The Poverty trap: Scroungers of the world unite!

I gave an abridged version of this post in November 2012 at a Socialist Party conference in London. http://www.socialism2012.org.uk

I must start by reminding readers that I have set myself the apparently impossible task of persuading both Socialists and Conservatives who want to save the planet for future generations that both sides must accept some initially unpalatable ideas from their former enemies, and that they need to form an alliance against their former friends who still think growth is always good.

But here I shall concentrate on why Socialists should take the Citizens’ Income seriously. I shall not even be discussing ecological issues, only its role as a means to greater social justice. The Citizens’ income is actually neutral on Green issues. In 1974 Keith Joseph produced a Green Paper on behalf of a Conservative government on a Tax Credit scheme, which was in effect a Citizens’ Income with the purpose of facilitating maximum economic growth. My purpose is the opposite: to free us from a dependence on economic growth. The difference lies in the tax regime. Joseph’s scheme would not balance Tax Credits with taxation. I would balance the Citizens’ Income  with a progressive tax structure, and also resource taxes. The emergence of a sustainable economy rather than Joseph’s aspirations will depend on other incentives and deterrents To digress for a moment, I have only recently grasped the significance of resource taxes. Rather than control of the means of production, the aim would be communal sharing of revenue from the sources of natural wealth.

Per se the Citizens’ Income is drastically redistributive. It recycles sufficient resources from the rich to ensure basic necessities for all, so that a steady state economy, which will look like a recession in conventional terms, can become a reasonable proposition, instead of the insecurity and austerity which are inevitable during a recession in an economy dependent on growth.

To demonstrate the difference between the Citizens’ Income and what happens now in Britain, I rely on a surprising source. I have been advocating a Citizens’ Income for 40 years now, but a think tank report commissioned by Ian Duncan Smith whilst he was still in opposition makes the social justice side of the case for a CI far better than I have done: Dynamic Benefits: Towards a Welfare System that Works (2009)

www.centreforsocialjustice.org.uk

There is of course no mention of a Citizens’ Income, nor any link to the environment, but incredibly, this report by the Economic Dependency Working Group of a right wing Think Tank spends the first 150 pages making a devastating and thorough critique of the effect of the withdrawal of means tested benefits. It says “Those who avoid entering the labour market are making a rational choice”. Most incredibly, on page 88, there is a graph (featured above) showing the withdrawal of benefits as if they were taxes, a point I have been making for years:

Taxes are paid by individuals to public bodies;

Benefits are given to individuals by public bodies

Therefore, to the individual the withdrawal of a benefit is the same asa tax – it is a tax.

To explain the graph, MTR is the marginal tax rate, the tax (or loss of benefit) on each extra pound of income. To get the participation tax rate – the portion of income clawed back from the individual in taxes or withdrawal of benefit –  draw a vertical line at any income level. The extremely important point which gets missed is that everybody who does not qualify for JSA or Housing Benefit pays this tax on the first part of their income. But this only matters for the unemployed, or those on low incomes. No one else notices. All the Citizens’ Income does is change this disguised tax – on everybody – into a real tax just on higher incomes. Above a break even point you still get the CI, but you pay more in tax than it is worth. Wayne Rooney and Fred Goodwin will pay many times what the CI is worth to them.

Dynamic Benefits spends the rest of its 370 pages running away from its logical conclusion. It recommends that claimants should retain 45% of their benefit on receiving other income. In other words, they should still pay tax at 55% on the first chunk of their income. The government White Paper Twenty-first Century Welfare is a pale shadow of Dynamic Benefits. It proposes the retention of 35%, – a tax rate of 65%. But the coalition proposals are an even further retreat from Dynamic Benefits. The small print which is emerging suggests that retaining 35% of their former benefits will only be true for a small proportion of claimants. ‘Universal Credit’ is a serious misnomer. See for example
www.johnnyvoid.wordpress.com
for the gruesome details of just how far removed the government’s plans are from the advice in the first 150 pages of Dynamic Benefits.

