|
Editorial
There
are two particularly interesting aspects to the debate surrounding
the announcement at the Conservative Party Conference that
Child Benefit is to be denied to any household in which
someone is paying higher rate tax.
One
is the argument accepted by so many commentators and Conservative
Party members: that it is wrong for people on low earnings
to be paying tax which is then paid in Child Benefit to
high earners. What they seem not to have noticed is that:
a) higher earners pay far more in tax than they receive
in Child Benefit, so they already fund a higher proportion
of the cost of Child Benefit than low earners do; and b)
in order to deprive higher rate taxpayers of Child Benefit
an entirely new and expensive administrative function will
need to be established, thus wasting public funds. It is
difficult to see why the Government made the announcement
it did.
Why
not instead raise the upper earnings limit on employees'
National Insurance contributions? This could reduce the
deficit by the same amount, and it would not add to administrative
costs.
The
second interesting aspect of the debate is that it offers
evidence of massive public approval of universal benefits.
Child Benefit is popular because it provides a secure income
floor for families with children; over- and under-payments
are almost unknown; administrative costs are very low; and,
because everyone with children gets it, it contributes to
social cohesion.
If
the Government wants to reduce administrative waste and
at the same time unite our society ( - and isn't a cohesive
society a prerequisite of the Big Society?) then not only
should it leave Child Benefit well alone, but it should
also seek additional policies which will contribute to social
cohesion, enable society as a whole to contribute to the
costs of bringing up children, reduce inequality, and reduce
administrative costs. To move from the proposed Universal
Credit to a Citizen's Income would do all of this.
Could
the Government ask for more?
An
additional editorial (The Government's Citizen's
Pension announcement came too late for this editorial to
be included in the printed edition)
The
news of the Government's proposals for a Citizen's Pension
came too late for us to include the announcement in the
printed version of this edition of the Citizen's Income
Newsletter.
It
is a pleasure to see that Steve Webb, Minister for Pensions
at the Department for Work and Pensions, is proposing that
the state pension should become a flat rate payment to every
pensioner. This has been a Liberal Democrat proposal for
some years and we now look forward to it becoming practical
policy and to the benefits which Vince Cable and Steve Webb
have promised and which we and the Pensions Policy Institute
have always said will accrue.
Under
our present contributory and means-tested system, those
who have taken time away from employment in order to care
for children, or for elderly or disabled relatives, will
often receive contributory pensions smaller than those paid
to people who have remained in full-time employment; and,
because means-tested top-ups take savings into account,
they discourage saving for retirement.
A
Citizen's Pension - an unconditional, nonwithdrawable flat-rate
payment for every pensioner - will not be reduced by gaps
in someone's employment record, nor by someone's savings.
It will therefore not discriminate against carers and it
will encourage people to save for their retirements.
A
Citizen's Pension will also, of course, reduce considerably
the administration required by state pensions. Contributory
benefits are costly to administer, and means-tested benefits
notoriously so. A Citizen's Pension will be as cheap to
administer as Child Benefit currently is.
Having
recognised that universal flat-rate benefits have advantages
which means-tested benefits do not, we hope that the Chancellor
of the Exchequer will look again at his recent proposals
relating to Child Benefit and decide to retain it as a universal,
nonwithdrawable payment for every child.
21st
Century Welfare
We
are grateful to Rightsnet (www.rightsnet.org.uk)
for permission to reprint the following summary of the Department
for Work and Pensions' consultation paper:
Options
for reform outlined in the consultation paper - designed
to simplify the system, for example by reducing the number
of benefits and tax credits; and to improve work incentives,
for example by removing the current 'very high' marginal
deduction rates that apply to people's benefits when their
incomes rise - include:
1.
a Universal Credit:
A
new approach to supporting working-age households, the Universal
Credit would bring together existing income-related out-of-work
benefits and tax credits into a simpler, integrated system
to support people in and out of work and would
- combine
elements of the current income-related benefits and tax
credit systems;
- bring
out-of-work and in-work support together in a far simpler
system; and
- supplement
monthly household earnings through credit payments reflecting
circumstances, including children, housing and disability.
In
addition, to improve incentives to work (especially for
low earners), people entering paid work would see no reduction
in their Universal Credit until they earned over a certain
level and, in order to improve the incentive to earn more,
the system might involve applying a single taper to reduce
the Universal Credit where earnings (net of tax and national
insurance) exceed the level of the earnings disregard in
place of the current different withdrawal rates across out-of-work
benefits, tax credits, housing benefit and council tax benefit.
This taper could apply to all earnings, regardless of the
number of hours worked.
2.
a Single Unified Taper:
Whilst
a 'set of benefits' - including the major out-of-work benefits
and tax credits - would be retained to reflect the fact
that different families need support for different reasons,
the introduction of a Single Unified Taper would mean that
once eligibility has been assessed, the system could work
without earnings disregards and withdraw benefit entitlement
in such a way that a person's Marginal Deduction Rate would
be constant, until benefit receipt is exhausted.
