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Editorial
Citizen's
Pension
December
2004 saw the publication of the most significant contribution
to the debate on the desirability and feasibility of a Citizen's
Income for several years: Towards a Citizen's Pension: Interim
Report, prepared for the National Association of Pension
Funds (NAPF) by the Pensions Policy Institute (PPI).
In
October 2002 NAPF recommended that the basis for reform
of the state pension system should be a Citizen's Pension:
a universal, nonwithdrawable income for every citizen over
pension age, set at 22% of national average earnings (approximately
£105 a week in 2004).
According to the Interim Report the benefits of a Citizen's
Pension would be adequacy, simplicity, inclusion, encouragement
to save, efficiency, and certainty, i.e., precisely the
qualities required for a state pension designed to encourage
people to create their own additional pension provision.
No longer would people be left wondering whether it was
worth their while to save for old age. They would know that
it would be. And financial advisers would be far better
able to advise clients on the net benefits which would accrue
from private pension schemes.
The
report outlines the solutions to some of the issues which
transition to a Citizen's Pension would face (such as ensuring
that employees contracted out of the State Second Pension
and employees not contracted out are treated equally by
applying the same offset to rights accrued in contracted-out
schemes as will be applied to rights accrued in the State
Second Pension).
There
are issues which still require discussion. An issue which
individuals have raised with us is the proposed residency
criterion. There are people living abroad who have accrued
rights in the UK's State Pension scheme by paying National
Insurance contributions. A simple residency test would therefore
need to be supplemented by transitional arrangements for
people who have accrued rights in the present system. But
these are minor issues, and both we and the PPI, and clearly
other participants in the debate, believe that there are
no issues which should prevent the implementation of a Citizen's
Pension. As the PPI has shown, a Citizen's Pension is affordable
within the current pensions budget.
NAPF
and the PPI are not the only participants in the recent
debate. In 2003 the House of Lords Select Committee on Economic
Affairs recommended a universal non-means-tested pension
in its report Aspects of the Economics of an Ageing Population;
in February 2004 the National Consumer Council, in their
publication Retirement Realities, recommended a Citizen's
Pension; in the spring of 2004 Alan Pickering's report for
the Adam Smith Institute recommended a universal non-means-tested
pension set at 40% of national average earnings; in September
2004 the Association of British Insurers expressed the view
that means-testing of pensions should be reduced; in February
of this year Help the Aged recommended a Citizen's Pension
in their report Pensions not Pin Money: Ensuring a decent
retirement for all; and both in the House of Commons (on
the 14th October 2004) and in interviews in the Telegraph
(4th December) and the Guardian (29th December) the Rt.
Hon. Alan Johnson, Secretary of State for Work and Pensions,
has expressed serious interest in implementing a Citizen's
Pension.
We
await developments with interest.
Main
Articles
Toward
a European Basic Income Experiment
by Loek Groot (Utrecht School of Economics, Utrecht University)
The
purpose of a European Science Foundation Exploratory Workshop
on the 18th September 2004 in Barcelona was to discuss the
merits of a Basic Income/ negative income tax experiment
in Europe and to comment upon the design of the experiment.
For this reason experts in the field of randomized field
experiments, income taxation, social security arrangements,
gender issues, political scientists and philosophers were
invited to participate in the workshop. In the introductory
text to inform prospective participants, the following summary
of the topic to be discussed at the workshop was offered:
Any design for a new BI or NIT (Negative Income Tax) experiment
in Europe should be informed by the NIT experiments in the
USA which started in the late 1960s. Although the outcome
of these experiments cannot be considered predictive for
the expected effects of the introduction of a BI in Europe
or even the USA today, some important lessons can be drawn
for setting up a new experiment. Atkinson (in Atkinson,
A.B. (1995), Public Economics in Action. The Basic Income/Flat
Tax Proposal, Oxford, Clarendon Press, p.150) states that
"the NIT experiments are generally considered to have
reduced the range of uncertainty surrounding the response
of hours of work to taxation..." However, "...
there is no necessary reason to expect the results to apply
equally in a European context. Those interested in a BI/FT
(BI/flat tax) scheme in Europe might like to consider launching
such an experimental research project, which would serve
both to throw light on the economic effects of the reform
and to demonstrate how it would work in reality."
The
emphasis in the design of the experiment will be on the
labour market effects. Will people work less or will some
people even stop working? Will beneficiaries be more prepared
to accept low paid or part-time jobs? Will non-participating
partners ('housewives') seek and take more, or less, paid
work? What will be the effects on the division of paid and
unpaid work within the household? Will a BI cause interesting
behavioural reactions in all sorts of other areas? Although
the latter may not be crucial for the judgement of BI's
feasibility, it is nonetheless worth watching. For instance,
the effects of a BI on consumption patterns, family composition
(living together or separate), role division between men
and women, the way leisure time is spent and things like
participating in voluntary work, social participation, etc.,
are all possible consequences worth taking into account.