Before I go into some of the effects of a Citizens’ Income, I have to mention that this is not entirely theoretical There are surprising places in the world which already have a CI, or something which resembles it closely enough, so we can see what the effects are in practice. Iran’s CI is up and running, based on oil revenues, and Brazil has one on the statue book, to be introduced slowly. Alaska has a Permanent Dividend Fund, also based on oil revenues, which paid an annual dividend of $1,174 in 2011. Being Alaska. the rationale is closer to Keith Joseph’s 1974 Tax Credit Scheme than to Green aims, but the Gini index, which measures levels of inequality, shows a  Tea Party heartland to be the second most egalitarian state in the USA!

http://en.wikipedia.org/wiki/List_of_U.S._states_by_Gini_coefficient

A Citizens’ Income combines a guarantee of security with a previously missing work incentive. So there is no need for compulsion. For anyone who does choose not to work for a wage, the effective contract between them and the rest of society is “I guarantee to take no more from the economy than is necessary for my subsistence”. They will always be materially worse off than everybody else, unless of course they have income other than from employment. Such people have never been compelled to work. The ‘black’ economy can become the Green economy.

There has always been something illogical about insisting that everyone should have to work as long as there is any unemployment whatsoever. Yet on the other hand, the Citizens’ Income also means that for the first time work can be made available for all who want it. The very concept of unemployment can be consigned to the history books. Paid work can be anything from a few minutes to whatever upper limit health and safety considerations impose. This will allow more flexibility in career choices and moves, and it will cushion the savage blow felt by anyone who is unexpectedly made redundant from a well paid and supposedly secure post.

The main beneficiaries will be those in low paid or part time employment. Before the introduction of Working Families Tax Credit (WFTC) it was relatively easy to quantify this benefit. WFTC is a short step in the right direction, but it made comparison more difficult. Similarly the Universal Credit (UC) proposed by the coalition government, with a withdrawal rate of 65% would be slightly better than what happens now to many claimants, if it applied widely enough.

But complete flexibility in job availability does however entail corresponding flexibility in wage rates. Socialists may find this difficult to accept at first. But I assume that a steady state economy, a.k.a. a recession, will be the norm, to be welcomed as protecting the planet. A minimum wage may work in a growth economy, but in a steady state economy there must be an inverse relationship between job opportunities and hourly wage rates. The Citizens’ Income fulfils the purpose of a minimum wage. What matters to an employee is how much, not who pays it. Whatever is earned is a top up to the Citizens’ Income. The Citizens’ Income would not be a Scroungers’ Charter, due to the work incentive it introduces, but it does allow the potential employee to judge whether the rate of pay is adequate. The individual has bargaining power without a Trade Union. Some years ago there was a strike by ambulance drivers. They pointed out that resignations were outstripping recruitment. That could become the norm in pay negotiations.

Consider a self employed person. At present s/he only breaks even when profits reach Unemployment Benefit levels. As a top-up to the CI, a business is viable as long as it makes any money at all. Some would-be entrepreneurs may even be able to carry losses for a period. This will allow anyone with a business idea to ‘go for it’. Provided it is environmentally sound, there is no harm done if it succeeds, and no serious harm done if it fails. The same applies to any budding artist or musician. You want to go back to education, or train for something different in your mid-forties? No need to apply for a grant. Anyone who wants to try complete self-sufficiency on an abandoned Hebridean croft – good luck to them. If they reach the point where they no longer need their CI, they can donate it to the charity of their choice if they don’t want a few little luxuries. The Citizens’ Income will act like a piggy-bank for any small business prone to a wildly fluctuating income. Small farmers are a typical example of this. In good times they will be net payers, but when prices hit rock-bottom, the CI will be a lifeline.

Was it the Sun whose poll in 2008 showed that ‘Scroungers’ were what concerned the Great British Public the most? Certainly a frequent comment from people coming to the Citizens’ Income idea cold, is “It sounds like a Scroungers’ Charter”. In chess, there is a strategy known as a gambit. If I offer to sacrifice a piece, and you take it, the result will be the opposite of what you expect. Or think of it as persuasion being better than force. The CI says to ‘Scroungers’ “We are tired of trying to force you into work. Just take the money. But by the way, there will be one difference. You will now be better off if you get a job instead of being no better off”. Or as Dynamic Benefits puts it: avoiding entering the labour market is a rational decision if you lose all benefits.