This
would be achieved, as an individual's income increased,
by withdrawal through a taper that would be applied to their
overall benefit eligibility, rather than the individual
benefits as is currently the case.
3.
a Single Working Age Benefit -
Proposed
by the Institute for Public Policy Research (IPPR), the
Single Working Age Benefit model is based on a single flat
rate benefit that would give all working age claimants the
same level of replacement income, regardless of whether
they were jobseekers, lone parents, sick or disabled.
Other
key features of the model would be:
- no
contributory entitlement;
- a
universal non-means-tested entitlement for the first 12
weeks out of work;
- all
benefit beyond 12 weeks to be means-tested; and
- the
option of individualised entitlement for couples.
Whilst
the IPPR envisages that the Single Working Age Benefit would
replace existing out-of-work benefits, there would continue
to be separate provision for extra costs, and tax credits
would remain as now.
4.
the 'Mirrlees' model
Proposed
by the Institute for Fiscal Studies, this model would replace
child tax credit, working tax credit, income support, JSA,
housing benefit, council tax benefit and child benefit with
an integrated 'family allowance' paid directly into bank
accounts and withdrawn using the 'withholding system' for
income tax.
Whilst
the allowance would be far less generous than current income
support levels (£50 for a single person), earnings
up to £90 would have no impact, and earnings above
this would be subject to a 30 per cent withdrawal rate (with
an additional 15 per cent on the housing element). Tax allowances
would be adjusted so that tax and NI would be payable once
the earnings disregard had been exhausted.
5.
a single benefit/negative income tax -
Recommended
by the TaxPayers' Alliance, this reform would bring together
a large number of existing benefits but, unlike other approaches
that introduce a single benefit, it would involve the introduction
of a negative income tax. This would replace current income-replacement
benefits and tax credits, although a number of the current
benefits aimed at supporting those with a limited ability
to work or who need extra support would be retained.
Under
the model, a household's eligibility for the negative income
tax would be based on their characteristics, and set equal
to a given proportion of (equivalised) median income. As
household income increased from individuals moving into
work or progressing in work, the level of the negative income
tax would be reduced in such a way that the Marginal Deduction
Rate (inclusive of income tax, NI contributions and the
withdrawal of the negative income tax) was constant until
all support was exhausted. This implies that the system
would not have a system of earnings disregards.
Alongside
the potential for structural change, the consultation paper
also sets out proposals for other areas of reform that include:
- the
scope, with the move toward a single payment, for conditionality
to be determined not by the benefit received but by the
reason for receiving benefit, thereby creating a 'single
progression to higher levels of conditionality';
- moving
to a less centralised, more devolved welfare system -
as is the case in a number of countries, including Switzerland,
the Netherlands and the United States - which might stimulate
innovation and ensure that systems are more aligned to
local circumstances, for example by giving more discretion
to advisers at the local level; and
- consideration
of the need to achieve a balance between contributory
benefits and targeting support on those with the lowest
incomes.
In
addition, the DWP outlines the 'significant implications'
that its ideas for structural reform could have for the
way that support is delivered and for how individuals interact
with the system, for example:
- the
scope for claimants to be able to make a single application
for all major entitlements, ending the excessive form-filling
of the current system;
- the
impact on the current organisation of work between the
DWP, the Revenue and local authorities;
- the
possibility of introducing a system that uses real-time
data - that would involve employers reporting their employees'
earnings to the Revenue at the time the earnings are paid
rather than only at the end of the financial year - which
could present opportunities to use real-time earnings
data in the calculation of entitlement, and remove the
need for claimants to notify changes of income; and
- the
impact of significantly reduced complexity on the level
of error and overpayments, with fewer mistakes being made
by staff and claimants whilst navigating the system, and
of having one main gateway for claimants to access the
system that should make it impossible for people to represent
themselves differently to different parts of an organisation.
The
full report can be found at www.dwp.gov.uk/consultations/2010/21st-century-welfare/
A
response by the Citizen's Income Trust to 21st Century
Welfare
Introduction
We
begin our response with a question which the consultation
document hasn't asked:
Income
tax, National Insurance contributions, Tax Credits and welfare
benefits together provide the structure for income maintenance.
Should all aspects of this structure be considered together
during this consultation?
The
answer to that question surely has to be: 'Yes, if the Government's
aims are to be met.' The entire system needs to encourage
employment, save money, promote fairness, and provide sufficient
resources for those who need them most.
This
positive answer to our own question underlies our responses
to the consultation's questions.
We
believe that the objective of income maintenance reform
in the longer term should be the implementation of a Citizen's
Income: a universal, unconditional, non-withdrawable payment
to each legal resident individually. This should replace
most Tax Credits and means-tested benefits, but we recognize
that payment of Housing and Council Tax Benefits would have
to continue alongside the individualized Citizen's Income.
The level of the Housing and Council Tax Benefits would
be just sufficient to meet the different needs of claimants
in single or multiple occupancy, with a cap varying geographically.