The
idea behind the workshop was that it would be interesting
to launch an experiment in one of the former 15 EU members
as well as in one of the new member states from Eastern
Europe. In designing the experiment many questions must
be answered and decisions made: the levels of the income
guarantee and the withdrawal rates; the number of questionnaires
(a screening interview to determine eligibility, a pre-enrolment
interview, regular interviews during the experiment, a follow-up
interview after the experiment); the topics to be included
in the interviews (work and income patterns (about job training,
job history, partner's labour force history, child care
and welfare history), family life and background (about
family composition, educational background, social class,
etc.), political and social life (about political awareness,
social networks) and other assorted topics (e.g. social
status, self-esteem, worry and happiness, attitudes toward
work, and job satisfaction); and finally, the content of
the enrolment kit containing the rules of operation of the
experiment.
At
the workshop, Loek Groot provided the basic design of a
Basic Income experiment. The lessons to be learned from
the U.S. negative income tax experiments were taken care
of by the contributions of Karl Widerquist, Rebecca Maynard
and Robinson Hollister. Finally, Marx and Peeters explained
why the study of Win for Life lotteries is interesting for
Basic Income research. In what follows, I will concentrate
on my own contribution and at the end refer to the results
of the discussion.
According to Loek Groot, the best selling point for a Basic
Income experiment is that it offers the opportunity to measure
more adequately the effectiveness of thousands of workfare-oriented
experiments going on all over Europe. Comparing the results
of Basic Income and workfare-oriented experiments will show
what the net effect is of all kinds of 'make-work policies'
compared to when it is left to the client group itself to
decide what to do or not to do. Because there are no BI
experiments going on, we can only guess what the differences
would be. For instance, it may well be the case that workfare
experiments show better results in terms of labour market
inclusion, but that BI experiments show better results in
terms of inclusion in all kinds of unpaid work. However,
if labour demand is the short side of the market, it is
likely that no large differences will emerge in labour market
participation rates between the two groups. In any case,
comparing the evaluation findings of workfare and BI experiments
may give us crucial information about the effectiveness
of welfare-to-work activities performed by welfare and employment
agencies.
For
the Basic Income research, an experiment may provide additional
information about the labour supply effects of introducing
a Basic Income, thus reducing the radical uncertainty surrounding
the Basic Income proposal. An experiment might also show
which variant (e.g. combining guarantee level and withdrawal
rate, providing it on a household or on an individual basis,
disbursing it as a NIT or as a Basic Income) is the most
promising.
The
criteria used for the choice of groups to be included in
the experiment are twofold. First, the emphasis of the experiment
is to research the labour supply effects of the groups over
which there is the greatest disagreement among labour economists
about expected (negative) labour supply responses and which
are of great importance for the feasibility of a BI. These
groups are the social assistance recipients and the low
wage workers. In addition, it might be interesting to include
prospective entrepreneurs in the experiment. Second, the
choice is influenced by the desirability of minimizing the
cost of the experiment. Given the total budget for the experiment,
the lower its cost per participant, the higher the number
of participants and the longer the duration of the experiment
can be. For this reason, a group of workers is included
in the experiment who would not experience a change in net
income if they take part in the experiment. If the participants
in these groups do not change their labour supply, no extra
costs for the experiment are incurred. Extra costs only
occur when they decide to work less.
Selected
points of the discussion at the workshop
The
basic design of the experiment entails the choice of the
(possibly varying) guarantee level and the (varying) tax
or withdrawal rate. Given this choice, the following recommendations
and suggestions were made:
- Since
social assistance recipients entering the experiment will
no longer be forced to return as quickly as possible to
paid work, there is a danger that they will also be cut
off from resources (e.g. training, job counselling services,
etc.) that are required to return to paid work. This may
be ethically problematic. To solve this problem, it might
be a good idea to give participants the same per capita
value as the cost of these services in the form of a voucher,
so that making use of these services remains on a voluntary
basis, as it should be under a BI scheme.
In the original proposal, besides social assistance recipients,
workers with break-even incomes would be selected for
the experiment. It is possible to narrow down this group
even further in a sensible way, by allowing only families
with young children in this group. The reason is that
this group (being in the rush-hour of life) is the category
most at risk, e.g. in terms of burn-out, insufficient
time to care adequately for the children, etc.,and that
for this group a large and significant labour supply response
can be expected.
- To
a considerable extent, the Belgian lottery game Win for
Life (W4L), which grants every winner an unconditional
lifelong monthly payment of 1000 euro, represents a good
proxy for what would happen after the introduction of
a Basic Income. The many insights that can be obtained
from the W4L for Basic Income research, as presented by
Axel Marx and Hans Peeters at the workshop, rest on the
following claim. If the winners do not stop working, or
work less, or start up a business of their own after winning
W4L, they will certainly not do so under a BI scheme.
The reason is that the monthly payment for winners under
the W4L scheme is, at least for the short and medium term,
higher than any reasonable level of BI would be in the
near future. Compared to a BI experiment, which is most
likely a limited group of persons in a geographically
narrowly defined area who receive a BI during only a limited
time period, the W4L has several advantages. Based on
the preliminary outcomes of the W4L, it is advisable to
remove prospective entrepreneurs from the groups to be
included in the experiment.
