How and why the basic (citizens’) income is possible now

It is generally assumed that a universal, unconditional basic (citizens’) income (UBI) will be a good idea at some future date, but not until formidable problems have been solved, notably over Housing Benefit. We can bring at least discussion into the mainstream immediately, without minimizing problems.

The welfare state always had a serious flaw. The withdrawal of means tested benefits is a form of taxation, as the graph above shows. It is from the report by a Think Tank set up by Iain Duncan Smith which set out the case for the Universal Credit: Dynamic Benefits: Towards  Welfare that Works (Sept 2009).

Dynamic Benefits makes clear that:

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 has exactly the same effect as a tax.

There is of course no mention of a UBI in Dynamic Benefits, nor of the environment, but incredibly, this report by the Economic Dependency Working Group of the Centre for Social Justice starts by 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 how few do so.

The graph above shows the effect of withdrawal of means tested benefits (on the same graphs as ‘real’ taxes) as they were in 2009. For those not yet receiving Universal Credit (and for many who do), the situation has only changed for the worse due to late payments, sanctions and the benefit freeze and sanctions.

It has been possible ever since Dynamic Benefits was published to ask this simple question:

Why not produce a straight, level line, so that everyone, on high, low or no earnings is on the same basis?

What would the tax rate have to be to give everyone an unconditional basic income, and tax everyone at the same flat rate on all other income? The amount of the UBI can be a separate discussion.

The government has access to high powered computers. If they reveal that the tax rate required to fund this arrangement is impossibly high, the nation is already bankrupt. But of course that is not the case,  Work done by Richard Murphy and Howard Reed suggests that even if financed entirely out of personal income tax, that would be around 60%, considerably lower than was accepted by the rich in the 1940s. Other forms of taxation, notably Land Value Tax and ecological taxes would bring this personal tax rate down considerably.

So a UBI is affordable, but with the current mind set this would obviously be dismissed as politically preposterous.

But what if the MP (or whoever) were to continue, naively,

“On what grounds is anything other than putting everyone on exactly the same basis justified”?

Why not give everybody a sum of money, and take 60% from all other income?

The immediate reason this is not an obvious course of action is that the loss of Tax Credits would cause unacceptable reductions in income for many not on high incomes. To my mnd this is a classic case of the trees obscuring the wood. It should not be difficult to deal with in any transition.

Most people coming ‘cold’  to  the UBI think of it as a handout. Why would anybody work? they ask. Dynamic Benefits shows with crystal clarity that on the contrary the UBI will remove  the work disincentive of means testing, whereas Universal Credit, even without problems, would do so only marginally.

You might expect Dynamic Benefits to include a graph showing the effect of the Universal Credit which it proposed. It did not, precisely to avoid the above ‘naive’ questions.

The Universal Credit as now constituted reduces the ‘mountain’ of tax rate equivalents in excess of 80% on low incomes to a ‘plateau’ at 63%, which rises to over 70% when National Insurance is taken into account, whilst leaving ‘real’ tax rates of 45% on high incomes where they are.

The difficulties in implementation are real, but I will close with a reminder of the’Spitfires in 1940′ principle. They were not manufactured until they were urgently needed. The UBI is needed to save the ecosphere from the IPCC warnings.

The failure to explain the above is infuriating because its source is the case for the Universal Credit, which has turned out to be such a dreadful fiasco. Is there a better idea than the basic income for enabling downsizing to be thinkable -before it happens as an accident?