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)
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
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!
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.