We did not arrive at the stage of discussing practical
matters like the number of questionnaires or the country
most suitable to conduct a BI experiment. There was no
consensus that launching a BI experiment would be a good
idea after all. For one thing, the Win for Life lotteries
will provide much of the information in the near future
that a BI experiment would bring about. Besides some disadvantages,
the W4L has two comparative advantages over a standard
BI experiment. Firstly, a major shortcoming of a BI experiment
is its limited duration. For instance, participants might
not change their work pattern precisely because they know
that the experiment will only last a limited number of
years. In W4L, however, because the winners receive a
lifelong benefit of 1000 euro per month, the behavioural
responses will include the long term effect of receiving
an unconditional benefit for the rest of one's life. Secondly,
high income earners will not participate in a BI experiment
if this would mean that, other things being equal, their
net income would decrease (the BI received does not compensate
the higher taxes payable). Therefore, the participants
in the BI experiment will not be a representative sample
of the population. In W4L, however, it should be possible
to compose a group of winners which is more or less a
representative sample of the population (except that there
is a selection bias because they are all members of the
group which buys lottery tickets).
- During
the ensuing discussion, two proposals were made to remedy
shortcomings in the BI and W4L experiments. For the BI
experiment, it was suggested that it should be possible
to include the high income earners in the experiment by
giving them a higher (lump sum) BI to compensate for their
income loss because of the higher taxes to be paid. The
result of this operation is that the income effect is
set to zero, but the substitution effect is maintained.
To avoid the selection bias of the W4L, it was suggested
that we forfeit for once the automatic inflation adjustment
of the tax allowance (in e.g. Belgium) in return for a
lottery ticket for everyone. In this way, it is possible
to get a group of winners which is both representative
of the population as a whole and not affected by a selection
bias.
Some
minor points:
- In
the experiment, an individualized Basic Income is strongly
to be preferred above a household based Basic Income,
because appropriately defining the family unit proved
extremely difficult in the NIT-experiments.
- Instead
of giving all participants a BI, you can give them the
choice between NIT and BI.
- For
data collection purposes it is very important to get access
to various administrative sources (e.g. social insurance,
tax authorities, etc.).
- Experiment
with different guarantee levels, i.e., not truncated at
1 or 1.25 times the social minimum.
- Since
a small labour supply response by a subgroup with a high
density in the population can make a big difference for
both the tax cost and the economic feasibility of the
programme, it is important to include enough cases of
these groups in the experiment (e.g. low wage male workers)
to get reliable results.
- A
serious limitation of W4L is that the W4L grants are not
financed by income taxation, just as the grant from the
Alaska Permanent Fund is not financed by income taxation
(but from oil revenues). In this sense, studying the W4L
gives reliable information on the income effect of unconditional
grants, but not on the substitution effects (due to higher
tax rates required to finance the unconditional BI).
- Rebecca
Maynard stressed that the main rationale for random field
experiments in the U.S. is the strong indication of the
unreliability of the non-experimental evidence on many
relevant topics of social policy. Although the high cost
of an experiment, along with its ethics, may constitute
an obstacle to launching an experiment, the cost of policy-making
based on unreliable evidence and beliefs may be many times
higher. To implement a policy without conducting a small-
scale experiment beforehand amounts to putting the whole
population into an experiment. For the design of the experiment,
it is of paramount importance to know the important questions,
to identify the main population groups to be included
in the experiment and to know the critical features of
the intervention which the experiment has to mimic. A
practical point to keep in mind is that the effects of
the experiment or intervention can change when the overall
circumstances change. For instance, the effects of a BI
in an economy with an unemployment rate of only 3% can
be entirely different from the same economy with a 10%
unemployment rate. If such a dramatic change were to occur
during the experiment, a smart response would be to increase
the sample size. In general, to correct for changes over
time, there is much to be said for a staged entry into
the experiment group.
- According
to Widerquist, the major focus of the experiment should
not be the labour supply response, as was the case with
the U.S. NIT experiments, but the efficiency costs or
losses of providing welfare (see Widerquist's paper below).
To illustrate this point, and as is well known from public
economics, efficiency costs arise from the tax rate, not
from lump sum grants.
As
will be clear, although more clarity has been achieved about
what such a BI experiment would look like and what exactly
we might want to know, it is still too early to draft a
blueprint for a European Basic Income experiment.
What
would we like to learn from a European Basic Income Experiment?
by Karl Widerquist
I
very much enjoyed being part of the one-day workshop on
a Basic Income experiment in Europe. About 20 of us spent
the day discussing how Basic Income could be tested in a
European social experiment. Toward the end of the workshop,
it occurred to me that if there is going to be an experiment,
we should start with a list of what we would like to learn
from it. Well aware that we will actually be able to test
for much less than we would like to know, I think that an
extensive wish list is the best place to start. Then we
can consider how we could test each of these questions and
that will help to determine which ones we should actually
focus on, and how best to set up the test. I started a list
at the workshop, hoping to bring it up in the discussion
at the end. But time ran short, and so I would like to circulate
that list now, and ask everyone else who participated to
contribute their thoughts.