But at this stage, the CI is not a practical proposition. The necessary income tax rate would be too unpopular for any political party expecting to win the next election. And high earners might arrange to take their wealth overseas. So the Citizens’ Income will have to start as a thought experiment which needs to go viral. The public needs to grasp that means testing is a massive tax on the low paid before there is any point in practical proposals. So the first step is demonstrations, world-wide, by thousands who have been labelled ‘scroungers’, carrying banners showing the graph on p.88 of Dynamic Benefits. Scroungers of the World Unite!

There have been three news items this week to which the CI is relevant.

Without a CI, Ian Duncan Smith’s suggestion to cap benefits to two children looks like the Nasty Party in action. But a stable population on a finite planet is a basic Green principle. The details can be worked out after the ‘benefit withdrawal is a tax’ concept is mainstream, but for example if the first child was given a generous CI, the second child an adequate CI, and tapering amounts for subsequent children, that would give an incentive for small families. But it is the Nasty Party if applied to existing families. This can only be introduced after due notice. But critics should think how utopian and socialist all this would have seemed prior to Lloyd George’s 1911 reforms.

As to the pants-twist the government has got into over Child Benefit to higher income families, give every adult their individual CI, and take from those who don’t need it in tax.

The third item was because dividends are down due to the recession, pension contributions will have to rise. The same principle applies. You get your pension as of right as a senior citizen. If it means higher taxes, so be it, leading to some lower ecological footprints.

Next week’s blog will be on the ’Tragedy of the Commons’, and why Garrett Hardin and Elinor Olstrom are both right. On the 16th I shall write an open letter to Zac Goldsmith MP, explaining why he too should take the Citizens’ Income seriously.

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12 responses to “The Poverty trap: Scroungers of the world unite!

  1. Hi Clive
    Blog is looking really good! I’ve linked it to mine and you can see how it works (on the right hand sidebar) on my blog here: http://wwwradishblogger.blogspot.co.uk/. Meanwhile I should tell you that I have got into some really tricky conversations with people about benefit capping for families and their reaction when I suggested incentivising for small families. If we could be allowed to evolve the idea slowly, (well, all the ideas, here actually) then all would be easier to manage. Unfortunately time is not on our side.

    • I have had one tricky population conversation myself, at the ‘Tidal’ conference at the Swarthmore (Leeds) recently. The sad thing is, our news is good, not frightening or threatening provided we stay withing eco-limits. The problem is that until now, only right wingers have been willing to address population issues, so surprise, surprise, only right wing policies have been put forward. I believe that nudges are all that will be necessary, if we could get the eco-limits idea into the mainstream. More than replacement numbers are already mostly only happening in the developing world. Existing families are of course entirely excluded from this idea, something Ian Duncam Smith did not make clear in his ‘benefit cap’ speech. But we do have to put the topic on the mainstream agenda.

  2. Hi Clive, Meg – the problem with the idea of disincentivising large families is that it takes for granted the family as the unit of reproduction, and sees the child only from the point of view of her/his position as the offspring of that family. In fact, it treats the child as a commodity which parents choose to acquire purely for the sake of their own quality of life, such that it appears natural to make the decision whether to have a child on the basis of whether one can afford it. This ignores many things: first, that any existing child is a person in their own right with the same needs and therefore the same rights to support as anyone else; secondly, that rearing a child is primarily work not consumption (though it involves consumption). If we look at the issue not from the point of view of who decides to bring the child into existence, but from the point of view of who does the work of nurturing, feeding, clothing, nursing, teaching etc, it looks very different. To suggest there should be limits on financial support for this work is exactly like saying that funding for schools (or hospitals, or libraries…) should be capped on the basis of what population level was deemed to be desirable (rather than on how many children actually required educating). The reason why this is not obvious, and why children are viewed as a private matter rather than a collective responsibility, is the same reason that all the invisible domestic work done primarily by women is written out of the economic equation. We cannot support any economic measures which enshrine an intrinsically iniquitous way of organising, (under)valuing and (not) remunerating social reproductive work. However, I suspect that a general effect of a citizen’s income might be to reduce the number of children being born, inasmuch as the poverty trap caused by the existing taxation gradient when people move into work makes it a very rational choice for many to become full-time parents rather than pursuing other options..

