75.02 better off.
@ Michael BG,
“The party’s policy is to set the Guaranteed Basic Income at 50% of the median income for household types excluding housing costs.”
According to the ONS the median income is about £32k pa. So some questions:
1) You’ll be guaranteeing everyone a basic income of around £16k?
2) Is this unconditional?
3) Will housing costs will be added on top of that?
4) What does “household types” mean?
There was an explainer document accompanying the Fairer Society policy paper UBI_vs_GBI_Explainer
There is no explanation there of what household types means.
The ‘Key statistical comparisons’ section is particularly misleading. It features the usual stereotype of ‘Couple, no children, one earning £70,000’ which is a very rare type indeed. The average single earner couple earns no more than an average single person. Measuring by a standardised household income (the usual way of measuring relative need) they are significantly poorer than two-earner couples or single earners and are significantly worse treated by the combined tax and benefit system than those or no-earner couples. Single earner couples are not considered a key category because they fare much better under Universal Basic Income.
Actually, I should have used single / dual income rather than earner. There are quite a lot of richer single earner couples that have only one earner but two incomes (one from investments) and they would be no better of under UBI.
I am afraid that @Michael BG is incorrect when he writes:
“In the policy paper – ‘Towards A Fairer Society’ we are not proposing changing the benefit taper of 55%. So a person who works will keep 45 pence net of every pound they earn after their benefit is reduced.”
As will be clear to anyone who read my original link to the BBC Reality Check article in response to Kevin Langford’s article on LDV: https://www.bbc.co.uk/news/58870012 the 55p in the £ reduction in Universal Credit applies to net income after Income Tax and National Insurance deductions. So anyone whose income is above the Income Tax personal allowance only keeps 31p in every extra £ they earn, not the 45p that Michael BG states.
For comparison, the effect of removing Income Tax and National Insurance personal allowances is to leave UBI recipients with 68p of every extra £ they earn; a much stronger incentive to earn more money than even the 45p they keep under GBI for incomes below the Income Tax personal allowance.
The statement in the Explainer “Those not entitled to Universal Credit will see no benefit under GBI (though it will lead to some more people being entitled to UC)” means that there will be even more people paying an effective tax rate of 69p in the £ and these will be poor, although not the poorest, people (e.g. anyone working 24 or more hours/week at £10.42/hr).
>” In the policy paper – ‘Towards A Fairer Society’ we are not proposing changing the benefit taper of 55%.”
Michael BG
I would hope with a unified benefits and tax system that the taper rewards increasing income rather than at present penalises. Ie. The taper being applied to the following tax years’ tax code rather than being clawed back in the current tax year.
For consistency in poverty indicators like the Gini coefficient, equivalised disposable income is calculated as the total disposable income of each household divided by the equivalised household size.
The equivalised disposable income is the total income of a household, after tax and other deductions, that is available for spending or saving, divided by the number of household members converted into equalised adults; household members are equalised or made equivalent by weighting each according to their age, using the so-called modified OECD equivalence scale.
The equivalised disposable income is calculated in three steps:
all monetary incomes received from any source by each member of a household are added up; these include income from work, investment and social benefits,
plus any other household income; taxes and social contributions that have been paid, are deducted from this sum.
In order to reflect differences in a household’s size and composition, the total (net) household income is divided by the number of ‘equivalent adults’, using a standard (equivalence) scale: the modified OECD scale; this scale gives a weight to all members of the household (and then adds these up to arrive at the equivalised household size):
1.0 to the first adult;
0.5 to the second and each subsequent person aged 14 and over;
0.3 to each child aged under 14.
Despite a lot of searching, I’ve been unable to find a breakdown of income distribution for single income couples, dual income couples and single earners (though I have seen an FOE reply that suggests the Government doesn’t have this information). Assuming that the earners in these categories have the same income distribution, single earners would have an equivalised income of 1, dual earners 1.33 and single earner couples 0.666 assuming none have children. The disparity is even greater when you take into account that single earner couples are the category of the three most likely to be raising children (it’s a major reason why one partner would not be working).
@Peter “ There are quite a lot of richer single earner couples that have only one earner but two incomes.. ”
I think this needs clarifying. I suspect these richer single earner couples are older, the number of younger couples ie. Under 50, with a significant investment income is very small ie. Not typical. Additionally, given all the discussion over the years about pensions, I suspect the majority of those under 70 either won’t have an investment income, the investment to cover pension shortfall being too important, or they are having to encash savings to cover income shortfall (redundancy etc.) and thus generate a pseudo investment income.
I don’t doubt there are a few who have inherited wealth or have been successful (which will typically imply they are older)….
@Roland. As you say, they are mainly older couples where one partner has taken early retirement. They are not a large number in absolute terms but they do make up a significant proportion of rich single-earner couples which is a fairly small group itself.