Many
of the items on this list refer to the equation relating
before tax to after tax income. This equation is the same
whether the programme tests a Basic Income (BI) or a negative
income tax (NIT). The equation is: after tax income (Yd)
equals the Basic Income grant (G) plus private income (Y)
minus income times the marginal tax rate (t):
Yd
= G + Y - tY
This
formula can be simplified to:
Yd
= G + Y (1 - t)
I
begin with a list of things that we might be able to learn,
and then list some things that we would like to learn, but
that cannot be learned, from an experiment.
Labour
supply effects:
These
were centrally important to the U.S. experiments in the
1970s, but they were not usually looked at as broadly as
they should have been.
1.
What is the effect of various sizes of grant level (G) on
labour supply?
2.
What is the effect of various sizes of marginal tax rate
(t) on labour supply?
3.
What is the efficiency loss created by Basic Income?
“Efficiency loss” is a technical term economists
use to refer to a net loss to society as a whole. Most redistribution
does not represent efficiency loss, because the loss to
the taxpayer is a gain to the recipient. The question as
to whether redistribution is desirable is an open one, but
there is no efficiency loss unless some of the wealth that
is being redistributed is lost along the way. Economists
have many technical tools they use to estimate efficiency
loss. Efficiency loss—and not the tax cost—is
usually the “bottom line” question in any economic
study, but it was largely ignored in the NIT experiments.
Related to this question are two others (4 and 5)
4.
Does an equal amount of money spent on poverty reduction
through Basic Income create a larger or smaller efficiency
loss than spending on poverty reduction through the current,
conditional welfare system? Experiments cannot give
a complete answer to this question without being able to
test for demand effects.
5.
Does an equal amount of poverty reduction through Basic
Income have a larger or smaller efficiency loss than an
equal amount of poverty reduction achieved by increasing
the present conditional welfare system? Experiments
cannot give a complete answer to this question without being
able to test for demand effects, but the fact that it is
a comparison to another system makes the interpretation
a little easier. If any question is the "bottom line,"
this is probably the best candidate. It amounts to whether
BI is a more effective and efficient way to fight poverty
than the current conditional system. That is not the only
reason one might choose one over the other, but it is an
important reason.
6.
Would the amount of money spent on the current welfare state
have a greater
or lesser impact on poverty if it were spent as a negative
income tax instead (or as the net cost of a BI)?
Experiments cannot give a complete answer to this question
without being about to test for demand effects.
7.
What is the overall effect of Basic Income (G and t) on
the labour supply of recipients? This was the "bottom
line" question in the U.S. NIT experiments, but it
is not necessarily the most important question the experiments
can answer. It is, in fact, only a proxy for the relevant
question, "What is the equilibrium effect of a Basic
Income?" which experiments alone cannot answer. The
question of the "overall effect" is further complicated
by the question of which of the many different combinations
of G and t is the one that should be used to examine the
overall effect.
8.
Will people respond to Basic Income by withdrawing completely
from the labour force? This is the most commonly cited
argument against a Basic Income, despite the fact that the
U.S. NIT experiments found no evidence of it. However, even
a small number of labour market withdrawals would be considered
by many to be a significant piece of evidence against Basic
Income, depending on the reasons for the withdrawal. The
reasons for withdrawal will be much more difficult to determine
than the fact of withdrawal.
9.
Will the labour supply effects of a Basic Income be so large
that the programme becomes economically unsustainable? This
question can be restated: what is the highest sustainable
level of Basic Income? Certainly a BI of 1 Euro per year
will not have significant labour supply effects. At some
level it will begin to show some effects of reducing labour
supply, and at a higher level the labour-supply-reduction
would become so large that the programme would simply be
unsustainable. A hugely important question is how high BI
(G and t) can be before the programme becomes unsustainable.
And an important corollary to this question is whether the
sustainable level is high enough to have the desired effect
on poverty.
10.
What is the Income elasticity of the supply of labour?
11.
What is the substitution elasticity of the supply of labour?
12.
Do Basic Income and a negative income tax affect behaviour
differently? Although
it is possible to study this question with an experiment,
it would require running two experiments, one testing BI
the other testing NIT, greatly increasing the cost.
13.
How do all of the above estimates compare to estimates from
non-experimental sources?
Non
labour market effects:
It
is important to remember that these are the effects of BI,
and the labour market effects are merely the side effects.
14.
What is the effect of BI on the well being of the poor and
others?
15.
What is the effect of BI on homelessness?
16.
What is the effect of BI on health?
17.
What is the effect of BI on housing?
18.
What is the effect of BI on education?
19.
What is the effect of BI on the divorce rate? The
interpretation of these findings is extremely important
because it is not necessarily desirable to reduce the divorce
rate by making women financially more dependent on men.
20.
What is the effect of BI on time use within the home?
Will it encourage more equal sharing of work within the
home, or will it encourage a more traditional male-female
division of labour? This question will be very difficult
to test because any such effects are likely to take a long
time to take emerge.
Questions
that an experiment can't answer:
The
first three of these questions (21, 22, and 23) cannot be
answered through a Basic Income experiment, and without
them three of the most important questions (24, 25, and
26) can't be answered. However, estimates for these answers
can be obtained from other sources, and they can be combined
with experimental data to give a non-experimental estimate
of the answers we want. This needs to be done and reported
along with the direct results of the experiment.
21.
What is the labour demand response to BI? What is the price
elasticity of the demand for labour?
