What the Tory Tax Credit rebels – and Zac – could do

How serious are the Conservative Tax Credits rebels? Seven could bring the government down. Cutting Tax Credits will re-instate the poverty trap caused by means testing with a vengeance, so a no confidence motion is not necessarily remote. Means testing is the root problem, because withdrawing benefits as soon as the recipient has any other income has exactly the same effect as a massive tax on the first part of everybody’s income. Everyone who doesn’t receive benefits pays this tax equivalent, but only those who have just lost benefits suffer from it. Tax Credits have reduced this serious work disincentive since 2002, but they do so in a bureaucratic way, with rules about working 16, or 30 hours per week, and they are far from comprehensive, but at least many low income families are better off in work.

Iain Duncan Smith and I agree that means testing must be got rid of to ‘make work pay’. But there are only two ways to do this: either you just get rid of benefits, or you must give them to everybody taking whatever that costs back in some way through the tax system. Tax Credits were a surreptitious step by Gordon Brown towards the second way of removing the poverty trap, but surprise, surprise, they cost a lot of money. Lady Rhys Williams, a member of the war-time Beveridge Commission pointed out the adverse effect of means testing, and proposed a Basic Income in 1942. Her dissenting report was suppressed, preventing the idea from entering mainstream discussion. Her wisdom was rediscovered by a surprising source. Search the internet for ‘Centre for Social Justice’, Iain Duncan Smith’s Think Tank, click ‘Publications’, and go to September 2009, where you will find

Dynamic Benefits: towards welfare that works

I cannot fault it as an excellent statement of the case for a Basic Income, complete with graphs showing the withdrawal of means tested benefits as though they were a form of taxation. But instead of a Basic Income Dynamic Benefits proposed the Universal Credit. The scheme introduced by Iain Duncan Smith was for former benefit claimants to retain 35% on obtaining income from another source (Dynamic Benefits had proposed 45%), leaving a claw-back tax equivalent of 65%.

Because there is little understanding of how serious an injustice means testing creates, most of the unaffected public approve of a steady erosion of benefits, despite the hardship and distress they cause to a minority. A complete removal of welfare benefits, instead of moving towards it stealthily with Benefit caps, the Bedroom Tax, sanctions and Work Capability Assessments would ‘make work pay’ all right, but the government know they will face a huge backlash, even from those not affected, if that is exposed as their real aim.

Dynamic Benefits is required reading for the Tory rebels. It is after all, Iain Duncan Smith’s own literature. The debate now has to be in which direction do we remove means testing? If the absence of welfare is accepted as out of the question, we must look at the opposite way: giving benefits to everybody. The cost? Let us look at the options, starting with the cheapest.

The Universal Credit would have been a kind of Basic Income, though only about 2 million would be likely to qualify – hardly ’universal’. Due to the 65% tax equivalent, it would have cost the ‘real’ taxpayer very little. But around the time of the election only 60.000 who should qualify for the Universal Credit did so, less than 1%, and many who receive it still depend on food banks due to bureaucratic delays.

Tax Credits, at £30 billion the next cheapest option, is only one of many topics to which the Basic Income is relevant. I have been pleading with our high profile representatives to use it on many occasions, but their answer has always been that they need foolproof costings. What should emerge from the foregoing is that the cost is the wrong place to start. We make no bones: the Basic Income will be drastically redistributive. It will be paid for by tax in some shape or form, a Land Value Tax being my preferred staple. Those who insist on costings must first say which other option they defend, no benefits whatsoever; the present erosion of benefits, the non-existent Universal Credit, or inadequate Tax Credits? Although not necessary for the present, crucial purpose, the Green Party does have a working party progressing the scheme prepared for the general election, but the need for figures is really answered by Dynamic Benefits. The absence of figures never was a reason, once you have grasped the logic explained above.

Over the years, the failure ever to mention the Basic Income in Parliament has been infuriating, but at this juncture it is intolerable. The prospect of a vote of no confidence before Christmas is as probable as Corbyn winning the subsequent general election, but I will settle for a government ‘U’ turn caused by the Basic Income finally coming centre stage. The immediate need is to delay the Tax Credit cuts until a full discussion takes place, including the principle of paying benefits to everybody whatever it costs.  But in mitigation, I disagree with the widespread objection to Tax Credits, even among Conservatives,, that subsidizing employers is wrong. This applies even more so to the Basic Income as a reason for I it. You subsidize anything you want to be more readily available, in this case, jobs. But if you ‘make work pay’ by persuasion instead of force, where do you stop? Retaining Tax Credits would be better than the Universal Credit even if it worked, but Lady Rhys Williams would have suggested a Basic Income in 1942 to a nation with rather worse austerity than we have now.

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Zac Goldsmith should be distinctly unhappy at this government’s comprehensive trashing of moves towards sustainability. He visits a spiritualist to seek guidance from his uncle, Edward Goldsmith. Teddy leaves Zac in no doubt that he is against the undoing of everything the two worked so hard to achieve together. Duly chastened, Zac joins the Tax Credit rebels. Of course like Jeremy Corbyn’s rise from nowhere this will not happen, even if Zac was willing to jeopardize the good he thinks he can do as Mayor of London. But none of this will happen anyway unless Caroline Lucas and Jenny Jones finally unleash the Green Party’s all too secret weapon.

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