We
therefore support the proposals in the Consultation Paper
for an income maintenance regime in the shorter term for
adults below pension eligibility age comprising the following
elements:
- A
progressive system of Income Tax (including employees'
National Insurance contributions) levied on individuals,
with personal allowances, as at present;
- Universal
Child Benefit which is not means-tested or taxed and which
should be increased when economic conditions allow;
- Reimbursement
of actual extra costs, as distinct from earnings impairment,
incurred by people with disabilities, without taxation
or means-test;
- The
replacement of all means-tested benefits and tax credits
by a Universal Credit for households with a single taper
rate of withdrawal, along the lines proposed.
We
see this as a step in the direction towards a regime comprising:
- A
Citizen's Income for each legal resident individually
at different rates for children, adults of working age,
and adults above pension eligibility age, with supplements
for the actual extra costs incurred by people with disabilities,
replacing personal tax allowances and tax credits and
as many means-tested benefits as possible;
- A
unified benefit payable with a single taper rate of withdrawal
to replace Housing and Council Tax Benefits.
We
support the policy that those with no earnings should be
no worse off than now and that there should be a generous
earnings disregard for those on low earnings. We await with
great interest the DWP's calculation of what single taper
rate would be possible in the light of: the necessary reductions
in public expenditure to reduce the deficit; the expectation
that most of the £5.2 billion estimated to be lost
by errors, overpayments and fraud could be eliminated; the
reduced cost of administering the simplified system; and
the need to ensure that, compared with the reduced welfare
payments introduced by the June 2010 budget, no one below
median income (not median earnings) now would be
significantly worse off.
We
do not expect any significant increase in tax revenue to
occur initially from transitions into, and out of, work,
because, until substantial economic recovery occurs, there
will not be sufficient new jobs to absorb the increasing
numbers wishing to work.
Turning
to the questions posed in the Consultation Paper, we respond
to each in turn:
Question
1
What
steps should the Government consider to reduce the cost
of the welfare system and reduce welfare dependency and
poverty?
The
three parts of this question have a connected answer: If
we are to reduce welfare dependency then we need to increase
incentives to seek employment, incentives to learn new skills
in order to increase earnings, and incentives to establish
small businesses. This requires that marginal deduction
rates should be reduced (that is, that less of each additional
pound earned should be withdrawn through taxation and through
benefits withdrawal). Increased employment and self-employment
incentives will lead to more employment and self-employment,
and this will in turn reduce poverty. It will also reduce
the numbers of people in receipt of means-tested benefits
and this will reduce costs.
It
is true that increasing incentives will, in some cases,
cost additional resources. Also, every restructuring creates
winners and losers. The Government will need to agree an
acceptable maximum for household losses in the lower earnings
deciles and will need to test proposed schemes against this
acceptable level. Schemes will also need to be tested as
to whether they save or cost money in the aggregate. It
will be particularly useful to develop a simple mechanism
for regulating the ongoing costs or savings of a new tax
and benefits system ( - for instance, the National Insurance
contribution upper earnings limit: a higher limit will result
in reduced costs for the tax and benefits system as a whole).
Question
2
Which
aspects of the current benefits and Tax Credits system in
particular lead to the widely held view that work does not
pay for benefit recipients?
Tax
Credits, means-tested out-of-work benefits, Housing Benefit,
and Council Tax Benefit. The tapers on these benefits, when
combined with Income Tax rates, impose high marginal deduction
rates of 85% on large numbers of household types across
a wide range of earnings, and marginal deduction rates of
95% on significant numbers of households. The complexity
of claiming benefits, the uncertainty relating to net income
after moving into employment, and the complexity of reclaiming
benefits if employment ends after a few months, are significant
disincentives. These are even more significant for the large
number of people who are out of work but very much want
to work, particularly if they have dependents.
The
diagram on p.12 of the consultation document is a little
misleading as it suggests that Child Tax Credit isn't part
of the problem. It isn't part of the problem for the earnings
range along the horizontal axis for the household type for
which the graph has been drawn. (We're not told the household
composition, nor what rent they are paying). At only slightly
higher earnings the Child Tax Credit will be withdrawn as
earnings rise, thus contributing to the high overall taper
and becoming part of the problem.
The
only benefit that does not contribute to the problem
is Child Benefit, which is paid unconditionally.
Question
3
To
what extent is the complexity of the system deterring some
people from moving into work?
If
a household has one earner in full-time employment and is
receiving Tax Credits, then for another adult to move into
employment can provide little financial gain for the household.
(This problem doesn't show up in tables and graphs of household
gross earnings against household net income.)
If
a household has no earners, then only if someone can enter
employment which they know will be permanent are
they likely to do so. The disruption to net income experienced
by households in which someone enters employment and then
leaves it again after a few months can be considerable.
If
someone in a non-earning household is offered part-time
employment then there will be little incentive to accept
it and the disruption to the household's income maintenance
strategy will generally be too daunting to contemplate.
Here the combination of no financial incentive and the unpredictable
changes to benefits can create a substantial hurdle which
the household is unlikely to wish to attempt to cross.