22.
What is the general equilibrium response to BI? General
equilibrium economics concerns the fact that all markets
are inter-related. Basic Income directly affects the low-wage
labour market. It indirectly affects the market for anything
sold using low-wage labour as an input, the market for any
goods that low-wage employees buy, and the market for any
input that low-wage workers compete with. These markets
in turn affect all others. General equilibrium models use
assumptions to generate a theory for how one market affects
all others, but experiments are not capable of estimating
these kinds of effects without experimenting on the economy
as a whole.
23.
What are the macroeconomic effects of BI? Most particularly,
what is the effect of BI on the unemployment rate and the
business cycle? But
we would also like to know how its macroeconomic effects
feedback on the effects of BI on wages and hours worked.
24.
What are the equilibrium effects of G and t on the wages
(and total incomes) of low-income workers? This is one
of the most important things we want to know about BI, but
it cannot be determined from an experiment that is incapable
of testing the demand response to Basic Income. However,
demand response can be estimated from other sources and
the parameters from the experiments can be used in simulation
models to produce a non-experimental estimate of the answer
to this question. Because of the importance of this question,
the report on the findings of these experiments should include
such estimates.
25.
What is the equilibrium effect of various levels of G and
t on hours worked? This is also a very important question
that cannot be answered experimentally, but should be estimated
using simulation models.
26.
What is the efficiency cost (and cost in terms of tax revenue)
of eliminating poverty through BI? How does it compare to
the cost of doing so through strengthening the current system?
The total effect of BI on poverty depends critically
on the demand response, which in turn will have an effect
on the cost both in terms of efficiency and in terms of
tax revenue, and again it will take a simulation model to
produce any kind of estimate.
27.
Will BI have secondary effects on the price of housing and
other basic commodities which will counteract its effects
on the standard of living of the poor?
28.
Will BI affect the average profit rate for businesses?
29.
Will BI make the poor freer?
I don't know how to test this or whether it is possible
to test. The answer depends critically on how freedom is
defined.
These
are my initial thoughts with just a little bit of extra
thinking after the one-day workshop. I'm sure that there
are important question I've left out, but I think that this
is an important place to start. I don't think that the answer
to any one of these questions is a knockout question that
determines whether BI should be implemented or not. Instead,
experimenters should determine feasibility and compare the
desirable effects to the undesirable effects, and produce
a full report detailing the plan's pros and cons.
Response
please: The editor would be very happy to receive readers'
responses to these two articles.
Review
Samuel
Brittan reviews Promoting Income Security as a Right:
Europe and North America, Guy Standing (ed), London:
Anthem Press, 2004 £24.99. Order
this book
The
English utilitarian philosopher, Jeremy Bentham, called
human rights "nonsense on stilts". In fact he
was amongst the most humane of men of early 19th century
thinkers; but he did not regard the idea of rights, with
its normal correlative of duties, as a helpful concept here.
Many who share his doubts have been silent on the matter.
If you want to outlaw torture or censorship or imprisonment
without trial, it seems pedantic to quibble about whether
these causes should be called human rights or not. The incorporation
of the European Charter of Human Rights into British law
was a great advance, whatever the label. A stand on human
rights does tend to separate those who believe in humanity
and due process from those who believe that the so-called
ends justify the means.
But
when Basic Income is proclaimed as a right, I begin to see
the point of Bentham's quibble. A rich and humane society
can afford a minimum subsistence income for everyone without
imposing conditions and obligations. If everyone has a basic
sum on which he or she can fall back either in times of
adversity or in order to withdraw partly or fully from the
normal labour markets in order to engage in some less rewarded
activity, whether altruistic, artistic or personal, a few
of the beneficiaries may well choose to become Californian
surfers. I would argue that he or she should be able to
do so in a free society and that the cost of such dropping
out to the rest of us is unlikely to be intolerable. But
to say that the Californian surfer has a right to his activities
is carrying the concept of right a bit too far.
One
problem with Promoting Income Security is that so much of
the book is devoted to diverse, and often convoluted, attempts
to label a Basic Income as a right. The 34 essays in this
book contain a mass of fascinating material into which anyone
interested in Basic Income, whether in favour or against
or agnostic, would do well to dip.
I
was first drawn to Basic Income, which had not yet been
christened with its name, several decades ago. This was
because I was attracted by the libertarian aspect of capitalism,
which enabled people to "do their own thing" and
to choose their own occupations. But I was not so attracted
by the continuation of the work-ethic aspects, which were
important in its historical development on the lines explained
by Max Weber and many others. I hoped we were approaching
a time when these aspects could be dropped and we could
instead give people a choice: they could opt in to the ordinary
labour market with its rewards and hardships; they could
opt out provided they were willing to live at a sustainable
but modest standard of living; or they could compromise
and take a poorly paid job, topped up by this universal
payment to follow their own way of life whether as artists,
lotus-eaters or whatever. This kind of compromise would
have been impossible during most historical periods when
a subsistence Basic Income would have been so near the normal
wage that nobody would have found it worthwhile to work
for pay. It is for this reason that the early 19th century
Speenhamland attempts in this direction collapsed.
