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Citizen's
Income Newsletter,
issue
1,
2002
Contents
Editorial page
Events page
Reviews page
News page
Future events page
A contribution to debate page
The Citizen's Income Trust and its future page
Citizen's Income Newsletter
ISSN 1464-7354
Citizen's Income Trust
P.O. Box 26586
London SE3 7WY
Tel: +44 (0) 20 8305 1222
Fax: +44 (0) 20 8305 1802
Email: info@citizensincome.org
Website: www.citizensincome.org
Registered charity no. 328198
Director: Malcolm Torry
This issue of the newsletter edited by Malcolm Torry
The Citizen's Income Trust and its future
The trustees would particularly like to draw readers' attention
to the article on the back page of this newsletter.
Editorial
Housing costs
Discussion on the reform of benefits and taxation frequently avoids
the issue of housing benefit. This should not surprise us, as
there can be no more complex benefit. It is the only part of the
benefits system which has ever seized up completely (in the mid-'80s,
when an attempt at reform resulted in Housing Benefit Supplement,
the collapse of the system, and the reform's abandonment); it
is the only part of the system which has to cope with variables
unrelated to personal circumstances (because housing costs vary
so widely across the country); and it is the only part of the
system currently suffering under four distinct transitional arrangements.
It is therefore to the credit of the Pivot Initiative that it
has issued a well-argued report on the reform of housing benefit
(see the news item below). The reforms proposed would be genuine
simplifications of the system, and the cost to the exchequer of
these reforms would be modest. The suggestion that both housing
benefit and council tax benefit should not be withdrawn at the
same time would be particular helpful as it would increase the
rate at which net income rises as earned income rises and would
therefore improve incentives to seek employment and to increase
earnings once in employment.
Of longer term interest is the more radical proposal for housing
allowances, comprising a flat-rate element and an element calculated
as a proportion of actual rent paid. This reform would turn housing
benefit recipients into participants in a market, leading to greater
efficiency in the allocation of housing.
But the radical question which is not asked is this: If it is
beneficial to reduce the effects of means-testing, then why not
seek to abandon means-testing altogether ? The contribution to
the debate later in this edition suggests precisely this.
Events
The launch of the Pivot Initiative's report Hope for Housing
Benefit: a strategy for housing benefit reform.
The Pivot Initiative was established a year ago at Centrepoint,
the national youth homelessness and social exclusion charity,
by Peter Dawe, entrepreneur and founder of Unipalm-Pipex, the
internet company, to research means of reducing the marginal tax
rates experienced by people on low incomes. Its major interest
has been the reform of housing benefit, and to this end its Director,
Daniel Brewer, has edited a report, Hope for Housing Benefit,
which was launched on Wednesday 7th November at the Institute
for Public Policy Research.
At the event Sue Regan (IPPR) welcomed a diverse group of MPs,
civil servants, journalists and representatives of voluntary organisations.
Lord Adebowale (former Chief Executive Officer of Centrepoint
and now Chief Executive Officer of Turning Point) spoke about
the difficulties which the housing benefit system poses for young
people, and the difficulties involved in understanding and reforming
the system. Daniel Brewer introduced the report, which suggests
a number of reforms which would simplify the housing benefit system
and at the same time reduce the poverty trap which the system
currently imposes on low earners.
Currently 4.6m people receive housing benefit, so there are 4.6m
people who experience rapid withdrawal of the benefit as their
earned income rises, and a lot of people who suffer a disincentive
to seek employment or to increase their earnings once in employment.
If employment is to be a major means of lifting people out of
poverty, then housing benefit is a problem.
The report makes several proposals:
Extended payment periods: Housing benefit currently runs on into
new employment for four weeks, but there are conditions attached
to the run-on. To remove the conditions would ease the transition
into employment;
Nondependent deductions: Other adults living in someone's home
are currently means-tested (a means-test within a means-test),
and if information on their earnings is not available then the
maximum nondependent deduction is applied to housing benefit claims.
The report proposes a small flat-rate deduction for earning nondependents
and no deduction at all for nonearning nondependents. This would
reduce the risk of nondependent young adults being asked to leave
home;
Longer payment periods: At the moment, any change in circumstances
triggers a reassessment of housing benefit. Working Families Tax
Credit is based on a 12-month payment period during which minor
changes are ignored. The report suggests that for housing benefit
a 6-month payment period during which minor changes would be ignored
would simplify administration;
Combining Council Tax Benefit and Housing Benefit tapers: At the
moment, as other income rises, both council tax benefit and housing
benefit are withdrawn together, contributing to a total withdrawal
rate of 85%. This is a disincentive to seeking employment. The
report proposes that council tax benefit should be paid at the
full rate until housing benefit has been completely withdrawn,
and that only then should council tax benefit begin to be withdrawn.
This would result in a withdrawal rate of 65% throughout, giving
many families a net weekly income £20 higher than at present;
The elimination of earnings disregards: The disregards are extremely
small and thus provide no real incentive to seek employment. They
should either be increased or withdrawn. The report suggests that
the taper be reduced by 10% at the same time as the disregards
are removed, thus increasing incentives over a broad income range
and reducing them only for those earning very little.
