AIDAN SKINNER on a truly radical policy initiative

The party of grafters, Ed Miliband described us. In government we brought in some measures to support people in work, such as the minimum wage. We didn’t do much to reverse the decline in union power, and we should have – the UK has some of the weakest employee protection in Europe and an unhelpful and unproductive long hours culture. But that’s for another piece. In this one, I want to focus on people who aren’t in work.

The group of people who can’t work is bigger  than you’d think: it’s not just those with long term illnesses or disabilities, the old and children. It’s also people who live in places where there just aren’t jobs. Owen Jones’ book Chavs highlights the way that council estates have a lack of jobs designed into them.  They are often poorly served by public transport and have only a few shops to offer local employment. There aren’t many council houses available, they only go to the most needy so only those with the highest needs live there. This compounds cultural issues with entrepreneurship, lack of available start up finance and the huge unemployment rates start to make more sense.

It’s not a moral failing on their part. They’re not lazy. They don’t need beaten with a stick. They can’t be encouraged to take jobs that don’t exist.

Instead of chasing the three per cent of people falsely claiming JSA by making life even more unpleasant for the other 97 per cent, we should be designing unemployment out of their lives. Building mixed developments with businesses premises and privately owned and rented housing alongside council and housing association stock so people live and work in mixed communities will have a lot of benefits beyond reducing the welfare bill.

But once those jobs are available people need to be able to take them.  That’s something that the welfare system as it’s currently structured actively prevents. If you’ve been claiming, say, job seekers allowance, housing and council tax benefit for a while, you probably don’t have much in the way of savings. If you take a temporary job, all your benefits stop immediately. If that job finishes, it takes a while for your claims to be processed again. A week with literally no money coming in is unbelievably dull. Two weeks is worse. By the third week things get interesting in very bad ways. And that’s if you’re on your own. It’s not surprising that many people don’t feel they can take that sort of risk if they’re supporting a family or partner.

If they decide to take the risk, then the effective tax rates they face as benefits are withdrawn can be punitive and oddly shaped with lots of cliffs, cut offs, dips and troughs. It’s confusing for people and it requires a lot of assessment – assessments which are often stressful, intrusive and, if you’re unlucky enough to be on ESA and have to deal with ATOS Origin, occasionally humiliating. The assessments themselves can worsen conditions and, particularly where mental health issues and other “invisible” problems are concerned,  woefully inaccurate.

The means testing also disconnects people from the welfare state, it perpetuates a “them” and “us” idea that undermines the very concept. Ed Miliband was right about that too.

So, what’s to be done? The universal credit that Iain Duncan-Smith is bringing in is a good idea in theory, but seems like it’s being mangled and bungled in the current legislation. So let’s go further.

The idea of a Basic Income, or Citizens Income, has been around since the first world war (Bertrand Russell was a fan) and has been claimed at various times by economists on the Right like Milton Friedman (who tend to call it a Negative Income Tax) as well as those on the Left like JK Galbraith (who call it a Minimum Income Guarantee).

The idea is to replace the current income tax allowances and benefits like job seekers allowance, income support, housing benefit, tax credits, pensions etc. with a single payment from the government that you get whether you’re in work or not. That would be added to for things like child or disability benefit and carers allowances, but paid consistently and without means testing.

For example – and these are just numbers picked from the air – everyone would get a basic payment of £6000 a year and an extra £3000 for each child. When they earned a wage, they’d pay tax on the whole amount earned, possibly at a higher basic rate than currently in recognition of the direct payment from government. People would be able to take jobs when they were available and not worry about the bureaucratic problems of reapplying for benefits when the job finishes – a particular issue with the “flexible” labour force that’s being created, dependent on agency and temporary workers.

Because it’s universal everyone would have a similar stake in the welfare state, strengthening the idea and supporting people without stigmatising them (far more benefits that people are entitled to are unclaimed than the amount that is lost to fraud under the current system). There might be a small additional cost to the state in terms of payments, but that would easily be offset by the reduced administration costs, let alone the additional tax revenue generated by people who currently want to work but find themselves trapped on benefits.

