The welfare state always had a serious flaw. The withdrawal of means tested benefits is a form of taxation. The graph above is from an Iain Duncan Smith think tank report commissioned whilst he was still in opposition: Dynamic Benefits: Towards Welfare that Works (Sept 2009) Click ‘Publications’ on
I have been advocating a Citizens’ Income for 40 years now, but Dynamic Benefits makes the social justice side of the case for a CI using government resources far better than I could have done. Throughout I have been saying:
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.
There is of course no mention of a Citizens’ Income in Dynamic Benefits, nor any link to the environment, but incredibly, this report by the Economic Dependency Working Group of a right wing Think Tank starts by making making a devastating and thorough critique of the effect of the withdrawal of means tested benefits. Dynamic Benefits explains:
“Those who avoid entering the labour market are making a rational decision”
The surprise is not that some do indeed make this rational decision, but that despite generations having been in this position, how few do so. Draw a vertical line at any point on the graph above, and it will show the total proportion of income clawed back from the individual by tax or benefit withdrawal. Those who earn just too much to qualify for benefits lose a larger part of their income than bankers or premier league footballers. 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. 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.
There are two ways of removing the malign effect of benefit withdrawal. One is to stop giving benefits in the first place. This is a possible logical answer to the problem as exposed in Dynamic Benefits, if you don’t mind making poverty worse. The government doesn’t openly admit this, but, the only other logical response is to give benefits to everybody – a Citizens’ Income – and just take it back in tax. Even with a ‘flat tax’, the highest incomes would pay the most.
The anti-cuts movement is rightly angry, but their demand is to put the clock back to a system that had a serious structural fault. This allows the gutter press and the present government to get away with jibes about closed curtains and daytime TV as a pretext for the changes in the Chancellor’s 2012 Autumn Budget statement, even though in practice it will reduce the incomes of low waged workers. Although benefit fraud is 0.7% of the total benefit bill rather than the figures bandied about in the press, the crucial point is that the system does discourage attempts to stop claiming benefits.
Iain Duncan Smith will no doubt claim that the planned ‘Universal Credit’ is based on the recommendations in Dynamic Benefits. Most of the report is a skilful, if tortuous attempt to wriggle out of its own logic. The Centre for Social Justice is after all a right wing think tank. The tepid recommendations in the later part answer the question “What is the minimum change we can get away with which reduces the existing work disincentive?” rather than the Citizens’ Income logic: “What would be the fairest tax/benefit arrangements?” Having revealed that the poor are paying more in tax or tax equivalent than the rich, it even has a passage attempting to justify that! Dynamic Benefits suggests that those on benefits should retain 45% for a period on obtaining paid work. As just explained, this would still amount to a tax rate of 55%. IDS’s white paper as Minister for Work and Pensions, Twenty-first Century Welfare is a pale shadow even of Dynamic Benefits. The retention will be 35% (65% tax), but even this will be tied to workfare conditions, nullifying its potential benefit. Dynamic Benefits recommends neither a sanctions regime nor the Bedroom Tax. The blogs to which I have made links show the reality of the government’s workfare agenda. See for example:
They could use a few choice quotes from Dynamic Benefits to totally discredit the whole workfare ethos. 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. The structural fault in the welfare state could be ignored by those not in the poverty trap as long as growth could be taken for granted, which is why this glaring injustice has remained apparently unnoticed since the ‘Beveridge’ Report in 1945.
A Citizens’ Income combines a guarantee of security with a previously missing work incentive. So there is no need for compulsion. This exposes what is wrong with workfare. 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. The Universal Credit (UC) proposed by the coalition government, with a withdrawal rate of 65% will be a small step in the right direction, but it should raise the question by those forced into workfare “Why stop short less than half way?”.
But complete flexibility in job availability does however entail corresponding flexibility in wage rates. I personally 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 makes the minimum wage unnecessary because it allows potential employees 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.
At present a self employed person 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. Similarly, 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.
Another group who ought to be campaigning for a Citizens’ Income rather than just opposing the cuts, is the disabled. If needs generally are catered for, the cost of special needs would be considerably reduced. The idea of paying less than the minimum wage is exploitative if work is compulsory in the absence of a Citizens’ Income. But it does not make sense to force people with a disadvantage to compete with the able bodied when there is high unemployment. Many disabled people are capable of work, but to open up the possibility of this being at a lower rate of pay, or part time, must surely be preferable to the inhuman ATOS quotas introduced by a Labour government, and enthusiastically pursued by their successors.
In 2008 the Sun published a poll showing that ‘Scroungers’ were what concerned the Great British Public the most. 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.
In passing, the Citizens’ Income 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 has a scheme based on oil revenues, and Brazil has one on the statue book, to be introduced slowly. Iraq (with oil) and Mongolia (without) have plans in hand. Alaska has a Permanent Dividend Fund, also based on oil revenues, which paid all individuals including children an annual dividend of $1,174 in 2011. Being Alaska. the rationale is far removed from either social justice or 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!
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. A Citizens’ Income to every adult of £71pw (Jobseekers Allowance equivalent) and say £75pw (a minimum council house rent in Leeds) will seem preposterous to begin with, but anything less, and the poor are losing more of their income in tax or benefit withdrawal than the rich. Practical proposals can only come when those who will pay more in tax have been forced to recognize this fact. Actually it is in their interests. I do not blame workfare protesters for not seeing climate change as their first concern, but for some of those well heeled enough to want to save the planet for their grandchildren, it is. As it happens I am one of them. 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!