Housing allowances: At the moment, housing benefit is related
directly to actual rent paid, but in each area the rent levels
on which calculations are based are restricted. Many people cannot
find accommodation at the maximum rent level allowed, so they
have to find some of the rent themselves. The report recommends
that in the longer term housing benefit should be replaced by
housing allowances made up of a flat rate element (related in
each area to average rent levels) and an element proportional
to the actual rent paid. This would protect people who could only
find expensive accommodation, at the same time as giving people
an incentive to seek cheaper accommodation should it become available.
The report contains graphs showing the effects of some of the
listed changes on net incomes, and a table showing how the implementation
of the different proposals might be related to a timetable.
Debate following the presentation ranged widely over the provision
of housing, differences in costs throughout the country, the difficulties
faced by pensioners who would lose from the proposals (such as
owner-occupiers on council tax benefit but not on housing benefit),
the relationship between high housing costs and low take-up of
working families tax credits, and applying a housing allowance
system to home-owners as well as tenants.
Anthony Lawton, the new Chief Executive Officer of Centrepoint,
declined to sum up the discussion, instead reflecting on the difficulty
of the subject and the importance of tackling the problem.
The report is obtainable from The Pivot Initiative, Centrepoint,
Neil House, 7 Whitechapel Road, London E1 1DU, telephone +44 (0)20
7426 5397, fax +44 (0)20 7426 5448, email: enquiries@pivot.org.uk,
website: www.pivot.org.uk.
The inaugural conference for the Centre for Microdata Methods
and Practice ('cemmap')
On Thursday 6th December, the new Centre for Microdata Methods
and Practice, a joint venture between the Institute for Fiscal
Studies and the Department of Economics at University College
London, was launched with a conference entitled 'Microdata Methods
and Practice: Perspectives and Priorities'. Speakers included
Professor Andrew Chesher, Director of the new center; Andrew Dilnot,
Director of the IFS; Baroness Sarah Hogg (Chairman, Frontier Economics,
and previously head of the Downing Street Policy Unit from 1990
to 1995); Evan Davis, Economics Editor, BBC; Professor Richard
Blundell, of the IFS and UCL; and Sir Andrew Turnbull, Permanent
Secretary to the Treasury.
Sir Andrew's presentation was particularly relevant to discussion
of the reform of tax and benefits. He outlined the Treasury's
policy of basing reform on evidence, and introduced 1.the Treasury's
'Evidence for policy choice' website, 2. its evidence based policy
fund, and 3. the evidence based policy cycle, which implies the
following process: data ? analysis/review ? research ? policy
thinking ? consultation/testing ? enactment ? set-up evaluation
? delivery ? outcome ? data.
Given the resources, the Citizen's Income Trust could clearly
make a substantial contribution to all stages of this cycle up
to the 'consultation/testing' stage.
Reviews
Jay Ginn, From Security to Risk: Pension privatisation
and gender inequality (London: Catalyst, December 2001)
(Catalyst is at P.O. Box 27477, London SW9 8WT, telephone 020
7733 2111, email catalyst@catalyst-trust.co.uk, website www.catalyst-trust.co.uk).
The introduction to this paper reveals just how small women's
financial resources are in retirement compared with men's. (The
statistical evidence reveals a divide far larger than this reviewer
realised). This gulf, which relates particularly to occupational
and private pension provisions, means that women are more reliant
on a state pension than men are.
The paper also reveals significant continuities in government
policy on pensions, with the change in government in 1997 seeming
to make little difference to the consensus that private provision
(with public subsidy) should grow and that the state Basic Pension
should decline in real terms. Both of these trends disadvantage
women.
Another serious trend is towards means-testing. Because of the
advent of the Minimum Income Guarantee, by 2003 half of all pensioners
will suffer means-testing; and, combined with the fact that Britain
has a lower state pension than most other OECD countries, this
is bound to affect the willingness of people on low incomes to
save for their old age.
Ginn suggests that it needn't be like this:
"There are better alternatives, even in liberal welfare states.
For example, New Zealand provides a tax-funded citizen's pension
at age 65 to each resident, irrespective of employment record.
The amount is 34 per cent of average net earnings for each married
person and 44 per cent for lone pensioners. In 1998 this was equivalent
to over £100 per week for a lone pensioner (using Purchasing
Power Parities). As a result, New Zealand's men's and women's
incomes in retirement are roughly equal. One reason New Zealand
has the resources to provide a citizen's pension for all is that
there is no tax relief on private pensions. Denmark also provides
a citizen's pension higher than Britain's Basic Pension, although
only at age 67.
"Closer to home, Ireland has a higher basic pension than
Britain. In 1998 it was equivalent to £91 per week (29 per
cent of average industrial earnings) and it is being increased
faster than prices.
"Scrapping the NI system and replacing it with a citizen's
pension set at an adequate level would avoid the increasingly
complex calculations of entitlements in the NI pension schemes.
For women, it would have the added advantage of rewarding unpaid
and paid work over the life course equally, allowing older women
the dignity of an income of their own and improving gender equality
in retirement incomes," (p.15).