It’s also easier to adjust the balance between the tax take and payments, and the cost is easier to predict and control. Any change in payments affects everyone, reducing the likelihood that politicians will use the benefits system as a football as happens all too frequently.

At the macroeconomic level it offers government some interesting, and potentially highly effective, new fiscal levers. Consumer spending falling away? Increase the payment, everyone sees an increase in income but it goes disproportionately to the less well off who are the ones who are most likely to spend it. Want to reduce income inequality? Increase the tax rate and the allowance by the same amount.

It clearly needs worked out in somewhat more rigour than I’ve done so here, but it’s workable. It’s been trialled on a small scale in a few places, and has had hugely positive effects. But it addresses the structural problems with the benefits system, it empowers people and strengthens our ties to each other. It’s bold, it’s Labour, and that’s when we’re at our best, right?

UPDATE: Aidan would like to acknowledge that the Citizen’s Income was included in the Scottish Greens’ 2010 General Election manifesto.

Aidan Skinner is a member of the Labour Party trying to stay involved. He’s professionally involved in developing Open Source software and enjoys arguing on the internet. Complaints to @aidanskinner on Twitter.

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28 thoughts on “In praise of a Citizen’s Income

  1. Absolutely fascinating idea. It would completely end most types of benefit fraud, eliminate the need for a minimum wage and significantly cut down on bureaucracy and the costs of implementing the benefits system.

    The biggest stumbling block I can see, however, is our membership of the EU. From what I understand, it would not be possible for us to offer a Citizen’s Wage to people from Scotland or the UK only. This would have to be extended to all EU citizens who came to the UK/Scotland, with results that are, sadly, all too predictable.

    Even so, an idea worth looking at in detail for feasibility, IMO. It’s radical, yes, but that’s no bad thing.

    1. I don’t see why we can’t apply the existing framework of qualification for benefits qualification to this eg. the habitual residence test, That way people can’t just rock up and start claiming.

      I also don’t see this as a replacement for a minimum wage – it’s orthogonal, the state shouldn’t be subsidising employers in that way and, despite neo-classical economic orthodoxy, the minimum wage is actually likely to increase the numbers in employment given the distortions in market power in that part of the labour market (http://s.coop/24th)

      1. I may be wrong, but my understanding of the way the EU works is that anyone resident in any Eurozone country must be given the same entitlements as any native of that nation.

        So as long as we are in the EU, pretty much anyone COULD just wander in and start claiming, as long as they are an EU national.

        This problem is further complicated by the fact that the Citizen’s Income replaces the pension, meaning that a large number of ex-pats are also eligible. This opens the door to further Eurozone abuse.

        Should we leave the EU, of course, the whole idea becomes much more viable.

        As for ‘not subsidising employers’, well, in effect a Citizen’s Wage would do exactly that, by giving them more affluent workers and something to fall back on themselves if their businesses are not doing all that well. Given that the majority of employers are small businesses running on low profit margins, however, I don’t see this as a bad thing. If anything, it may help small businesses stay afloat in times of trouble, which is surely a good thing for everyone.

        “the minimum wage is actually likely to increase the numbers in employment” – sorry, but that’s just not the case. It prevents workers being exploited, which is a good thing, but there is no possibility whatsoever that adding costs to a business causes them to employ more people. The stripping down of bureaucracy inherent in your Citizen’s Wage suggestion would likely do far more to increase employment than a minimum wage ever could.

        1. You’re wrong in your understanding of how EU benefit entitlements work – http://www.ukba.homeoffice.gov.uk/eucitizens/rightsandresponsibilites/#header8 and http://www.dwp.gov.uk/adviser/updates/habitual-residencetest/ You can’t just wander in and start claiming you have to establish that you are “habitually resident here first”.