The
above responses relate to formal employment with employers
who deduct Income Tax and National Insurance contributions,
or to legitimate self-employment. Bill Jordan et al, in
Trapped in Poverty? Labour-market decisions in low-income
households (Routledge, 1992), has shown how low income
households will seek or create employment opportunities
in the informal economy, and will only enter the formal
economy if the net change in income will be stable and significant.
The system today is no less complex than it was in 1992,
and is arguably more complex.
Four
factors work together to discourage legitimate employment
and self-employment: 1. negligible net financial rewards;
2. complexity and the resultant unpredictability of outcomes
of changes in employment status; 3. the serious disruption
to income maintenance strategies which households face as
their members enter and leave employment; 4. the sheer hard
work of making benefit and Tax Credit claims: always time-consuming,
often frustrating, and with the resulting benefits too often
miscalculated. If they are too low then additional deprivation
is the result, and if too high then the repayments demanded
can cause debt and hardship. Most people know someone who
has suffered these problems, even if they haven't suffered
them themselves, and the danger of Tax Credit overpayments
are therefore a significant disincentive to taking employment.
Question
4
To
what extent is structural reform needed to deliver customer
service improvements, drive down administration costs and
cut the levels of error, overpayments and fraud?
In
the current system, any change in circumstances requires
human intervention: to receive and check information, and
enter data. Reducing the level of such human intervention
will save administrative costs and will reduce error rates.
To remove it almost entirely, as with Child Benefit, will
lower administrative costs and error rates as far down as
they can go.
As
the consultation paper identifies, duplication is a problem
in the current system. It is a problem because each component
of the system requires frequent human intervention. If such
interventions were not required, or were required in only
one part of the system, then duplication would not be a
problem.
Integrating
the benefits system and Tax Credits would create savings,
and these would be significant if human intervention could
be removed from large parts of the system. Even greater
administrative savings will be achieved by integrating the
tax and benefits systems as far as possible. This would
mean that duplication between the tax and benefits systems
would no longer occur. The transition into and out of employment
would no longer require information to be received, checked
and recorded, for those benefits paid that were not related
to earnings or labour market status.
Structural
reform of both tax and benefits based on a single simple,
unconditional system would almost eliminate administrative
costs, and would remove almost entirely the possibility
of error, overpayment, and fraud (all of which are minimal
for Child Benefit). Such a change would remove almost all
need for customer service. (The reason we hear almost no
complaints about Child Benefit customer service is that
almost no customer service is required).
Successive
Governments have failed to recognise that a substantial
fraction of those claiming benefits for incapacity are,
because of back pain, ME, clinical depression, etc., available
to work intermittently, but liable (unpredictably from day-to-day)
to have to cease work. The proposals to allow seamless transitions
between out-of-work and in-work benefits would facilitate
such people being able to obtain at least casual work, although
their erratic availability for work does not make them good
candidates for employment.
Although
the benefit and other income of pensioners has been excluded
from the scope of this consultation, it is worth taking
into account the savings possible by including winter fuel
payments and the value of free television licences in taxable
income (but not means-testing the separate components).
Poor pensioners would lose nothing, about half would lose
20% of their value, and a few would pay tax at 40% on these
benefits.
Question
5
Has
the Government identified the right set of principles to
use to guide reform?
Yes.
However, two of the principles make assumptions which, if
made differently, would deliver solutions more coherent
with the other five principles.
Principle
5: Omit 'in tandem … reinforcing conditionality'. There
is no need to reinforce conditionality if the income maintenance
system itself encourages responsible behaviour.
Principle
7: Rather than 'Ensure that the benefits and Tax Credits
system is affordable in the short and longer term', the
principle could read: 'Ensure that the income maintenance
system is affordable in the short and longer term.' This
allows for an integration of the tax and benefits systems
and for the abolition of Tax Credits and means-tested benefits
if that might deliver the kind of overall system which our
economy and society need in the twenty-first century.
Question
6
Would
an approach along the lines of the models set out in chapter
3 improve work incentives and hence help the Government
to reduce costs and tackle welfare dependency and poverty?
Which elements would be most successful? What other approaches
should the Government consider?
We
welcome the approach of a Universal Credit and a single
taper rate, which is the DWP's own model in Chapter 3, as
an acceptable reform for the time being with the possibility
that it could be developed later into a scheme based on
a Citizen's Income. We reject each of the other three models
outlined as incompatible with some of the principles for
income maintenance and as inconsistent with the later implementation
of a Citizen's Income.
The
IPPR's Single Working Age Benefit is unacceptable because
it fails to integrate Tax Credits with benefits and because
making benefits universal for twelve weeks and then means-testing
them is incompatible with integrating in-work and out-of-work
benefits to allow seamless transitions in and out of work.
The
IFS / Mirrless model is unacceptable because Child Benefit
is included in the income which would be withdrawn and because
families out of work would receive substantially less than
now.