Ginn also offers some less radical suggestions, such as raising
the Basic Pension to Minimum Income Guarantee level; but the argument
of the paper leads inexorably towards the conclusion that a citizen's
pension is the best way to provide an income for elderly people
in such a way that the inequalities between men and women before
retirement might not be perpetuated after it.
David Piachaud and Jo Webb, Social Security and the Changing
Labour Market (Trades Union Congress, October 2001, £10,
ISBN 1 85006 582 9).
Social security has an economic function, as it reduces exclusion,
encourages risk-taking, and reduces the crime-related costs of
inequality. The problem is the cost, and the pressure (greater
as globalisation affects our economy) to reduce labour costs and
thus taxes on income from labour. But Piachaud and Webb find no
'race to the bottom', and suggest that there won't be one, as
too many workers rely on social protection. Similarly, the authors
find that there is no simple 'dependency culture'.
The paper contains some other interesting findings: that there
is no clear relationship between social protection spending and
economic growth; that UK benefit levels are lower than in most
European countries; and that, whilst the UK spends 27% of GDP
on social protection, this has less impact on poverty than lower
spending has in some other countries.
The lack of a clear relationship between social protection spending
and economic growth, and the UK's low benefit levels, between
them suggest that the UK could increase benefit levels without
damaging economic performance.
On 'the family' as the major source of social protection, the
authors write: "For social protection in Britain the family
remains the basic unit of account. Indeed with the extension of
means testing with the Working Families Tax Credit and the pensioners'
Minimum Income guarantee the family unit on which benefit entitlement
is assessed is becoming increasingly important. The promotion
and subsidy of low-paid work through the Working Families Tax
Credit is a key component of the strategy to eliminate child poverty
within a generation. This involves a recognition that many parents
cannot rely solely on universal benefits nor are they able to
take full-time employment or obtain a job that pays above the
poverty level. This family-focused subsidy in Britain is in contrast
to the measures in many countries to ensure that all individuals
have adequate social protection in their own right. ….. in
many European countries this depends on extending social insurance
to those who are part-time or very low paid and to those with
interrupted working lives due to care of children or of disabled
relatives. Britain has tended to move in the opposite direction,
leaving those with little or no social insurance to depend on
the means-tested Income Support Scheme. For those who do or will
depend on Income Support there is little incentive to earn or
save. More fundamentally the family-based means test undermines
individual entitlements and serves to encourage family break-up,"
(p.16).
Similarly, the authors criticise the British system for not adapting
to changing employment patterns: "Where employment is changing
towards short-term contracts, individually negotiated pay and
conditions, portfolio working and reduced occupational welfare
the result is increased insecurity and more dependence on social
protection. If employment is no longer life-long, then relying
on occupational welfare for protection when sick or old is less
and less possible. Social protection in many countries is adapting
to changing work patterns. In Britain only minor adaptations have
been made and then largely as a result of adverse rulings of the
European Court," (p.17).
On globalisation, the authors suggest that, "considering
the increased insecurity that globalisation seems likely to engender,
the balance of political pressure will most probably shift towards
improving social protection," (p.19).
The paper calculates the cost of catching up with the rest of
Europe in terms of spending, and concludes: "Globalisation
presents many challenges to welfare states. Yet we have seen that
it requires us to sustain our levels of social protection, not
reduce them. There is no evidence that increasing social provision
would harm economic efficiency, and much to suggest that it would
have beneficial effects on poverty and social harmony. The experience
of some of our European neighbours suggests that the twin objectives
of high economic growth and low poverty rates can be achieved
simultaneously. Britain would do well to follow their example,"
(p.20).
The logic of the paper leads to the conclusion that the additional
spending needs to be on non-means-tested, individualised benefits
not linked to particular labour market statuses.
Employment and Poverty, second edition, (Trades
Union Congress, £7.50, ISBN 1 85006 583 7).
This paper concludes that "the clear correlation between
a country's social protection spending and its poverty rate, and
the lack of a correlation between poverty rates and employment
rates indicates equally clearly that employment cannot be the
whole answer to poverty. Workless families in the UK are far more
likely to be poor than their counterparts in other European countries,
and this must be related to the level of social protection in
different countries," (p.11). So "welfare-to-work policies,
however effective, cannot substitute for adequate social protection
spending," (p.9). The major casualties of a welfare-to-work
policy are those children living in households where parents are
not available for work, for whatever reason ," (p.13)).
Abraham Doron, 'Targeting Social Protection Benefits',
in Benefits, issue 31 May/June 2001, pp.10-13.
"Targeting of social security benefits has always been an
integral part of social welfare policies. The introduction of
the term 'targeting' into the current policy discourse is, however,
of recent usage. All social benefit programs in the past were,
in one way or another, targeted to serve specifically defined
population groups, whether those in actual need or those at risk
of being in need. There have never been programs that operated
in an entirely indiscriminate manner in distributing their benefits.
Resources have always been scarce and the main task of policy
makers has been how to make best use of the limited resources
available for social benefits. The policy issue is thus not whether
targeting is necessary but how can it achieve the policy goals
in the most effective manner," (p.10).