          Actually the minimum wage can increase the numbers in employment in a monoposnistic labour market – http://en.wikipedia.org/wiki/Monopsony#Minimum_wage (sorry for the awful technical economics link but, well, it’s a technical economic argument).

          I do agree that bureaucracy is a huge problem for business.

          1. Glad to be wrong on the EU thing, I must admit. Still think we’d attract a lot more ‘habitual residents’ with a Citizen’s Wage, though. Nonetheless, it would be harder for other EU residents to get into the system than I thought, which is a good thing.

            I THINK I get Monopsonistic markets, but wouldn’t they apply in practise only to something that was run by the state? So that a minimum wage would possibly increase state employment, whilst doing nothing for the private sector? Surely we want a minimum of people employed by the state and maximum by the private sector? Admittedly, though, I’d never even come across this idea before, so my understanding of it may well be too limited.

            I think the minimum wage is a good thing regardless, don’t get me wrong. I’m certainly not trying to say it should be removed (Or not without something better to replace it!).

          2. Elliot, sorry to reply here but your one has no reply button!

            The lower end of the labour market where the minimum wage takes effect is essentially Monopsonisitc, particularly at the moment. It’s not really necessary for there to be just one buyer (employer) to see these effects, just that there are differences in market power which produce a result similar to this.

            There isn’t a wage price at the moment which clears the market and establishes an equilibrium where no more people are willing to work at the market wage – they are not “voluntarily unemployed”. There are far more people looking for work than there are vacancies due to macroeconomic circumstances.

    2. Could it be tied to yoru national insurance number? In other words when you get your NI number, you start getting your citizens wage.

      Its a fascinating idea, and one that certainly deserves much more detailed investigation, though as you say I can see the Daily Mail headlines already!

      1. I think having an NI number is probably the wrong qualification – it’s issued very early, often before people start work and people get NI numbers for all sorts of temporary reasons. I think the existing benefits qualification test of being a UK citizen or an EU citizen who is habitually resident here is the right one.

    1. Uhm, is it? Honestly I didn’t.. (it’s a bit hidden in your 2011 manifesto on the site)

      1. Wouldn’t mind nicking the land-value tax back either (appeared in one of the first Labour manifestos and legislated for by the first Labour government)

        1. I agree, I found the policy very attractive, but I dont think it could be implemented in the timescale that Patrick Harvie suggested at the election.

          We need to have a proper debate on the future of local government finance, with a focus on something we can do quickly to help councils cope with the cuts to their income, and something to make the system fairer in the long term. The sight of both major parties trying to outdo each other on a council tax freeze was frankly unedifying.

  2. I think this policy is important and it’s been one that I’ve been thinking about for a while (I was introduced to it in conversation with a Lib Dem about benefits, apparently it – or a similar policy – was abandoned by their party a while back. Since then I keep coming across it and thinking about it).

    One of the main social benefits of such a system is that it recognises the contributions we all make to society that aren’t directly economic and allows the people of the country to benefit from its success. Like a huge co-operative.

    It will also allow people to make decisions about work/life balance that can be impossible at the moment – such as working part time, taking time out for retraining/education or leaving a job that exploits them immediately before looking for other work, staying at home with young children (either full or part-time), caring for elderly or sick relatives. It could give someone the security they need to become self-employed, or to work fewer hours and spend more time volunteering.

    It values carers, parenting, lifelong education, volunteering and numerous other ways that people ‘contribute to society’, instead of stigmatising these groups with ‘benefits’. It would support community life, and a more sensible work/life balance. If some choose to work fewer hours, then it will mean more jobs for those who want them.

    Of course it would be controversial. The Daily Mail and co get riled up about the idea of people getting something for nothing but if it can be shown that removing the fear of losing benefits (rather than increasing it – which seems to be the current wisdom) can give people the confidence to apply for jobs, training places or to start their own businesses then there will be answer to their economic fears.

    This will leave them arguing why it is okay for those with inherited wealth (usually built up on the labour of others) to be idle, whilst those prepared to live on the modest citizens income should not be. That said, I’m sure most people will want to work, but it will probably change the hours many work for.

