The case for basic income

I said yesterday that I’d explain why I thought the Greens' policy of a citizen’s basic income – an unconditional grant paid to all adults, as promoted by these guys - would be a fantastic idea. Here goes.

First, a CBI is genuinely egalitarian and anti-managerialist. One reason why the traditional welfare state has not achieved as much redistribution as the left would like is that it hasn’t tried to. Instead, its function has also been to manage, corrall and stigmatize recipients. William Beveridge said in 1942 that the aim of his scheme of welfare benefits was to “make and keep men fit for service.” The same motive underpins Gordon Brown’s tax credits.

A CBI attacks all this.

It recognizes that the purpose of the welfare state is redistribution, not job creation for managerialists. Because it would be so much simpler to administer than tax credits, it would dismantle the hierarchical bureaucracy that has captured the welfare state for its own ends. And in giving everyone the same entitlement, there would be no role for those who wish to stigmatize and harass recipients.

In a similar vein, a CBI is flexible. It recognizes – as the Beveridge welfare state and tax credits do not – that family circumstances differ and change. It gives people the same income whatever their circumstances. It therefore avoids the problems of having to identify deserving and undeserving claimants, and minimizes dangers of fraud.

For this reason, A CBI acknowledges the importance of individual responsibility. It says that being old or a parent of a large family are no reasons for you to get extra income, because these are circumstances that are foreseeable and chosen.

If the CBI is sufficiently generous – a point I’ll come to – any hardship that remains is due either to free choice or to (insurable) bad luck. It’s therefore no business of the state.

What’s more, given the CBI, you can do what you want; part-time work, study, setting up a small business. In this sense, a CBI ends the dependency culture and promotes self-reliance. The CBI says: let’s give up trying to second-guess how people are going to lead their lives and crafting responses to the problems they might encounter. Instead, give them the money and let them get on with it.

In this sense, a basic income would increase freedom. The liberty that matters is not merely the ability to choose between bundles of goods, but the ability to choose among the various lives we may wish to lead. A basic income would promotes this freedom by allowing people to choose between leisure, child-rearing, education and work.

This is not the only way in which a CBI would increase freedom. A CBI would permit the scrapping of masses of regulations upon companies, such as minimum wages or working time directives.

This is because a CBI answers the question: to what are the worst-off entitled? It therefore removes the need for regulations aimed at protecting the worst off. Workers wouldn’t need governments to step in to protect them from bad employers - because if they were not content with the contract offered by bosses, they could stay at home on the basic income. Similarly, there would be no need for heavy state subsidies to industry, agriculture or the arts, because all the necessary subsidies would be provided to individuals by a basic income.

Finally, a CBI, if accompanied by taxes on inheritance and the ownership of natural resources, provides compensation for past unjust appropriations of land and mineral rights. We can see it as part of Robert Nozick’s “rectification state”, aimed to redress historic injustices. A CBI is the compensation we should get  from past generations of unjust appropriaters. Because we cannot identify precise losers from these unjust appropriations, the principle of insufficient reason suggests an equality of payment to everyone.

So much for the theoretical case for a CBI. But is it affordable?

In static terms, yes. Table A3.1 of the 2005 Budget lists four pages of tax reliefs. By abolishing VAT exemptions and zero-ratings and income and inheritance tax reliefs, we could save over £90bn. And this doesn’t touch tax reliefs in savings or capital gains.

Table C11 shows that we’d save another £121.4bn by abolishing social security benefits, £15.2bn by scrapping tax credits, and £3.2bn from the Common Agricultural Policy; all these handouts would of course be replaced by the CBI. And table C13 shows that we’d save another £6.8bn from scrapping the DTI and Department for Culture, Media and Sport.

This gives us almost £240 billion. With an adult population of 45.5 million, this would give a CBI of just over £5200. That’s £100 a week, which is £18 a week more than the basic state pension.

And this is without cutting the bureaucracy which administers tax credits and social security, without changing income tax rates and, leaving inheritance tax rates at an absurdly lenient 40 per cent.

Now, I’m not laying down any blueprint here. I’m merely showing that, in static terms, a CBI is affordable.

But of course, there’s an obvious objection here. An income of £100 a week might encourage lots of people to drop out of the workforce. If they do, tax revenue would fall so much that we couldn’t afford a decent basic income. And even if we don’t get this extreme drop-out rate, the resentment workers feel towards shirkers could undermine the spirit of community which some believe a basic income should help promote.

I’m not sure how big a problem this is. An income of £100 a week is not a king’s ransom. The only people likely to take it instead of working are those whose marginal product is so low that they would contribute little in taxes anyway.

Indeed, there are three arguments which suggest a CBI might increase employment and hence tax revenues.

First, it would reduce the huge benefit withdrawal rates that people receiving tax credits now face; the IFS estimates (pdf) that 4.6 million working parents face a marginal tax rate of over 50 per cent. People’s incentives to work longer hours or find better jobs would therefore increase.