The author discusses in detail the different targeting methods
used in Israel, and concludes that targeting is done mainly by
aiming benefits at particular demographic groups (children and
pensioners) rather than by means-testing. As well as being targeted
at groups which tend to be in relative need, these non-meanstested
benefits aimed at these groups can be regarded as 'targeted' in
the sense that the benefit will be a higher proportion of income
for those with fewer other financial resources than for those
with higher financial resources.
The article concludes: "The major issue in the debate …..
is not targeting in itself, because the need for targeting has
always been recognised and accepted in practice. The issue is
whether targeting takes place within programs designed to cater
to the poor and low-income groups only through the use of means
and income testing at the point of access, or if targeting is
achieved within broader universal benefit systems and on the basis
of group status criteria, without means-testing, proved to be
more viable than the recourse to means testing and other individual
behaviour criteria. The Israeli experience, for example, gives
ample support for this view," (p.13).
The article raises the question as to how the word 'targeting'
should be used in debate in this country. The author defines 'targeting'
as the directing of resources to serve particular groups. Thus
Child Benefit is targeted: on children. If, as the article suggests,
targeting means directing resources disproportionately towards
certain groups, then a Citizen's Income could be regarded as a
means of targeting on people with low incomes, as its effect would
be that of providing a higher proportion of net income for poorer
families than for wealthier families and it would thus be directed
disproportionately towards poorer families.
Social Policy and Administration, volume 35, December 2001,
no.5.
This special issue of Social Policy and Administration on 'Environmental
Issues and Social Welfare' invites those of us who are interested
in the reform of social security benefits and taxation to think
again about the link between these concerns and the sustainability
of the planet. Of particular interest is the paper by Tony Fitzpatrick
entitled 'Making Welfare for Future Generations'. Fitzpatrick
summarises his own theory on intergenerational justice in which
he develops a principle of 'sustainable justice' which recognises
"the long-term mutuality of intragenerational and intergenerational
equity: the former without the latter is unsustainable; the latter
without the form is undesirable," (p.508). He looks for social
policies which might serve the interests of both the present and
the future poor, and suggests collective ownership of pension
funds.
Fitzpatrick locates the link between this discussion of sustainable
justice and environmental issues in the principle that "substitutables
should only be utilized if the welfare thereby created is subject
to an egalitarian distribution [because] the depletion of a substitutable
has implications for everyone, therefore everyone should be able
to benefit from it on a scale that current property rights do
not permit," (p.513). He discusses the Alaskans' distribution
of oil revenues to every resident as a social dividend - and suggests
that it has few environmental credentials.
This of course reveals the problem: that the paper is about two
separate issues: environmental issues, and social justice (though
social justice in an intergenerational context). As Fitzpatrick
recognises when he discusses the use of a field for either a car
park or a conservation park, it is the particular kind of tax
regime chosen which will determine whether the environmental justice
is served.
Of particular interest in this respect is Meg Huby's article,
'The Sustainable Use of Resources on a Global Scale', which includes
a discussion of the consumption of energy in wealthy and poor
countries, and which recommends carbon taxes which, she believes,
"could pay huge environmental dividends and provide revenue
for improving social assistance schemes," (p.533).
Maybe it's time to revisit the idea of a Citizen's Income paid
for by imposing a carbon tax. Such an arrangement ( - particularly
if either established or regulated on a Europe-wide basis) would
serve intragenerational, intergenerational and environmental justice,
whilst at the same time contributing to the efficiency of the
labour market: an issue which some suggested policies take less
into account.
Sharon Collard, Elaine Kempson and Claire Whyley, Tackling
financial exclusion: an area-based approach (The
Policy Press, 2001), pb, 52pp, £12.95.Order
this book
This is a report on research carried out in a participative fashion
in a deprived area of Bristol. Through focus groups, local people
identified the difficulties they face when they attempt to gain
access to financial services. The researchers then put the questions
raised to providers of financial services; an audit of financial
provision in the neighbourhood was undertaken; and finally groups
of local people questioned financial providers, evaluated the
responses received, and identified priorities for action.
Banking, loans, savings, loans for micro-entrepreneurs, financial
services for Muslim Somalis, and financial information and education,
were identified as priorities; and the new basic bank accounts
offered by Natwest ('Steps') and the Bank of Scotland ('Easycash')
were regarded as meeting local needs, as was the proposed universal
bank account to be operated through Post Offices.
The research was carefully conducted, with genuine local participation;
and the conclusions drawn will be helpful to the providers of
financial services as they seek to serve poorer communities.
What is now required is in-depth research on how people in more
deprived communities do actually manage their finances, along
the lines of Jordan et al's research in Exeter into the ways in
which low-income families make decisions about sources of income.
(Bill Jordan, Simon James, Helen Kay and Marcus Redley, Trapped
in Poverty? Labour-market decisions in low-income households (Routledge,
1992)). In this way the detail as well as the broad outline of
what is required will become clearer.
Bill Jordan's conclusion was that low-income families operate
as if means-tested benefits were non-withdrawable benefits, until
earned income reaches a certain level, at which point earned income
is declared and means-tested benefits lost or reduced. The decriminalisation
which reducing means-testing would achieve is a strong argument
for establishing a small and growing Citizen's Income.