The
Taxpayers' Alliance's Negative Income Tax model, although
superficially appearing to enable progress to a Citizen's
Income, is unacceptable because it does not have a disregard
for low earnings and does not integrate all benefits, leaving
multiple taper rates.
The
responses above suggest that a particular scheme which ought
to be considered seriously is a Citizen's Income: an unconditional,
non-withdrawable income for every citizen, which would be
paid for by reducing means-tested benefits (including Tax
Credits) and Income Tax allowances.
The
Citizen's Income Trust submitted evidence on a Citizen's
Income scheme to the House of Commons Work and Pensions
Committee's Benefits Simplification enquiry in 2007.
We enclose a reprint of the evidence printed in volume II
of the enquiry report. We also enclose our most recent Citizen's
Income Newsletter, which contains a research note on
the effects of replacing Tax Credits with a Citizen's Income;
and editions containing costings exercises for particular
schemes. All of the schemes which we have researched are
revenue neutral or potentially so, which means that minor
variants could achieve cost savings.
A
Citizen's Income would deliver every one of the seven principles
for reform (as adjusted in our response to question 5):
- To
the extent that a Citizen's Income replaces means-tested
benefits and Tax Credits, marginal deduction rates would
be reduced and there would be improved incentives for
seeking and taking employment and for improving skills
in order to increase earnings. The Citizen's Income would
be a constant contributor to net income, whatever the
employment statuses of household members, and so it would
not discourage transitions into and out of employment.
- These
effects would be particularly noticeable at low wages,
and would encourage individuals on low wages (and particularly
those in part-time employment) to increase their earnings.
- Because
everyone would receive a Citizen's Income, it would unite
taxpayers and benefits recipients in a single category.
People in employment would receive a Citizen's Income
and be taxed on all or almost all income. People not in
employment would receive a Citizen's Income and would
continue to need means-tested Housing Benefit and, if
the Citizen's Income was not high enough to live on, other
means-tested benefits. But the level of means-tested benefits
required would be much reduced, making the transition
into employment more attractive than the current conditional
benefits regime.
- Those
most in need would, if able to work, be encouraged by
lower marginal deduction rates to seek and enter employment,
thus reducing the number of children in poverty. A Citizen's
Income would operate in the same way as Child Benefit,
and integration of the two systems would be easy to achieve.
Interfaces with taxation and other benefits would be only
as difficult as those tax and benefits systems. The Citizen's
Income itself would contribute no difficulties to the
interfaces.
- A
Citizen's Income would encourage employment and self-employment
and thus responsible behaviour. A Citizen's Pension (
- it's a pity that pensions are not considered in the
consultation document) would function in the same way
as a Citizen's Income and would encourage saving for retirement
because the Citizen's Pension would not be reduced as
income from savings rose. Means-tested benefits and Tax
Credits based on joint applications encourage parents
to live apart. A Citizen's Income, being individualised,
would encourage them to live together.
- A
Citizen's Income would be as easy to automate as Child
Benefit. Child Benefit attracts almost no fraud, and almost
no errors or overpayments, and a Citizen's Income would
exhibit the same characteristics. Employers' administrative
systems would not be involved at all in the delivery of
a Citizen's Income, thus reducing their costs and creating
a more efficient economy. The need for customer service
would be almost non-existent.
- An
income maintenance system based on a Citizen's Income
could be affordable in the short and longer term. The
costs of the Citizen's Income component of the system
would be entirely transparent and predictable (as is the
cost of Child Benefit). Any unpredictability would lie
with remaining means-tested benefits such as Housing Benefit.
A simple mechanism such as an adjustable National Insurance
contributions upper earnings limit could be employed to
regulate the cost of the scheme closely.
Question 7
Do
you think we should increase the obligations on benefit
claimants who can work to take the steps necessary to seek
and enter work?
The
more significant the incentives, and the smaller the disincentives,
to seeking and taking employment and to training for employment,
the smaller will be the need for enforcement of labour market
behaviour. All of the proposed schemes should therefore
reduce the severity of compliance mechanisms required. A
complete absence of disincentives would deliver the lowest
possible requirement for such mechanisms. The enforcement
of specified labour market behaviour is expensive, so a
reduced need for it will deliver cost savings.
Question
8
Do
you think that we should have a system of conditionality
which aims to maximise the amount of work a person does,
consistent with their personal circumstances?
A
free market in labour, with as few artificially imposed
rigidities as possible, would be efficient for our economy.
Only in such a free market will remuneration deliver efficient
amounts of labour in relation to other production factors.
Therefore, for an efficient economy, there should be as
little interference as possible in the labour market. It
is inefficient to require a particular individual, with
their particular skill set, to perform an artificially imposed
number of hours of labour. Therefore to create an efficient
market in labour, that market needs to be isolated as far
as possible from the worker's subsistence needs and the
tax and benefits system needs to be isolated from wage rates
and from the numbers of hours worked by any individual.
Complete disjunction is clearly impossible, but any decrease
in the connection will deliver greater efficiency. The schemes
discussed in the consultation document all achieve greater
disjunction. A Citizen's Income would do so to the greatest
available extent, the increase in efficiency increasing
with the level of the Citizen's Income.