Peter,
the household types in ONS data are typically non-retired with and without children and retired grouped by income decile or quintile. For poverty indicators, equivalised disposable income is calculated as the total disposable income of each household divided by the equivalised household size using the OECD scale.
Indeed and that doesn’t differentiate between single income and dual income couples which is what you need to know to calculate the different impacts of UBI and GBI.
Peter Martin,
I proposed an amendment to make it clear that we are not proposing everyone getting the same, half of the ONS median income of about £32k pa, but it was not accepted. So the answers to your questions are:
1) No. A single person receives £144.90 a week, a couple with no children £249.90, and a coupe with two children £404.78.
2) It is means-tested
3) Housing costs will be covered by either a housing benefit element as with Universal Credit or with a restored mortgage interest scheme as the party passed in spring 2022.
4) The Policy Paper should have a footnote on the fourth column of the table on page 18 making it clearer that the median income is that calculated for each household type as set out in Annex 1 of JRF’s UK Poverty 2022 (https://www.jrf.org.uk/report/uk-poverty-2022).
Roland,
“The taper being applied to the following tax years’ tax code rather than being clawed back in the current tax year”.
This would mean a huge reduction in income in the second year.
I would like to see Work Allowances for single people and couples with no children or not on ESA restored.
The lower the taper the higher the salary is, where people stop receiving benefits.
For example someone receiving £23,400 a year in benefits with a taper of 55% would stop receiving benefits when their net income reaches £42,545.45 which is well over £62,000 gross. With a taper of 45% this increases to a net income of £52,000 which is well over £76,000 gross.
So if we take the case of a single parent of two children old enough to require separate rooms and living in the cheapest three bed rental in the Royal Borough of Kensington and Chelsea with a net income of £80,000 They would now be entitled to UC / GBI (and free school meals) while paying an effective tax rate of 82%. The option was passed largely on the claim that no rich people would benefit.
It’s sometimes useful to take a step or two back to get a better perspective on the nature of the seemingly intractable problems which do exist with our welfare system. If they weren’t so difficult they would have been solved long before now.
We need to look at the nature of government, money and the taxation system. Government needs to provision itself, which means it needs workers and businesses to provide it with the real things it needs. Therefore, it imposes taxes on us all which we need to pay in the government’s currency of issue. To get the money we usually need to work for the government either directly, or indirectly for a third party which has a similar need, and so provide it with real resources. This isn’t money! Money though does then acquires a value, but only to everyone else, and which serves as a means of exchange in the wider economy. Money is perhaps best understood as a tax voucher.
Obviously the government can pay out money without asking for anything in return but this is defeating the purpose of having a monetary and taxation system in the first place. This is the nub of the problem regarding incentives and tapers. Lib Dems may well not like the coercive nature of the monetary/taxation system but this is just the way it has to be unless and until anyone can think of a better way of running society.
My only comment is, not entering into the intricacies of taper rates as discussed above, that receiving GBI is not likely to be considered a reason to stop working, Peter Martin. Because the person will then be living at just 50% of median income, rescued from deep poverty but still poor. I would like our party to continue to consider how the 14 million people still living in poverty in our country can be helped further in future.
“Because the person will then be living at just 50% of median income, rescued from deep poverty but still poor” In most cases that will not be the case. If the policy ensures that nobody (including non-renters) is on less than half of median income then renters with no other income will be taken close to or above the median. Housing benefit (which makes up the majority of Universal Credit in most of England) seems to have been completely ignored. One possible idea that would help would be to put a lower limit on the housing element.
@Katharine Pindar,
Whether anyone on 50% of median income can be classified as “poor” will depend on personal circumstances: the income of a partner, accrued savings, the number and nature of dependents, home ownership etc. The most likely to take up an opportunity to stop working will be those who wish to retire early and those who wish to take a break to do some studying.
It may well be that this is a good thing but, nevertheless, the cost, both in terms of money and lost production, does need to be factored in to calculations. It’s nearly always a mistake to assume that everything else remains the same if one parameter is changed. In this case we are changing a work related income of £N pa to one of £(N-B) topped up with a non work related income, social benefits, of £B.
I’m a keen as anyone to end poverty in our society. However, I don’t believe it is possible to do that by increasing social benefits, especially if they are of an unconditional nature. If there was a solution to be had we would have found it by now.
@Michael BG re. claw back and taper
Firstly, with UBI/GBI we need to get away from the current benefits culture where benefits are given out and then if people happen to do well get clawed back instead of rewarding people for improving their situation. Secondly, with UBI/GBI we need to unify the Benefits and Tax systems, in the process getting rid of the current Benefits system, with a unified system I envisage benefits being more like P11D additions.