Any future research into financial services provision will need
to address this question: How are decisions about which financial
services to access linked to decisions about how income sources
are managed? For instance: Is a family receiving means-tested
benefits and undeclared casual earnings less likely to open a
bank-account than a low-earning family not in receipt of benefits?
If so, then the conclusion which Jordan et al draws has relevance
to any future debate on the provision of financial serves in more
deprived areas.
Toru Yamamori, 'Redistribution and Recognition: Normative
Theories and the Political Economy of Welfare States', in
Competition, Trust and Cooperation edited by Y. Shionoya and K.
Yagi, and published by Springer (ISBN 3-540-67870-0).
Yamamori discusses redistribution as a process of entrance, game,
and exit, and the recognition of differences as a process of entrance,
communication, and exit. Interventions in the game or at the exit
perpetuate and strengthen boundaries between people (between women
and men, between independent people and dependent people, between
different racial groups, etc.). Only intervention at the entrance
will dissolve the boundaries. Most income maintenance instruments
apply during the game or at the exit, and so perpetuate and strengthen
boundaries. A Citizen's Income is applied at the entrance, and
so dissolves boundaries and reduces inequalities.
Nicholas Timmins, The Five Giants: A Biography of the Welfare
State, New edition (HarperCollins, 2001), pp.xvi+708,
£12.99. Order
this book
This book announces itself as a 'new edition' of the book Timmins
published in 1995, and any review of a new edition of a book is
inevitably also a review of the original edition, which was a
unique history of the welfare state, revealing what a remarkable
achievement it was and still is.
The introduction sets out both a plan and some of Timmins' conclusions.
He candidly admits that the book includes those things which interest
him, as any biography does; so, fortunately for the purposes of
this newsletter, the book contains more on social security benefits
than many other authors' biographies of the welfare state would
have done.
Timmins' initial conclusions are that there was no 'golden age';
that social policy has always been driven by diverse and often
irreconcilable aims; that it is difficult to discover explicitly
labour or conservative approaches to reform; that the Beveridge
Report and its (partial) implementation were colossal achievements;
that anger at continuing inequality is highly appropriate; and
that change frequently results in unintended consequences ( -
there is a useful section in pp.282f on Family Income Supplement's
(FIS) tendency to depress wage rates and to increase the depth
of the 'poverty trap', which was first defined in relation to
FIS).
In a short review it is not possible to discuss the detail of
the historical argument of the remaining chapters. Instead, I
shall highlight those parts of the history and of Timmins' treatment
of it which will be of particular relevance to readers of this
newsletter.
The remarkable implementation and survival of Child Benefit runs
as a seam of gold through the book, and Timmins recognises the
importance of not means-testing it (as have politicians of various
political hues). Child Benefit was an important element in Beveridge's
plan to ensure that families would be better off in employment
than out of it, and this theme too runs throughout the history,
and particularly through the revised chapter 20 and the new chapter
21 in the new edition which discuss the recent New Deal, Working
Families Tax Credits (WFTC), and plans for tax credits for people
without dependent children. Similarly, Beveridge wanted most elderly
people to be on non-means-tested pensions, and governments are
still pursuing this goal by different means in order to maximise
personal savings for old age. (The proposed income guarantee for
pensioners will be a wrong turn in this respect).
Beveridge wanted a contributory scheme because he wanted every
employee to contribute as well as to receive. When he wrote his
report, only higher paid employees were paying income tax, so
national insurance contributions paid by every employee were the
obvious way to enable everyone to contribute. An important general
lesson to draw from Timmins' history is that a single aim can
often be met via different routes; and an important particular
lesson is that a tax-based social security system would now achieve
Beveridge's aim that everyone should contribute because now people
on relatively low incomes are paying income tax.
Beveridge's aim was a contributory 'platform' and a means-tested
'safety net', but because the rates of contributory benefits were
set at similar levels to those of means-tested benefits (National
Assistance, subsequently renamed Supplementary Benefit and then
Income Support), and because means-tested benefits included housing
costs and contributory benefits did not, by 1954 the 'safety net'
was supporting 1,800,000 people. As we shall see, the position
has worsened since then.
An interesting subplot is the way in which radical proposals have
frequently been made, often several times, before being implemented.
Labour's manifesto of 1964 contained a pledge to integrate tax
and benefits and thus abolish means-tests for pensioners, and
then for others (p.225); in 1974 the Conservative government was
working on tax credits; and the Working Families Tax Credit integrates
a means-test with income tax assessment for some employees. The
possibility of a Citizen's Income scheme gets a mention in this
context - but the book is biography, not prophecy, so we should
not expect Timmins to have explored this possibility further.
(Maybe he should write another book).
From 1978 onwards a note of defeatism enters the story as governments
continually adjusted and renamed means-tested benefits rather
than seeking to replace them with something different. (The account
of the 1983 Housing Benefit Supplement fiasco is particularly
revealing). Norman Fowler's 1986 review was intended to be radical,
but the outcome wasn't (though it did for the first time apply
the same means test to in-work, out-of-work and housing benefits,
making the poverty trap shallower but wider).
It is a pity that the new edition no longer contains interesting
tables to be found in the original edition; but interesting figures
in the original chapter 20 are still there in the new edition,
and they show that by 1992 there were 5.6m people on Income Support,
which, when dependents are included, means 20% of the population.