Question
9
If
you agree that there should be greater localism, what local
flexibility would be required to deliver this?
Local
discretion incurs costs and, because similar cases in different
places will be treated differently, it can increase injustice.
The
most successful benefit in terms of not increasing employment
disincentives, low administrative costs, and almost no fraud,
is Child Benefit. (The wealthy pay far more in Income Tax
than they receive in Child Benefit, so it isn't a problem
that they receive it). The universality and unconditionality
of the scheme are what make it work. Benefits such as Child
Benefit need to be administered on a national basis. If
we are to reduce costs and increase employment incentives,
our system needs to move in the universalist and unconditional
direction, and so towards national provision and away from
localism.
Question
10
The
Government is committed to delivering more affordable homes.
How could reform best be implemented to ensure providers
can continue to deliver the new homes we need and maintain
the existing affordable homes?
Given
the mismatch between earned incomes and housing costs in
many parts of the country (especially London), a Housing
Benefit system will still be required. However, the taper
will need to be reduced if Housing Benefit is not to continue
to be the disincentive to households increasing their earned
income, as it is at present.
The
Housing Benefit taper is a problem because so much of the
current system is means-tested, creating a total taper of
up to 95% for many households across wide earnings ranges.
For the rest of the system to cease to be means-tested would
mean that the Housing Benefit taper and the Income Tax rate
would be the only tapers contributing to employment disincentives,
so Housing Benefit would no longer be as much of a problem
as it is now.
It
is not obvious how structural changes in the benefits and
income tax systems can have a direct effect on the housing
market. The solutions lie elsewhere: in the building of
more single-person homes, regulating the mortgage market
to control house price inflation, applying Capital Gains
Tax when householders down-size their homes, and generally
discouraging wealthier people from using residential property
as speculative investments.
Question
11
What
would be the best way to organise delivery of a reformed
system to achieve improvements in outcomes, customer service
and efficiency?
The
payment system diagram for Child Benefit looks like this:
If
a Citizen's Income route to reform were adopted, then far
less information would need to be received, recorded and
monitored. These would include name, current address, date
of birth, bank account details, and proof of identity and
citizenship.
For
any remaining means-tested benefits, such as Housing Benefit,
the payment system will continue to be as on page 35 in
the consultation document: but as the level of the Citizen's
Income rises the number of people on means-tested benefits
will fall (because increasing numbers will choose employment
in preference to the means-tested system), and if a Citizen's
Income replaces Tax Credits (as our recent research note
suggests) then no further Tax Credits will need to be paid.
Instigating
a Citizen's Income scheme would entail no information technology
challenges. Outcomes would automatically improve as the
number of claimants on means-tested benefits fell. The need
for customer service would be almost entirely eliminated
(as with Child Benefit). A Citizen's Income would offer
the maximum possible administrative efficiency as well as
the maximum possible economic efficiency. Crucially, employers'
systems would not be involved in the delivery of a Citizen's
Income.
Question
12
Is
there anything else you would like to tell us about the
proposals in this document?
It's
a pleasure to see the new Government taking seriously the
problems relating to the current benefits system and considering
radical reform; but because the consultation paper is issued
by the Department for Work and Pensions rather than by the
DWP and HMRC together, and, because it treats benefits and
Tax Credits in isolation from Income Tax and National Insurance
contributions, the Government is in danger of missing an
important opportunity for the radical change which our economy,
labour market and society require.
The
major reason for suggesting that tax and benefits need to
be treated together is that only by considering Income Tax
allowances and rates along with the structure of benefits
and of Tax Credits can all of the available options for
reform be considered. In particular, a Citizen's Income,
which would deliver all of the Government's principles for
reform (adjusted as suggested above), requires that Income
Tax allowances be turned into cash payments as well as those
parts of the Tax Credits and benefits systems becoming unconditional,
non-withdrawable and individualised. In this way a Citizen's
Income can be created and transitions into and out of employment
can become seamless in relation to the tax and benefits
structure.
The
21st century really does need a new approach, and a genuinely
reforming Government offers the necessary opportunity to
consider the broadest possible range of reform options.
Back in 1983 a House of Commons Treasury and Civil Service
Committee Sub-Committee recommended that a Citizen's Income
should be seriously considered as an option for reform,
and in 1994 the Social Justice Commission came to the same
conclusion.
Particularly
important in the context of the fast-changing society and
economy which we are bound to see during the twenty-first
century will be a tax and benefits system which is as simple
as possible and with as few rigidities as possible. If for
no other reason, a Citizen's Income would be a serious candidate
for the necessary reform. But as we have made clear in our
responses to the questions contained in the consultation
document, there are numerous reasons to consider a Citizen's
Income as an important option for the basis of the tax and
benefits system that we now need.
Universal
credits would be an important step towards a Citizen's income.
A Citizen's Income would offer all of the advantages of
Universal Credits; would offer additional advantages in
terms of administrative efficiency, lower marginal deduction
rates, the reduction of fraud, a more flexible labour market,
and the strengthening of families; and would involve no
disadvantages.