    I think the only problem you might have with £3000 per child, would be that it could be viewed as an incentive to increase family size. But I do think it should be about giving the money for the child not the parents (though be allowed to be used – perhaps to allow a parent to stay home, or for childcare whilst they work) so I don’t think it could be restricted to 2 children, because it shouldn’t penalise children who have more than one sibling. Not sure what the answer is there.

    1. Yeah, the child part of this is difficult – tapering it off would be unfair as well. Part of the point is to give people autonomy. Would love to have a team of crack social economists to help… 😉

  3. Great article Aidan. Radical, certainly, but something that appears to be worth looking seriously at. This is the sort of thing I’d like to see more of on Labour Hame.

    Clearly it would need a body to look into the logistics and fine details of implementation, so now is not the time for nit picking; however, I agree with Pamela Ruddy that the handling of any ‘per-child’ income is crucial to the success of such a proposal. There must be safeguards to ensure the money is used for the direct benefit of the child, and mechanisms in place to prevent this becoming an incentive to increase family size.

    Talking of radical policies. Is there any grassroots support in the party (or in this blog’s readership) for moving to a 4 day working week?

    1. I’m not sure I see a difference between this and the existing child benefit in this regard…

  4. Sorry if this is starting to get a bit crazy in terms of following the responses 🙂

    I’m going to use BB code quote boxes, even though they won’t work, so you can all see what I’m replying to! Sorry again for any confusion 🙂

    ***

    Aidan,

    [quote]The lower end of the labour market where the minimum wage takes effect is essentially Monopsonisitc, particularly at the moment. It’s not really necessary for there to be just one buyer (employer) to see these effects, just that there are differences in market power which produce a result similar to this.[/quote]

    I admit to knowing nowhere near enough about this, I’m afraid. Economics is not really something I’ve studied in great detail.

    [quote]There isn’t a wage price at the moment which clears the market and establishes an equilibrium where no more people are willing to work at the market wage – they are not “voluntarily unemployed”. There are far more people looking for work than there are vacancies due to macroeconomic circumstances.[/quote]

    Absolutely. I always think it’s horrific that so many people who are forced into unemployment by the job market are called all sorts of nasty names when they are genuinely willing and able to work. It’s a terrible morale destroyer, and they do not deserve it.

    Another huge advantage to a Citizen’s Wage (As others have pointed out) is that it would take the stigma out of what very often amounts to an accident of location or circumstance. That might even be the best argument of all.

  5. Hmmn £6k for me and the missus, £3k each for the kids, so that’s £12k plus £15k for the 5 we have now, total £27k a year. Bet the Daily Mail would love that! Seriously though it would make being a self employed tenant farmer with an average pay of 70p an hour almost viable. Mind you the Laird would have the rent up at the next review to get us back into poverty and him another Bentley. Nice idea, shame it will never happen as the country is bust or so we are told.

    1. It should be possible to construct this so that it’s revenue neutral compared to the existing system, partly by wiping away a lot of the bureaucracy at the DWP and focusing resources on the revenue-generating HMRC.

  6. For information, below is the Green Party policy:

    Citizens’ Income

    EC730 A Citizen’s Income sufficient to cover an individual’s basic needs will be introduced, which will replace tax-free allowances and most social security benefits (see EC711). A Citizen’s Income is an unconditional, non-withdrawable income payable to each individual as a right of citizenship. It will not be subject to means testing and there will be no requirement to be either working or actively seeking work.

    EC731 The Citizens’ Income will eliminate the unemployment and poverty traps, as well as acting as a safety net to enable people to choose their own types and patterns of work (See EC400). The Citizens’ Income scheme will thus enable the welfare state to develop towards a welfare community, engaging people in personally satisfying and socially useful work.