The figure was 4% in 1948. Both editions, in different ways, reveal
increasing inequality, with the new edition recognising that recent
policies have at least arrested the acceleration of inequality
for those on the lowest incomes.
It is often difficult to discuss such recent developments objectively,
but Timmins has useful sections on developments in social security
policy at the end of the last Conservative administration and
during New Labour's first period in office. The continuities are
interesting, and particularly those relating to attempts to provide
incentives to work and to attempts to reduce means-testing. Also
useful is the recognition that Beveridge's scheme was a development
rather than a revolution and that the search for a 'big idea'
to solve the problems facing the social security system has (so
far) ended in failure. The unthinkable has not yet been thought
by governments, even if various unthinkables have been thought
by various individuals and think-tanks.
An interesting outcome of recent developments is an increase in
means-testing (for Working Families Tax Credits is better described
as a means-tested benefit than as any other kind, and the pensioner
income guarantee will be one too); and Timmins concludes that
universal provision is having a hard time of it and will continue
to do so.
This new edition of Timmins' 'biography of the welfare state'
is essential reading for anyone interested in the current debate
on social security reform, a debate which must now be linked with
that on income tax reform. Whilst a Citizen's Income approach
to the problem is currently not high on the agenda, Timmins' book
shows that the issues amongst which this approach operates are
precisely those within which debate on the future of social security
is taking place: incentives to seek employment and to save; income
maintenance; housing costs; complexity; inequality; responsibility
to contribute …… And he also shows that Beveridge's
aim was to provide a 'platform' on which people could build (because
to provide a platform is to encourage individual effort) and that
our social security system is no longer true to this vision because
its chief instrument is a set of means-tested safety-nets. Beveridge
would have wanted us to seek a new 'platform'.
The only conclusion to draw is that discussion of a Citizen's
Income is central to any future discussion of social security
reform.
News
The Zacchaeus 2000 Trust comments on how the government's
New Deal scheme is working:
The Zacchaeus 2000 Trust has recently funded work at the Family
Budget Unit to determine how much people need to live on, and
has publicised the results of the research. It has also made submissions
to government on a variety of government initiatives on the basis
of its own research, and a recent submission on how the government's
New Deal for young people is working might be of interest to readers
of this newsletter:
The Trust writes:
"We suggest the committee investigates the following areas
of concern during its new enquiry.
A poverty trap is created by Working Families Tax Credits. The
tapers cut out the council tax and housing benefits too soon.
The transfer of the full payment of rent and council tax to the
low paid employee can result in greater poverty in employment
than out of it. So debts arise.
People who experience short periods of employment on low incomes
and then return to unemployment on benefits can find themselves
in debt because their pay was too low while they were employed
to feed themselves and their children and, at the same time, pay
the Council Tax and Rent. Low paid contract workers are particularly
vulnerable.
A further problem for the low paid is the Local Authorities method
of calculating "eligible rent" which can be less than
the actual rent. Housing benefit is paid to cover the eligible
rent leaving the tenant to pay the balance of the actual rent
out of the already inadequate statutory minimum incomes either
in or out of work.
Another trap is the debt caused by the delay and inefficiency
in processing benefit applications in local authorities, benefit
agencies and job centres, or their privatised equivalents. Getting
off benefits and getting back on puts people in debt and on the
streets because of delays and mistakes. This is caused by shortage
of staff and lack of training.
Claimants fall into debt when going into employment because the
payment of benefits is not cancelled and they are then charged
by the local authority for the over payment, and when going back
on to benefits into unemployment because delays and mistakes mean
that the rent is not paid. This leads to threats of eviction and
homelessness. The same is true of council tax leading to threats
of distress and prison.
The benefit system collapses altogether when a young person falls
out with the "New deal for young people" and income
support is cancelled. This forces them into the informal economy
or homelessness when their skills do not match the jobs on offer
in the formal economy. Seven million adults can barely read or
write. Carrying drugs from A to B pays £50 a time. This
cancellation of benefits should be repealed.
We hope the committee will investigate whether this cancellation
of benefit contravenes the International Convention on Economic,
Social and Cultural Rights.
The number of unemployed is counted by the number receiving benefits.
There is, therefore, political pressure to get people off benefits.
This pressure may be influencing the decisions of staff in a manner
which deprives people of benefits to which they are fully entitled.
I hope the committee will investigate the destinations of the
29% of young people leaving the New Deal to unknown destinations."
The Centre for Asset-based Welfare
The Institute for Public Policy Research has launched a 'Centre
for Asset-based Welfare' to study the role of assets (such as
savings and investments) in welfare policy. Asset-based policies
could become a significant part of the welfare state. Already
the government has proposed a Child Trust Fund, and the new Centre
plans to undertake research which will give a better understanding
of why holding assets might create beneficial social and economic
outcomes for individuals.