With a unified system and fully taxable UBI/GBI and Benefits, a person who does well will in the first year be paying NI & Tax and hence will (via payroll) effectively receive an automatic taper of ~30% on their first year earnings. For the second year, yes there will be a drop (circa 15%) due to the application of the 45% taper, but there would typically be a pay increase so the real reduction will be reduced. My view is we should incentivize getting people to a “reasonable” level of income, which would suggest the taper needs to be a little more nuanced.
No discussion of opportunity cost then?
We’re proposing to spend 60bn distributing money most of which will go to people who don’t need it; so many more useful destinations for spending that enormous sum.
The NHS, NHS dentistry, social care system, education etc etc etc.
Instead we add another layer of complexity onto the existing complex benefits system. We create perverse incentives not to work. We create very high marginal tax rates for the worst off.
A real lemon of a policy. And with the sum mooted: “only” 60 billion, we get nowhere remotel near “ending” poverty.
The gap between the rhetoric and reality is absurd.
1. Increase spending on admin of the benefits system; make it work better.
2. Target spending on the worst off.
The main reason that no tidy system works in this country is housing costs. They are a massive part of family budgets and they vary enormously across the country. While we accept that the government pays 100% of rental costs for everyone on benefits and while rental costs are at current levels, any system will have a massive difference between the amount paid to a renter in London and a home-owner or sofa-surfer in Blackburn.
The first thing we need to do is get rents down. That means building a lot of homes fast. They should be high quality energy-efficient homes but they should be high density flats or tall thin terraces. Most need to go into the commercial rented sector.
The second is to move some part of housing benefit from actual rent to housing need. At the moment you get your full rent paid up to a limit based on local rents. I would like that to change so it was made up of perhaps 60% of your actual rent, 20% of the local upper limit and an increase in general benefits of 20% of the highest local limit in the country. That would mean a significant rise in the minimum income for anyone on benefits in poorer parts of the country without raising the maximum income at which you could receive benefits. It would also end the situation where many commercial renters are looking for the most expensive home below the local upper limit rather than looking for the best value or considering a cheaper neighbourhood.
Peter Davies,
You didn’t say what amount of Local Housing Allowance your single person with two children is getting. For Inner South West London a category D house has a LHA of £441.86 a week (£22,976.72 a year). This would mean currently the single person would need to earn over £75,000 before they received no Universal Credit Housing element.
The rich people talked about in the debate were those earning over £125,140 who currently have no income tax personal allowance.
Currently housing benefit is limited by Local Housing Allowance. The LHA rates are not sufficient to pay most people’s rent. Therefore people who don’t receive enough LHA have to use some of the merger money they receive to live on to pay their rent.
Indeed more homes need to be built, both for purchase and for rent. Flats or narrow three store terraces are not suitable for everyone. As liberals we believe people should be able to choose what type of home they live in, we should not be advocating only building two types of homes.
Peter Martin,
It has been explained above that the median income we are talking about is equivalised median income which takes into account the composition of the household.
If benefit levels are enough for people not to live in poverty then wages will have to increase to make it more worthwhile to work. Having full employment (until the 1970s) increased wages and reduced poverty.
William Beveridge didn’t in the 1940s know anything about payouts being clawed back by taper rates. He simply wanted a system by which everyone, working or not, was assured of having enough moneyto live on. We are following his wishes by accepting the principle of providing a Guaranteed Basic Income for every household of working age, to prevent them falling into deep poverty or destitution. Pensioners are looked after separately , and as has been pointed out, housing costs must be treated as a separate expense, not covered by our Fairer Society policy paper but very much being considered in Lib Dem policies present and in development. Beveridge, by the way, knew that good enough housing has to be provided, just as there have to be sufficient employment opportunities – he covered them all in his consideration of the Five Giant Evils. He couldn’t have guessed that his affluent successors would accept the necessity of Food Banks, an evil for which proper development of GMI should eliminate the current huge need for.
Roland,
As I have already stated there should be a work allowance for everyone – an amount they receive before they lose any benefit. I am thinking of over £55 a week. However, if a person on benefits can keep everything they earn then they could be receiving thousands in benefit while earning well over £50,000. An alternative solution is to have more than one taper rate (maybe 55% on earnings above the work allowance to the income tax allowance and then 25% until net earnings reach £41,000 and then return to 55%.)
Chris Moore,
Our new policy of a GBI to end deep poverty in a decade will mean that money will go to people who need it.
If you think someone earning over £60,000 with two children living in private rented accommodation receiving benefits does not need it, then please produce the breakdown of their income and expenditure to justify your view?
“If you think someone earning over £60,000 with two children living in private rented accommodation receiving benefits does not need it, then please produce the breakdown of their income and expenditure to justify your view?”