    • Ellen, I agree with most of what you say, but I don’t think all the ‘sequiturs’ actually follow, for example that a taper on the CI for later children commodifies them. And once a child is born, then yes, s/he is a person, but that should not be confused with the decision whether or not to have a child. And anyway, existing family size is not within the scope, only future decisions, so the capping of school etc. funding is not directly relevant. I agree with your last point – at present the benefits trap creates a pernicious incentive to have children.

    • I have just had a look through blog comments, and I feel I need to add to my reply to Ellen (2012.11.15).
      I personally do not presppose the family as the unit of reproduduction. In my book I suggest children born to an individual woman as a possible basis, but this will no doubt be the subject of vigorous discussion once the general CI principle has been established. Tapering the CI for subsequent children introduces a ‘right wing’ notion that I personally approve of, i.e. that those who bring children into the world should bear the primary responsibilty for ensuring they are well cared for. CI for a child will of course gradually increase so that a 5th child or whatever receives exactly the same as eveybody else from say 16 onwards. All this of course presupposes free comprehensive birth control – and abortion as back up – advice and facilities, which should answer your valid point about child rearing.

  3. I have only read your brief posting on CI and feel in some respects it is and has given the right amunition to fire in the form of benefit reductiions for the unemployed and any offspring they may have, it has also led to tax credits being paid to those in work by reducing benefits to those out of work – although I see that this was not your intention, because in CI it states that the unemployed should be given subsistence level, just what this would be you do not state.

    The majority of the unemployed are there not through choice, i.e they want an alternative lifestyle, but because there is no work and when there is it is temporary,part-time or low paid. You state those in work under your CI would have individual bargaining power, this again would lead to inequality in incomes. Are you telling me that farmers who made at one time vast profits do not have money put away so would really not need welfare in the form of CI. Your system is still a capitalist system with a green agenda which quite frankly is cruel to those that would neither have enough bargaining power or a meritocratic wage to increase their family, which is quite frankly leading to a demographics of a predominantly elderly population, which would need redressiing by imigration from the countries where there are no restrictions on childbirth.

    also

    • You do not appear to have grasped my central point, that the withdrawal of means tested benefits is a tax, hence your apparent belief that the Citizens’ Income can be a justification for the erosion of benefits. Quite the reverse. A complete answer cannot be brief. Please look at my book résumé Skip the first 6 paragraphs, on the eco problem. Start at “If humankind is truly intelligent”. The next five paragraphs should give you a clearer picture of where I am coming from, but to look at the fuller picture would be better. You may not have read where I say this is a thought experiment, and both sides of the old divide must listen to ideas they don’t like from the other. Zac Goldsmith’s book gives the impression that he is oblivious to the concerns you raise. But you give the impression of being complacent about threats that worry me. I think I will leave it at that for now. In my book I do address all the issues you raise, but I look forward to future discussions. Just one question. How would you identify when it is necessary to stabilize population in developing nations, and what would you do about it? My answers look at this from their perspective as well as from the global.
      Your comment ends with an isolated “also”. Was there more?

  4. I’m not sure where the isolated ‘also’ came from but thank you for answering my comments. I have neither read your book entirely nor Zac Goldsmiths book you are referring to, whatever that is? I only know that Zac Goldsmith is the son of the late James Goldsmith the founder of ukip I still have an old election tape ukip delivered free to every household on their first attempt at elections. I don’t think I could ever agree to restrictions on the amount of children people wish to have in this country, because those that only want the 2.5 average children outweigh and counter balance those with large families anyway since the introduction of birth control. As for developing nations I am sure they too can make their own choices on this matter if given the choice to use birth control or not.

    know

    • Zac is also the nephew of Edward Goldsmith. They have both edited the ‘Ecologist’. All good eco-stuff, but lacking on the social justice side. He got his seat on his eco credentials not his father’s UKIP connections. I said developing nations because our birthrate is near enough replacement anyway. There is evidence that like us, given a level playing field and freedom from want, developing nations too will stabilize without special measures, but stabilization is important for them and for us globally. The Citizens Income principle is needed as between nations, as well as between individuals.
      This time there is an isolated ‘know’.

    • Indeed. Please spread the word, especially among these guys who think work is all important, and that employers must pay for it. We eco-types think conserving what we have manufactured is more important.

  5. The isolated know is nothing to do with me either. These extra words do not appear anywhere before I send my message so where they come from is anybody’s guess.

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