In an article in Prospect (December 2001, page 50), Gavin Kelly
(Research Director of the IPPR) and Julian Le Grand (Professor
of Social Policy at the London School of Economics) discuss the
way in which asset accumulation is currently subsidised for the
already wealthy (in the form of tax relief on pension contributions)
and the way in which the asset-based welfare suggested by Thomas
Paine has historically been submerged beneath a welfare system
based on the reallocation of income rather than of capital. The
authors tackle the 'futility' objection to such plans as the Child
Trust Fund (the argument that small amounts are pointless) by
suggesting that once an idea is established then public opinion
can determine the level of the payments, and by drawing on research
which shows that even small savings can increase people's wellbeing.
In addition to the Child Trust Fund, the government is also planning
a 'savings gateway', whereby every £1 saved by an individual
(up to an annual limit) will be matched by £1 from the government.
The Citizen's Income Trust will watch these new government initiatives
with interest, and will study carefully any research which the
new centre publishes. The universal nature of the Child Trust
Fund and the savings gateway, and the simplicity of their administration,
will make their behaviour similar to that of a Citizen's Income,
and how these initiatives are received will be useful information
for anyone interested in the extension of universal benefits.
And because universal benefits make people more likely to save
(because means-tested benefits are a disincentive to saving),
we hope at some point to see the government suggesting a small
Citizen's Income to match these current experiments in universal
provision.
(The Institute for Public Policy Research is at 30 - 32 Southampton
Street, London WC2E 7RA, tel. +44 (0)20 7470 6100, fax +44 (0)20
7470 6111, email: info@ippr.org.uk; website: www.ippr.org. A useful
introduction to the topic is Assets and Progressive Welfare, edited
by Sue Regan, price £7.50, ISBN 1 86030 160 6, published
by IPPR in March 2001. The Assets Effect by John Bynner and Will
Paxton investigates the link between assets and well-being, price
£7.50, ISBN 1 86030 161 4, published by IPPR in October
2001).
Future events
The Ninth Congress of the Basic Income European Network
is entitled
Income Security as a Right
and it will be held at the International Labour Office in Geneva
from the 12th to the 14th September 2002.
Further details can be obtained at www.basicincome.org or by contacting
the Citizen's Income Trust; and we shall publish further details
in our next newsletter.
A contribution to debate
The reform of Housing Benefit
Housing Benefit is an essential component of many people's income,
enabling them to afford somewhere to live; but it is also a major
contributor to the poverty trap. Housing Benefit is means-tested,
with a 65% withdrawal rate as earned income rises, meaning that
someone who leaves means-tested benefits for paid employment,
or who increases their earned income, can suffer high marginal
tax rates. There is a small disregard, meaning that it is worth
someone being employed for a couple of hours a week, but not for
longer. And because short-term employment means the loss of Housing
Benefit, a new application, and then another application when
the job ends, short-term employment is avoided because claimants
cannot predict the effect on their Housing Benefit and they fear
administrative mistakes and the consequent rent arrears.
Ideally, housing costs should be low enough to enable Housing
Benefit to be dispensed with, and the government's recent Green
Paper on housing and the subsequent statement of policy regard
the reform of social housing and the implementation of additional
means of providing affordable housing as important ways of enabling
people to afford decent housing. But the government recognises
that this will be a long-term strategy, and therefore makes proposals
for the reform of Housing Benefit in the short term, the key methods
being to raise standards in administration, to simplify the four
existing transitional protection schemes (left over from previous
attempts at reform), and to 'promote work incentives'. The policy
statement records that amongst those who commented on the Green
Paper "there was widespread support for taking action to
improve work incentives ……. [and] there was general
support for longer-term, more structural reform, but varying views
about when it should take place, and in what form."
The policy statement recognises that "much of the work disincentive
effect lies in the administrative problems, rather than the design
of the scheme itself," and that "Housing Benefit is
complicated. This makes it difficult for local authorities to
administer and difficult for the public to understand. That, in
turn, make it more vulnerable to fraud and error and damages work
incentives." This leads the government to the conclusion
that what is required is "a more effective process for making
claims, along with changes to ease the transition into work and
improve the administrative fit between Housing Benefit and tax
credits." The document proposes the removal of the need to
make a new claim on starting work, and the speeding up of Housing
Benefit payment if a job ends after a short period. The Department
has decided not to reform disregards, tapers and non-dependent
deductions at this stage because, "given the current problems,
sorting out the administration, combined with our 'benefit run-ons',
will have more impact on work incentives than changing additional
rules in these areas."
A proposal in the Green Paper, and one which has been greeted
with interest by respondents (including the charity Shelter),
is the idea of a flat-rate element. A Housing Benefit made up
of a percentage of a locally-agreed flat rate (based on average
local housing costs) and a percentage of a claimant's actual housing
costs would offer some incentive to claimants to seek cheaper
accommodation if they were able to do so. Clearly, a scheme with
a flat-rate element would encourage people to move to cheaper
accommodation if they could, as doing this would increase their
disposable income. A less steep taper, increased disregards, and
longer claim periods, would enhance work incentives. The Way Forward
for Housing mentions each of these possible reforms, but does
not combine them. If all four approaches were to be taken together,
then the poverty trap effect of Housing Benefit would be much
reduced, as people would have a greater ability to increase their
disposable income through moving home and/or seeking employment
or increased earned income.