Clearly they don’t need it. There are people with the same needs who don’t have any income but benefits. They should be getting what they need and someone earning £60,000 a year should have more than just their needs. The country as a whole has an income far greater than that needed to cover just our needs. Those who work should be able to afford things they don’t need.
Peter Davies,
Someone earning £60,000 would pay £11,432 in income tax and £4,718.60 in national insurance leaving them with £43,849.40. They pay £22,800 in rent. They pay £3000 in travelling costs, and £2500 in Council Tax leaving £15,549.40. This is below the JRF very deep poverty level for such a family of £16,100. A family living in very deep poverty does not have enough to cover their needs.
Travel is expenditure not a reduction of income. For that amount, they could commute from Outer London. Their rent would be much lower and there would probably be better facilities for the kids. Most couples not trapped by social housing or housing benefit would make that choice. It’s why central London no longer has a middle class.
Your figures show them making a contribution of over £16000 to the exchequer. Their needs could easily be covered by a reduction in that without giving them getting benefits. It’s purely a matter of spin whether you consider UBI to be a benefit paid to everybody or a negative income tax paid to those not using their allowances. If you take the latter view, a straight switch to UBI of the current allowances would give the couple two sets of allowances instead of one and raise them well above the deep poverty level without their needing any benefits.
@peter – “ It’s purely a matter of spin whether you consider UBI to be a benefit paid to everybody or a negative income tax paid to those not using their allowances”
I agree spin as a negative income tax and things become a lot less complex; earn over £50k and you’ll be paying 40% income tax for that financial year, whilst not the 45% taper reduction, I suggest it’s close enough.
@ Michael BG
“Someone earning £60,000 would pay … They pay £22,800 in rent. … This is below the JRF very deep poverty level ”
I have concerns here that there is a danger we create a biased system: so someone earning £60k in rented accommodation is regarded as being “poor”, yet another on £60k with a mortgage is considered “well off”…
Aside does the UK benefits system payout in your example £60k household?
Peter Davies,
So you are suggesting that we tell people to move to cheaper rented accommodation. That does not sound liberal to me. The LHA is below the 30th percentile. If we say £300 is the amount of LHA for a three-bedroom home in Outer London (for most of Outer London it is higher) then the 50th percentile would be above £500 a week which is £26,000 a year. And that assumes they could find somewhere to rent at that rate, as half of properties would have rents above this figure.
One of the reasons we rejected a UBI is that for the same money the poorest would receive less than if the money is targeted to them and not given to people who don’t need it.
If the thresholds for paying income tax and national insurance were increased by £2000 this would cost about £18 billion. The basic rate would need to be increased by 3 pence to recover £15.75 billion. For our example of a person earning £60,000 they would benefit by £640 from the personal allowance change and pay £1071 from the increase in basic rate. So this change would not help this family, but someone earning £30,000 would have a net gain of £177.10.
Roland,
If we assume our couple are both aged above 25 then from 6th April they would receive £578.82 a month plus if they were living in Outer South East London £299.18 a week for their rent if neither worked. Plus if their first child was born before 6th April 2017 (which we shall assume) they would receive £269.58 and £315 a month. All these total £29,518.16, but the London benefit cap is only increasing to £25,323.
However, once one of them starts working the benefit cap does not apply. So with a straight negative income tax where the benefit reduces the amount paid in income tax and national insurance this couple would receive £13,367.56 in negative income tax.
Under the current system I think they would receive £5400.99.
@ Michael BG “So you are suggesting that we tell people to move to cheaper rented accommodation. That does not sound liberal to me”.
What sounds liberal to me, Michael, is tackling the issue of extortionate rents and greedy landlords who exploit people. Last week’s BBC Panorama programme pointed out the issues quite clearly.
@ Michael BG,
“If benefit levels are enough for people not to live in poverty then wages will have to increase to make it more worthwhile to work.”
Real incomes aren’t defined by how monetary wage levels but by how much is produced and how what is produced is divided up. Any policy which makes it less worthwhile to work will also mean less will be produced which will inevitably reduce real incomes.
How our total production is divided up is also dependent on property rights. An immediate example can be seen in case of two neighbours who live in similar residences, have similar monetary incomes, but have different property rights. An owner doesn’t have to pay rent or interest payments to a bank.
“Having full employment (until the 1970s) increased wages and reduced poverty.”
This was because real wages rose due to increased productivity and therefore increased production. The mainstream explanation is that productivity increases were the cause of increased wages. It works the other way around too in that employers will only invest to increase productivity if wages are relatively high and labour is scarce. The trick, in the absence of direct government market intervention, is to strike the right balance between keeping a tight labour market and avoiding too much inflation.