Citizen’s Income: Both Feasible And Useful – Social Europe

Malcolm Torry

There has been much discussion recently in Social Europe posts about a Basic or Citizens Income: an unconditional and non-withdrawable income for every individual. My aim here is to respond to one particular point made more than once: a Citizens Income would be unaffordable.

This is a complex question to which a variety of responses might be offered. Several of those responses would not be viable in the short or medium term but might be possible in the longer term: for instance, new forms of taxation, such as a financial transaction tax or land value tax, or the creation of new money, along the lines of the quantitative easing practised by central banks since the financial crisis. None of these funding methods would be easy to establish, and the likelihood of being able to implement one of them at the same time as introducing a Citizens Income would be close to zero.

A more feasible method for funding a Citizens Income in the short to medium term would be adjustments to the current tax and benefits systems. In the UK, such measures might be the reduction of the Income Tax Personal Allowance, adjustments to National Insurance Contribution rates and thresholds, changes to Income Tax rates, and the abolition or adjustment of existing means-tested benefits. A wide variety of different configurations would clearly be possible, but some would be more feasible than others.

In the UK, the value of the combination of the Income Tax Personal Allowance and the National Insurance Contributions Lower Earnings Limit is similar to that of the main out-of-work means-tested benefit, Jobseekers Allowance, suggesting that a Citizens Income of the same value could be paid for by reducing to zero the Personal Allowance and the Lower Earnings Limit and abolishing means-tested benefits. This approach might look attractive, but first of all the levels of means-tested benefits related to housing (Housing Benefit, Council Tax Benefit, and the housing component of Universal Credit) are substantial in areas of high housing costs, so those benefits would need to be retained; and secondly, households receiving Working Tax Credits and Child Tax Credits would find that their Citizens Incomes would replace the lost Income Tax Personal Allowance but not the value of their in-work means-tested benefits. Large numbers of low income households would therefore suffer substantial losses at the point of implementation of the Citizens Income. This would clearly be unacceptable.

The only option in the short to medium term is the retention of means-tested benefits, with each households means-tested benefits being recalculated on the basis that they would now be receiving Citizens Incomes and that their net earnings will have changed. It might be objected and it has been objected that this sacrifices the simplicity of Citizens Income, which is one of the advantages claimed by its proponents. This is to misunderstand. The Citizens Income would still be radically simple. It would be paid at the same rate to everyone of the same age, whatever their income, household structure, or employment status. It would function as a secure foundation on which every individual and every household would be able to build.

The means-tested benefits which some households would still receive would still of course remain as complex and stigmatising as they now are: and households still on means-tested benefits would continue to suffer high marginal deduction rates. However, any household that found itself no longer on means-tested benefits would see reduced marginal deduction rates and higher employment incentives, and would no longer experience the bureaucratic intrusion, sanctions, stigma, insecurity and complexity of means-tested benefits. So what matters is the number of households that would no longer be on means-tested benefits following the implementation of a Citizens Income and related tax and benefits changes; and also the number of households within striking distance of coming off means-tested benefits because any household with means-tested benefits of only a few pounds a week would choose to abandon their claim and instead add to their employment hours, in the knowledge that any additional gross earnings would no longer result in benefits withdrawal.

The Institute for Social and Economic Research has published a number of working papers on costed Citizens Income schemes. The most recent examples are An evaluation of a strictly revenue neutral Citizens Income Scheme, and Citizens Income Schemes: An amendment and a pilot project: An addendum to EUROMOD Working Paper EM 5/16. These show that a Citizens Income scheme that leaves in place and recalculates current benefits, and raises Income Tax rates by only 3%, can be revenue neutral, can avoid losses at the point of implementation for low income households, can minimise losses for all households, can reduce poverty, can reduce inequality, can take appreciable numbers of households off means-tested benefits, and can reduce substantially the average levels of payments of most means-tested benefits for those households still receiving them. The fact that such a scheme would reduce both poverty and inequality at zero net cost would be argument enough for implementing it. The fact that it would also take a lot of households off means-tested benefits, and that it would provide every individual and every household with a solid financial floor on which they could build, would be to take the first steps towards a tax and benefits system appropriate to the flexible labour market and household structures of the twenty-first century. The reduction in the number of means-tested benefits claims would deliver an administrative saving greater than the administrative cost of Citizens Incomes, which would be simpler to administer than Child Benefit.

The Citizens Income debate has evolved rapidly during the past five years or so, from a discussion of Citizens Incomes advantages and disadvantages, to exploration of its feasibility, and more recently to ideas about implementation. As the debate continues to evolve, the feasibility and possible consequences of illustrative schemes will be increasingly important.

Dr. Malcolm Torry is Director of the Citizen's Income Trust and a Visiting Senior Fellow in the Social Policy Department at the London School of Economics.

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Citizen's Income: Both Feasible And Useful - Social Europe