The
object of a Basic Income is to make every citizen into a
rentier in a small way. Private property and unearned income,
so denounced by the Marxists, are not inherently evil. The
trouble is that so few people have them (apart from their
own homes), with all the benefits they provide of personal
independence. Surely in the better society to which some
of us aspire, these advantages should be more widespread.
A
further reason for my interest was the development in the
1970s and 80s of a much larger number of involuntary unemployed
than had been the case in the post-war period. Not to beat
about the bush, this reflected union-based and other labour
market institutions which priced people out of jobs - something
which New Labour admits but hides under a cloud of verbiage.
I believed that reformers had to face up to the fact that
the market clearing pay available to some workers might
be below that required for any decent sort of existence.
There
is yet another argument of a more mundane kind. Must citizens
both pay taxes and receive benefits from the state in an
apparatus of such complexity that only a rocket scientist
turned tax expert and welfare counsellor could have any
hope of understanding it? Why not simplify the structure
by offsetting at least some of these transactions by a single
payment either from the citizen to the state or the other
way round? Milton Friedman and some of his followers envisaged
a negative income tax which would replace state welfare
of all kinds, including benefits in kind such as health
and education. Some others on the left envisaged a Basic
Income paid in addition to every state service now provided
and every payment already made.
It
would be realistic at this stage to regard a Basic Income,
whether paid across the counter or in the form of a negative
income tax, as a substitute just for cash payments of all
kinds, whether state pensions, unemployment benefits, sick
pay or anything else. Even then there are problems enough.
For something like the British Government's Social Fund
would still be necessary for people so placed through health
or circumstance that they could not manage on the Basic
Income through no fault of their own.
There
is a trade-off between Basic Income and the citizen stake,
adopted in embryonic form under the British government's
Trust Fund ("baby bond") scheme for endowing each
citizen with a modest capital sum, available when he or
she gains adulthood. In some sense they are very similar,
as the baby bond can be regarded as the discounted value
of future Basic Income payments. From a libertarian point
of view the bond is preferable as the holder is free to
decide when to draw out the funds. On the other hand no
civilised society would want someone who had misspent his
initial endowment to starve in later life. So the bond could
never be a complete substitute.
In
its original form, linked with negative income tax, the
Basic Income idea was often attacked from the left as a
plot to get rid of the welfare state. But there was another
argument which began to make some headway among the left.
This was that despite its high costs the welfare state was
not reaching some of those who needed it most. One reason
was the conditionality of benefits, which deterred so many
from applying and which made others ineligible. Indeed Basic
Income has now become linked with all too many fashionable
anti-capitalist causes such as anti-globalisation and extreme
environmentalism or more simply and sadly with the "lump
of labour" fallacy that asserts that there are not
or will not be enough jobs to go round and so some other
form of support is necessary.
Unfortunately
this book leans, not completely but in tendency, towards
such views. There is a real danger here. For advocacy in
this form not only puts off the enlightened minority among
anti-socialist politicians who might otherwise give it some
house room. It also puts off consensus leaders such as Tony
Blair or any likely successor, who would run a mile from
anything they see as far-out sandal-wearing socialism.
There
is indeed an unfortunate tendency for Basic Income to be
seen as a messianic movement for a select group rather than
as a device for tackling a weakness in market capitalism.
From the latter more pragmatic point of view the most interesting
chapter in this book is by Karl Widerquist in which he discusses
the four US experiments and the one Canadian one in local
negative income tax that took place over the period 1968-80.
Although 336 scholarly articles were written about them
they did not prove decisive. "Both Basic Income supporters
and opponents could quote the findings of these experiments
with equal conviction." The author's own opinion is
that "none of the facts were persuasive enough to cause
either supporters or opponents to change their mind."
The experiments indicated very tentatively "that a
Basic Income guarantee is financially feasible at the cost
of certain side effects that people with differing political
beliefs may take to be desirable or disastrous."
Surely
the way ahead is to look at each country's existing social
security system, examine how nearly it approaches a Basic
Income, and see how the gap can be narrowed and eventually
closed. In the UK one element of such a system already exists
in the state pension. Another element consists of child
benefits unconditionally available to all.
The
present Labour government, building on the unsung efforts
of its predecessors, has tried to remove the work disincentive
effect of the ordinary dole by a system of in-work benefits.
In addition child benefits are now topped up by child tax
credits related to family income.
The most promising advance at present relates to state pensions.
The complications of the pension credits, and their incomplete
take-up, are creating a consensus in favour of a straightforward
increase in pensions indexed to earnings, which would in
effect create a Basic Income for those of pension age.
The
most difficult task is to persuade governments to loosen
the conditions applying to in-work benefits. Professor Tony
Atkinson, who writes in this volume, has previously suggested
a Citizen's Participation Income in which the definition
of work would be widened to include full-time education
and training, intensive care work and approved voluntary
activities. This could be a halfway house towards removing
the in-work condition. The most difficult part will be to
remove the taper by which benefits are withdrawn at a surtax
rate as earnings from work increase. But if only we could
bite this bullet the whole case for capitalism and market
forces would be easier both to make and to believe: not
a consideration which will weigh too heavily among some
of the contributors to this book.
