The graph at the top, which apparently baffles everyone, is all you need to bring the BI mainstream. It reveals the Universal Credit as a scrounger oriented answer. The Basic Income will transform the situation. The graph is for a single person, but there are similar graphs in ‘Dynamic Benefits’ , (Sept 2009), Iain Duncan Smith’s own literature, for various family situations. The facts are basically unchanged. A similar, up to date graph appears in the RSA report on the Basic Income, dated 16th December 2015.
Ignore the colours. They are just the details of how the poverty trap/scroungers charter is made up (same thing, depends on your mind set). Concentrate on the black line at the top. The ‘Marginal tax rate’ is the amount you lose in tax or withdrawal of means tested benefits (exactly the same effect) for each extra £ earned. Draw a vertical line at, say £12,000 pa. You lose 70p from every £ through withdrawn benefits. Draw another line at £30k – you only lose 30p.
The ‘Participation tax rate’ is the total you lose out of the total earned. To show this you look at the total coloured from the entire rectangle. You only keep the white bit at the top. Now compare £12k with £30k pa.
Now let’s graft on the Universal Credit (UC) and the Basic Income. Somebody more technically able than me can probably do this. The UC graciously allows former scroungers, sorry benefit claimants, to retain 35% of their benefits. So on the graph, you draw a horizontal line at 65% up to the point where all means tested benefits are withdrawn. This is better than now, but not much. It would still be necessary to use the whole apparatus of benefit sanctions. Bear in mind that this assumes the UC is actually functioning. The news item on the latest damning Public Accounts committee Report on the UC (3rd Feb) states that 4 years after launch, 200,000 out of 4,500,000 who should qualify for the UC are actually receiving it, and the projected full rollout – not until May 2021 looks decidedly mythical.
The Basic income would simply draw a straight horizontal line across all income levels. Figures?? Even at a flat tax rate it would have to be whatever was necessary to shift the tax or tax equivalent so that all incomes shared it equally. Martin Wolf, Chief Economics Commentator on the Financial times once told me it would have to be at least 60% if housing costs were included. So what? Former ‘scroungers’ are paying more than that now, and would continue to do so with the benefit of UC!
All the clap trap about why the Basic Income is unaffordable, would make people lazy, or would not work for whatever reason, is demolished by this graph. All the Basic, Citizens’ Income does is put everybody on the same playing field. Oh, and by the way, it makes work pay. The real reason Iain Duncan Smith resigned is because he has failed to do this, and the UC was never going to work.