    EC732 When the Citizens’ Income is introduced it is intended that nobody will be in a position that they will receive less through the scheme than they were entitled to under the previous benefits system. Children will be entitled to a reduced amount which will be payable to a parent or legal guardian. People with disabilities or special needs, and single parents will receive a supplement.

    EC733 Initially, the housing benefit system will remain in place alongside the Citizens’ Income and will be extended to cover contributions towards mortgage repayments (see HO602). This will subsequently be reviewed to establish how housing benefit could be incorporated into the Citizen’s Income, taking into account the differences in housing costs between different parts of the country and different types of housing.

    http://policy.greenparty.org.uk/ec

  7. Nice try Aiden. A little outside the box thinking is what we need. I’m afraid however that this idea shouldn’t be Labour policy (and that Patrick Harvie advocates is another nail in it’s coffin).

    Firstly I don’t see how this concept can be sold to the electorate. The reason that the tabloids like to talk about benifit scroungers is because a lot of low income workers know someone who fits this description. They are not fond of the idea that they work and pay tax, all the while a neighbour sits at home all day. To bring in a minimum income only incentivises people to stay at home. It will be very easy for any political opponent to then paint labour as the party of benefits free for all. At a time when our economic credability is under fire. Not wise.

    I accept that it is hard for people to in impoverished areas to find work because often there is little in way of local business and public transport is expensive and poor quality. I don’t think however that a citizen’s income will change that. Sorry.

    1. A Citizens Income won’t fix public transport, true. But then it’s not intended to.

      I think it can be sold to people as a simplification of the existing system, provided we can show that the incentive to work is maintained – which is why I think running a properly conducted trial would be very useful. It’s a big change, and it’s important to get it right. Is it something that I think is ready to go in the manifesto tomorrow? No. But then, not much is.

      1. The trick with this one is simple.

        Take figure one: the average cost of a year’s Income Support payments (for an individual). Pitch the citizens’ wage below this level. Pitch it as a saving on current payments to those who don’t work.

        Take figure two: average earnings: pitch the increased tax rate so that, in combination with the tax-free citizens’ wage, it amounts to a small tax cut for those briging in less. This is the group most likely to resent the unemployed.

        Take figure three: you can make this one up, but I recommend following the Tories’ example abnd borrowing it from the Daily Mail. A shockingly high ‘estimate’ of what an unemployed person can receive in benefits in a year. Compare and contrast with the citizens’ wage. Win.

        1. Indeed. It wouldnt be impossible to sell it – just very difficult. The idea of a universal credit is gaining traction, and this is very similar -just more widely distributed and actually providing everyone with a stake in the welfare state.

          It could also be pitched to the Daily Fail as a means of supporting families (with the additional premiums for children etc) through the tax system – always something they’re moaning about.

          You could pitche the income as the amount you get tax free (ie currently around £7.5k), thus simplyfying the tax system so that everyone pays tax on everything they earn. The problems are that there would always be winners and losers – and someone somewhere is going to point the finger at each of these groups.

  8. The SNP also supported a Citizens Income though I think it has fallen off the radar in recent years. Probably due to the complexity of developing such a policy in practical political terms. It was certainly in the 2005 manifesto but not in the 2010 one.

    It’s easy to say that it is a good idea in principle, and clearly it is, but you would have to put figures on it – not just illustrative figures but a fully worked out and costed model. I think that’s why the SNP did not take it any further because it would, frankly, have been a hostage to fortune. We did put out a fully costed proposal for a Citizen’s Pension in 2005,which was rubbished by Labour as well as by the Tories. And a Citizen’s Pension is simpler than a Citizen’s Income and also has the advantage of being a reality in another country, New Zealand. As far as I am aware no other country has a fully operational Citizens Income.

    I suspect the best chance of taking it forward would be some kind of cross-party collaberation.

  9. Best way to see the case presented for a Citizen’s Income is on citizen’s Income Trust website under FAQ’s.

    Far superior to any other explanation in the media.

  10. P.S It has been fully costed by the Citizen’s Income Trust and at current benefit levels it is cost neutral.

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