Second, as a CBI should be accompanied by abolishing the minimum wage, wage rates might fall to price people into work.

Thirdly, under a CBI everyone would be significantly financially better off in work than out. This is not the case now. Incapacity benefit, for example, is a big disincentive to get work.

So, a CBI is probably feasible and desirable. There are of course objections to it. But I suspect the real reason no major party supports the idea has less to do with these objections, and more to do with unthinking illiberal managerialism.

Comments

[Tim Worstall]

Again, fully agreed. Difficult to think of a better way to reform the welfare state.
One way to aid in its funding would be to abolish the income tax personal allowance. (By chance, very similar to the number of the basic income).

[Paddy Carter]

It certainly bears a lot of thinking about.

I wonder whether it could be made to add up. For instance, £100 per week is just is not livable on, in London at least, unless you are also receiving housing benefit.

I guess it's like the great minimum wage debate. it's all very well saying minimum wages create unemployment, but what if the clearing price for unskilled labour turns out to be unacceptably low?

What if the affordable CBI turned out to be unworkably low?

[Joe Blow]

I haven't seen a CW proposal yet which takes account of non cash welfare benefits.

A CW which would replace housing benefit would either substantially over compensate recipients outside major metropolitan areas leading to less incentive to get up off their arse and work.

Or it would leave a large portion of the electorate with the prospect of not being able to pay for the roof over their heads.

Never mind the knock on effects of levying VAT on food and childrens clothing etc to pay for it.

If it's necessary to start adding supplementary benefits on top, what's the point.

Human nature being what it is, those who would get out of bed to work and build up a nest egg over a lifetime would see the vast majority of it confiscated to finance the CI of those who couldnt be arsed because any 'generous' CI would indulge their natural tendency for sloth and idleness.

A negative income tax system would be far preferable.

Some interesting figures in this uk.p.m thread here

http://groups-beta.google.com/group/uk.politics.misc/msg/827728faed1983a0

[Monjo]

I assume people would get this £100/wk even if they worked? It would be a guaranteed income from the Government?
I mean if we thew in Worstall's love of the flat tax (which I dont like that it includes VAT as VAT is a tax on the poor - I would favour 23pc Business/Income tax and a lower VAT of say 10pc) and increased the tax-free earning to £10 or 12k.. then would our entire system work and be the envy of the world or fall apart?

One positive of this guaranteed income is that it may encourage people to study. However, if we're cutting income/savings-assessment from our society we also need to do so for tuition fees - which *are* a good thing; if a university course leads to a better income than it is a fair idea people pay for it, if a university course is a waste of time, people wont pay for it and we'll get less dropouts doing media stuies. However the tuition fee should be a fixed £10000/degree - which would be paid at £1000/year for ten years after finishing the degree, employed or not.

BTW inheritance tax at 40pc, what's ludicours about it: too high or too low?

[Rob]

The inheritance tax is, I assume, ludicrously low. I've seen basic income people argue that an income at a substanially higher rate than's being proposed here could be funded by punitive levels of inheritance tax which then went into a fund, the interest from which funded the income. Also, many people find inheritances objectionable because they are the result of (largely: might be option luck your relatives don't cut you off) brute luck, and so an unjustified basis of advantage or disadvantage.

I have some sympathy with the basic income proposals, but would note the problem of children: do children get a citizen's income or not? If they don't, what happens if their parents are poor? They become disadvantaged for no reason other than their parent's poor choices. If they do, then the situation currently with child benefit continues to exist, assuming that no child would really have control over their basic income, even if we actually gave it to them. This is part and parcel, I suspect, of my general dislike of the 'don't give benefits to people with kids, they choose to have kids, so they're liable for the costs' line. Firstly, I don't think the option luck/brute luck distinction necessarily justifies outcomes (I'm not going to argue that here). Secondly, it doesn't map onto having children reliably, unless you enforce an implausibly strict version of it (I'm not going to argue that either). Thirdly, it's not about the damn parents: it's about the kids. They didn't choose to be born to idiots who couldn't plan a piss-up in a brewery, much less both their own and a dependent's life. So, rant over. Stop bashing child benefit. Basic incomes are good. Whatever.

[Neil Harding]

What we need are small practical trials of a CBI. The Isle of Man or something.

I agree with Chris that the numbers do add up and I'm pretty sure the number of shirkers would fall with a CBI. Let us not forget, if someone doesn't want to work they can spend their life on benefits at present. Even under Thatcher there were people who spent the whole time on benefits (perhaps supplemented by the black market or criminality).

How can we force these people to work? Under a CBI, there would be financial incentives for them to work. The current benefit system not only costs us a fortune in administration, it is a financial disincentive for people to work.

[Neil Harding]

PS I think it would have to be set at around £150 a week (assuming all benefits, housing etc, were scrapped).