We
recognise that further research is necessary. The Citizen's
Income Trust has few resources of its own, and is most grateful
for the help that it has received towards its contribution
to the debate on tax and benefits reform. We are currently
working with the University of Greenwich on a costings project,
and would be pleased to work with others. We would be particularly
pleased to be invited to work with the Department for Work
and Pensions and with HMRC so that together we can explore
the variety of feasible and cost-saving Citizen's Income
schemes available.
Equality
Impact Assessment
Household-based
tax and benefits systems should be assessed for their impact
on equality within the household. Universal, unconditional
and individualised systems automatically treat everyone
equally. Therefore any inequality in the system as a whole
will be ameliorated by the extent of the universal, unconditional
and individualised component, and any inequality remaining
will be the result of the remaining means-tested elements
of the system.
Internal
consultation
This
response is the result of consultation amongst the trustees
of the Citizen's Income Trust and has been agreed by its
Chair as representing the view of the Trust.
News
One
of the more interesting pieces of news to come out of the
recent Basic Income Earth Network (BIEN) congress
is that Iran might become the first country to establish
a Citizen's Income. Hamid Tabatabai's paper on the subject
is soon to be published in Basic Income Studies.
Tabatabai 'explains the development of the main component
of Iran's forthcoming economic reform plan - the replacement
of fuel and food subsidies with direct cash transfers to
the population - and shows how a system of universal, unconditional
and regular cash transfers is beginning to emerge, rather
haphazardly but inexorably, as a by-product of an attempt
to transform an inefficient and unfair system of sharing
the country's oil wealth with the population through price
subsidies.' To read Basic Income Studies, go to:
www.bepress.com/bis/
The
Institute for Fiscal Studies has published a briefing
note on the distributional effects of the recent Budget:
'The measures introduced in the June 2010 Budget are regressive
overall. Once we consider all reforms to be introduced by
April 2014, the cash losses are smallest for the seventh,
eighth and ninth income decile groups, and are very similar
for all of the bottom seven expenditure decile groups. The
progressive nature of the pre-announced measures is not
sufficient to offset this, so the overall package of tax
and benefit reforms is also slightly regressive, at least
within the bottom nine income decile groups. The biggest
losers from the June 2010 Budget are low income households
of working age, while better off working-age households
without children lose the least.' To see the briefing note,
go to: www.ifs.org.uk/bns/bn108.pdf
The
Guardian Weekly reports on a campaign in India for a 'universal
distribution [of food stocks], rather than a targeted one,
because the "poverty accounting" criteria in India
are controversial and the lists are frequently manipulated
and therefore unreliable. "A universal public distribution
system would be a life-saver for the hungry, while for the
others it would be a form of financial support and social
security," explained Jean Drèze, an economist
and member of the Right to Food movement. The Indian Government
is to publish a Right to Food Act before the end of the
year. For details, go to: www.guardian.co.uk/world/2010/sep/07/india-grain-farming-prices-poor
Research
reported in Social Policy and Administration
relates public attitudes in the UK and in Israel to the
social welfare systems which have evolved in the two countries.
The authors discuss the inefficiencies of the UK's means-tested
system - 'it is expensive to administer and often misallocates
resources' - but that it is 'relatively effective at preventing
extreme poverty. … The British public may not support
sufficient levels of redistrubution to end poverty but repeated
surveys have shown that the overwhelming majority of the
British public believes that no one should be unable to
afford the basic necessities of life' (Menachem Monnickendam
and David Gordon, 'Poverty, Government Policy and Public
Opinion in Britain and Israel: A Comparative Analysis',
Social Policy and Administration, vol.44, no.5, October
2010, p.570).
Conference
report
The
BIEN Congress in Sao Paulo
The
Basic Income Earth Network (BIEN) has come of age. It held
its fourteenth international congress in the Brazilian city
of Sao Paulo on June 30-July 3, 2010, and was attended by
over 400 participants from 31 countries, including representatives
of the UK's Citizen's Income Trust, and was remarkable for
the upbeat mood among the participants.
A
primary reason for that was that Brazil's own bolsa familia
scheme was working remarkably well. Members of BIEN had
lobbied for a Brazilian cash transfer scheme in the 1990s,
and after some years of scepticism this had helped lead
to a series of experimental cash transfer schemes in Brazilian
cities, known as renda minima and bolsa escola
(school bags). When President Lula was elected in 2001 he
consolidated several types of scheme in the bolsa familia,
a cash transfer made conditional on families sending their
children to school and to health clinics. By 2010, over
50 million Brazilians were receiving the cash transfers,
and, under a law passed in 2004, the Government has committed
the country to introduce an unconditional basic income as
and when it can afford to do so.
Symbolic
of the commitment, President Lula held a 90-minute discussion
with the Executive Committee of BIEN on the day before the
Congress, and the man who as Minister of Social Welfare
had been responsible for introducing and implementing the
bolsa familia, Patrus Anaias, actively participated
in the Congress, as did the Senator for Sao Paulo, Eduardo
Suplicy, who is now co-president of BIEN.