The logic of this argument leads to the conclusion that to set
Housing Benefit at a locally-agreed flat rate, to remove the taper
completely, to increase the disregard to the total of someone's
earned income, and to increase to a lifetime the period for which
the benefit is paid, would remove completely all disincentive
effects currently related to Housing Benefit. Given that everyone
needs to be housed, to pay such a benefit to every individual
(with children's benefits being paid to adults caring for them)
would avoid the current necessity to work out who is living in
which household. And the fact that this benefit would be going
to individuals who are not currently in receipt of Housing Benefit
is no argument against this approach, as all that is required
to recoup the money is to lower tax allowances and raise tax rates
slightly.
Such a simplified system would leave little room for fraud or
error (both identified as serious problems in the Green Paper),
and it would give people greater confidence to go out looking
for work, as they would know that their benefit would not be affected.
A major problem in London is that low-paid essential workers can
no longer afford to rent or purchase accommodation. To pay a Housing
Benefit as outlined above would mean that, whatever someone's
earned income, they would receive a higher benefit in areas of
high housing costs and a lower benefit in areas of lower housing
costs. Thus a simplification of Housing Benefit along these lines,
which would extend the benefit in a non-withdrawable fashion to
low-earners, would contribute towards the solution of an additional
and serious problem.
Radical proposals are rarely implemented in the benefits field
(Family Allowances, which became Child Benefit, are an important
exception), but if the logic of an argument leads to desirable
outcomes, then there is surely an obligation at least to consider
the possibility of a radical solution, particularly where that
solution might tackle problems in addition to the ones which it
was originally designed to tackle.
Shelter suggests the following criteria by which any housing scheme
should be judged: Housing Benefit should
· Promote social inclusion
· Be paid to people who cannot pay for their own accommodation
· Cover reasonable rents
· Make work pay
· Be transparent and accountable.
The scheme proposed in this paper fulfils every one of these criteria.
I would like to thank Daniel Brewer of the Pivot Initiative,
Tarig Hilal of Crisis, and Matthew Waters of Shelter, for their
assistance. The views expressed in this contribution to the debate
are those of the author and are not to be taken to be those of
the individuals or organisations above or of the Citizen's Income
Trust
Malcolm Torry
The Citizen's Income Trust and its future
Following the ending of the Joseph Rowntree Charitable Trust's
generous funding a year ago, the Citizen's Income Trust has successfully
negotiated the change from being a well-funded organisation with
an office and paid staff to being a low-budget organisation run
by voluntary labour. The organisation's activities have been refocused
on our primary objective: the promotion of debate about the feasibility
and effects of Citizen's Income schemes. The newsletter has been
issued more regularly than before, the website has been maintained,
and after running in this fashion for the next couple of years
we hope to be in a good position to seek funding for the longer-term
projects which we are planning.
Running costs
The one problem which the trustees face is that the Trust ended
2001 with no money in the bank. We do not currently have to pay
for an office or for paid staff, but website and email hosting,
insurance, audit fee, telephones, stationery and postage cost
about £1,500 p.a., and the newsletter costs about £3,000
p.a.. Subscription income from institutions amounts to only about
£1,500. The Trust therefore requires donations of about
£3,000 p.a. to perform the basic functions for which it
exists.
A serious problem is that the promotion of debate on the reform
of tax and benefits does not now fit the grant-making criteria
of any charitable trusts. Whilst we hope that in the future particular
projects might attract such funding, it is difficult to see how
any grant-awarding trusts might be persuaded to fund the Trust's
core running costs. We are therefore entirely dependent upon individual
donations.
The next five years
In order to plan for the next five years and to be able to seek
funding for projects such as seminar series, conferences, new
publications, research projects (particularly on costings) and
a commission on the reform of tax and benefits, the trustees need
to be sure that donation income of £3,000 p.a. will be available
for the next five years.
Can you help ?
Many of this newsletter's readers have already been generous with
donations for the current year. Whether or not you have already
made donations to the Trust, would you be willing to promise a
fixed annual or monthly sum for a period of five years ? And if
you know of any individual, company, or other organisation interested
in the reform of tax and benefits, would you be willing to show
them this appeal and ask for their help ?
The trustees of the Citizen's Income Trust have decided, reluctantly,
that if by the middle of June the Trust has not received promises
of £3,000 p.a. then the charity will not be viable in the
medium term and that closure will be inevitable. We wish to avoid
this if at all possible. The Citizen's Income Trust is the only
charitable trust with the sole aim of promoting debate on the
reform of tax and benefits - which is why we are asking for your
help.
If you might be able to help the Trust and would like to discuss
making a regular donation, whether large or small, annually or
monthly, to the Trust, then please get in touch with the Director,
Dr. Malcolm Torry. Contact details are on the front of the newsletter.
He would also like to hear from you if you would like to pay for
one of the short-term or long-term projects we are planning, such
as a new introductory leaflet (£1,500), a seminar series
(£3,000), an annual lecture (£1,000), research on
the costings of alternatives (£5,000+) and a commission
on the reform of tax and benefits (£160,000).
With many thanks for your continuing interest in a debate essential
to the health of our society and economy,
Anne Miller, Chair of the trustees
Philip Vince, Secretary and treasurer
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