Other
reviews
Institute
for Public Policy Research, Social Market Foundation, Policy
Exchange, Scottish Council Foundation and Institute of Welsh
Affairs, Overcoming Disadvantage: An agenda for the next
20 years, Joseph Rowntree Foundation, 2004, pb
1 85935 142 5, 135 pp, £8.95 (introduction by Nicholas
Timmins). Order
this book
This
is a series of essays, from a variety of think tanks, which
respond to the issues raised in the Joseph Rowntree Foundation's
Tackling Disadvantage: A 20-year enterprise (2003: see our
issue 2 for 2003 for a review).
In
his introduction, Nicholas Timmins suggests that there is
now a consensus across the political spectrum: that poverty
and social disadvantage need to be tackled; and he recognises
that there is a limit to what current (means-testing) policies
can achieve. He writes:
"Labour, having been in the past an arch-opponent of
means testing, has in practice achieved much of its redistribution
in office by using it. There has been a genuine attempt
to tackle the complications and stigma of claiming means-tested
benefits, not least through the creation and language of
tax credits. Yet the critics, some of whose voices can be
heard in these essays, are unconvinced, insisting that the
price has been unacceptable complexity. And in the case
of pensions, there are certainly strong arguments that the
Pension Credit, while a clear gain for today's poorer pensioners,
has made decisions about saving far harder for today's lower
income workers. Add to that the recent falls in stock-markets,
greater longevity and the underfunding of pension schemes
and there is a feeling that Britain's pension system is
at a crossroads. Travelling further down the means-tested
road is likely to lead to greater compulsion to save. The
alternative route would be for the basic state pension to
be rebuilt and turned into something closer to a participation,
or even a 'citizenship', pension" (pp.18f).
For
the institute for Public Policy Research, Sue Regan and
Peter Robinson suggest that simply increasing the levels
of tax credits and of the minimum wage is not enough, that
"a positive conceptualisation of rights and responsibilities
is needed to replace the muddy waters left by the demise
of the contributory principle" (p.31), that simplification
of the benefits system is essential (p.32), and that means-testing
must be reduced (p.33).
Roger
Wicks, of the Social Market Foundation, shows that both
means testing (in the form of tax credits) and universal
provision (Child Benefit) have increased in value for poorer
families, with the result that income has been redistributed
and that the National Insurance system has suffered. He
recognises that the Labour government has reduced the stigma
related to means-tested benefits by making 80% of families
eligible for them in the form of tax credits; but he also
recognises the disincentive effect of benefits being withdrawn
at the same time as tax and National Insurance contributions
are paid. A housing tax credit is suggested - and the problem
of its complexity is recognised. A universal (rather than
means-tested) asset-based welfare system is recommended
(p.55).
Nicholas
Hillman of Policy Exchange begins his essay with a discussion
of increasing inequality, and he too describes the complexity
of tax credit administration (p.69). He continues:
"The
irony about the government's reforms is that the two groups
most affected by the enormous extension of means testing
- children and pensioners - were already targeted by successful,
popular and universal benefits. Despite the declining
importance of these benefits in recent years, it is likely
that they continue to offer a better long-term model than
excessively complicated means tests that cover huge swathes
of people" (p.70).
In
relation to today's complex pensions structure, he suggests
that
"instead
of searching for entirely new solutions, we should seek
…… to build on the existing consensus in favour
of more generous state provision, less means testing and
greater incentives to save" (p.72),
and
he goes on to discuss the Pensions Policy Institute's study
of a universal state pension. An overall conclusion is that
poverty needs to be tackled by increasing employment incentives.
Jim
McCormick's contribution from Scotland rehearses in a Scottish
context some of the debates explored earlier in the volume
(for instance, that on the tension between targeting and
universalism); and John Osmund and Jessica Mugaseth, writing
in Wales, discuss a variety of issues related to poverty
- but neither the Welsh nor the Scottish contributions give
to the structure of tax and benefits the attention which
it deserves, partly no doubt because neither the Scottish
Parliament nor the Welsh Assembly have any control over
these matters. It would be interesting to see what would
happen if they were given these powers. Would we see a variety
of different approaches in different parts of the UK ? And
would we therefore be more able to study the pros and cons
of different systems and be better able to improve the system
in all parts of the UK ?
There
is bound to be repetition in a collection of essays, and
reviewers often pass negative comment on its presence. In
this volume the repetition is instructive, and particularly
the frequent verdict, from different parts of the political
spectrum, that means-tested benefits are bad for incentives
and that their complexity is a serious problem.
Gail
Lewis, Citizenship: Personal lives and social policy,
The Policy Press, Bristol, 2004, pb 1 86134 521 6, viii
+ 184 pp, £17.99. Order
this book
This
is "the final book in a new series published by the
Policy Press in association with the Open University. The
series takes an interdisciplinary and theoretically informed
approach to the study of social policy in order to examine
the ways in which the two domains of personal lives and
social policy and welfare practice are each partially shaped
by and give meaning to the other" (p.vii).
The
book is structured with the student in mind, and through
study of accounts of personal experience, of social theology
and of media reports and photographs, the student is led
to question the meaning of 'citizenship' and to study the
evolution of its meaning(s).
It's
all rather a jumble, and what's in one chapter might often
have been in another - but this is due to the nature of
the concept being studied: for 'citizenship' is a complex
and evolving idea.
What's
missing is an international perspective (for to look at
other nations' experience of citizenship would have provided
an interesting perspective on the idea's meaning in the
UK), a discussion of English citizens' status as subjects
of a monarch, and a historical perspective: we are taken
back in history to parts of the twentieth century, but not
to Magna Carta. Why not?
The
book will be a useful tool, not only for teachers and students
of the Open University but for anyone studying on a first
degree social policy or sociology course who is interested
(or is expected to be interested) in the concept of citizenship.
But it isn't a book on citizenship for the general reader,
for the sociological jargon needs to be known for much of
the material to make sense. Either the language should be
made more accessible or there should be a 'jargon' warning
sticker on the front.
If
there is ever a second edition then the authors might with
profit include a chapter on social security benefits as
a case study, for the evolution from the Poor Law to National
Insurance to Job Seeker's Allowance and Tax Credits tells
us a lot about the changing meaning of citizenship.
Heinz
Steinert and Arno Pilgram (eds.), Welfare Policy from Below:
Struggles against social exclusion in Europe, Ashgate,
Aldershot, 2003, 304 pp, hb, 0 7546 3063 3, £45. Order
this book
This
book is the result of a three-year EU-sponsored collaboration
between twenty researchers from eight university and research
institutes on social exclusion understood as "the continuous
and gradual exclusion from full participation in the social,
including material as well as symbolic, resources produced,
supplied and exploited in a society for making a living,
organizing a life and taking part in the development of
a (hopefully better) future" (p.5). The chapters are
based on empirical studies conducted in eight European cities
(including Leeds), and it is the particular qualitative
approach to the study of social exclusion which gives this
book its distinctive character: an approach which concentrates
on particular events of exclusion (rather than on personal
and family biography), on people's reactions to events,
and on the principles of legitimation employed in relation
to welfare state resources: 'earning' them, being a 'member',
and deserving 'solidarity' (p.8).
Unfortunately,
the interview evidence is rather thin on some of the important
issues (and this seems to be particularly the case in relation
to the chapter on 'subsistence'); but the authors have gathered
sufficient evidence to enable them to draw some robust conclusions,
and these are worth quoting in full:
- People
do not accept charity easily. They do not want to be dependent.
They would rather have a chance to 'earn' a decent living
- not necessarily by wage labour or forced work for the
community, but by work ….. they see as needed and
meaningful.
- Family
is a resource in difficult situations, but quite often
it is also the source of difficulties. Unless it is based
in strong patriarchal / matriarchal ideologies (which
cannot be re-instated after they have lost their material
basis) and when instead it turns into an exchange relation,
its character as resource becomes precarious. Its solidarity
gets confined to short-time emergency support.
- Welfare
compensation for situations of social exclusion are made
difficult by their 'conditionality' in three forms:
- The
insurance principle constitutes a selectivity of benefits
according to regular, full-time and life-long wage labour.
Those who do not fit this pattern are excluded and relegated
to social assistance. With the latest economic developments,
an increasing proportion of the labour force will not
be in a position to meet these criteria.
- Following
a principle of economising, welfare benefits, which have
always been made scarce and hard to get, are reduced and
made conditional to means testing and other forms of (bureaucratic)
eligibility.
- According
to a principle of multi-functionality welfare resources
are organised under the assumption that they could at
the same time function as regulators of the labour market,
i.e. as incentives to accept wage labour. A clear separation
of these functions might make things more manageable.
Situations
of social exclusion are best coped with by using a multiplicity
of resources. Rules by which such combinations of sources
of income (wage, welfare, family) are hindered are disfunctional.
The
principles above can most easily be met by a minimum income,
or a 'citizenship income', or some similar unconditional
provision of basic material resources for all (pp.268f).
The
Citizen's Income Trust Essay Prize for 2006
The
Citizen's Income Trust invites entries for its 2006 essay
prize. Entrants should be studying at a UK university during
the academic year 2005/6 at undergraduate or graduate level.
Essays should be in the fields of philosophy, political
science, social policy, economics, or other social sciences;
should be of up to 5,000 words in length; and should contribute
to the current debate on the desirability and feasibility
of a Citizen's Income: an unconditional, nonwithdrawable
income payable to each individual as a right of citizenship.
Provided that at least one entry is of sufficient quality
the winner will be awarded a prize of £500 and the
winning essay will be published in the Citizen's Income
Newsletter.
Rules:
A hard copy of the essay, along with the entrant's name
and address, should be sent to: Dr. Malcolm Torry, Director,
Citizen's Income Trust, P.O. Box 26586, London SE3 7WY,
and an electronic version (in Word or Rich Text Format)
either by disc to the same address or by email attachment
to info@citizensincome.org. Confirmation that the entrant
is studying at a UK university needs to be sent, signed
by a faculty member. The closing date is 1st May 2006. No
trustees, employees, or former trustees or employees of
the Citizen's Income Trust, or their relatives, may enter.
The judges' decision is final, and no correspondence will
be entered into.
©
Citizen's Income Trust 2005
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