The
mood at the Congress was optimistic, partly because 17 Latin
American countries now operate cash transfer schemes and
seem to be moving towards a universalistic type of system.
The challenge now is to roll back the focus on conditionalities.
Evidence presented at the Congress showed that the main
reason why the cash transfers have had such a positive effect
on poverty, nutrition, child school performance, income
distribution and women's socio-economic status, is the provision
of cash, and not the application of costly and onerous conditions.
Well
over 100 technical papers were presented at the Congress.
Among the most interesting was one on how the oil subsidy
in Iran is being converted into a simple cash transfer,
a form of basic income, without that being presented by
the authorities as that. There was also news of pilot basic
income schemes in Africa and India, exciting developments
that are leading to important evaluation exercises that
all advocates of universal basic income security should
follow with interest.
At
the end of the Congress, the Executive approved the new
membership of the Basic Income Korean Network, the body
representing activists and academics promoting basic income
in South Korea. At the time of registering, the BIKN had
444 paid up members and has been expanding rapidly. It joined
the Japanese Basic Income Network that had held its inaugural
conference in Kyoto in April, which drew hundreds of academics
and activists from across Japan.
Guy
Standing, BIEN Co-President and CIT Trustee.
Reviews
Daniel Dorling, Injustice: Why Social Inequality
Persists, Policy Press, 2010, xii + 387
pp, hbk, 978 1 84742 426 6, £13.99
The
editorial for the Citizens Income Newsletter 2010,
issue 1, in praise of Richard Wilkinson and Kate Pickett's
book The Spirit Level, argued that we need to 'go
deeper into the causes of inequality than the authors have
been able to.' In Malcolm Torry's substantial review of
that book, carried in the same issue, he noted that The
Spirit Level should serve as a 'call to action' and
that it was 'full of proposals for action.'
I
begin with these points because, in many ways, they serve
to frame the contribution made by geographer Daniel Dorling
in his new book Injustice: Why Social Inequality Persists.
The study of social inequality has been irreversibly altered
by The Spirit Level, and in many ways Dorling's book
should be read as a complement to Wilkinson and Pickett's.
Yet it is, at heart, a fundamentally different sort of book.
If, as Torry argued, The Spirit Level stands as a
'call to action,' then Dorling's book stands alongside it
as a 'call to contemplation.'
Explaining
the title of his book, Dorling writes that 'If you had to
choose one word to characterise the nature of human society
as it is currently arranged worldwide, there is no better
word than 'injustice'' (p. 5). He proceeds to set out what
he calls 'the five faces of social inequality.' These are,
in turn, that 'elitism is efficient'; 'exclusion is necessary';
'prejudice is natural'; 'greed is good'; and 'despair is
inevitable'. Dorling argues that each of these beliefs has
now become naturalised amongst a large proportion of the
populations in the wealthiest, most unequal countries in
the world, foremost amongst which he places the USA and
Great Britain.
Following
a short introduction and a subsequent chapter outlining
the relationship between injustice and inequality, Dorling
devotes lengthy chapters to each of his five faces of inequality.
In turn, he exposes how elitism is bred through the structure
of education in unequal societies, how social exclusion
- normally targeting the poor and immigrants - has become
the norm, how prejudice and a 'wider racism' are spreading
thanks to inequality, and how the belief that 'greed is
good' is leading to over-consumption and increasing waste
within unequal societies. Backed up by detailed evidence,
more of which can be found on the website accompanying the
book, Dorling's arguments are - with the possible exception
of his over-generalised use of the word 'racism' - persuasive.
Dorling
goes beyond the analysis offered in The Spirit Level
by offering an exacting critique of the ideas which sustain
unequal societies. His book offers a trenchant assault on
the elitist ideas structuring society, departing from the
scholarly prose of Wilkinson and Pickett to offer an analysis
tinged with real passion and anger. At times, this means
that Dorling's analysis can seem a little simplistic - it
is frustrating, for example, that despite his attention
to the importance of ideas, Dorling makes no attempt to
engage with the wide variety of theoretical work on justice
and injustice. Yet, in a sense, this is a result of Dorling's
overall approach, which argues that grand theories and projects
are of little interest, and that instead we should be focussing
on the way in which everyday ideas about injustice permeate
society, become normalised, and result in unjust outcomes
for particular groups of people.
Relating
to the question of a Citizen's Income, Dorling's book makes
two important contributions. Firstly, he calls for a 'living
wage' in all affluent countries, drawing on the work of
the Basic Income Earth Network to advance his case (p. 154).
There seems to be some confusion here, given that a living
wage and a Basic (Citizen's) Income are two different things,
but Dorling does, later, make an explicit, although somewhat
brief and uninspiring, argument in favour of a Citizen's
Income as a means for making life in affluent countries
'less wasteful and more fulfilling' (p. 267). Whilst it
is good to see a prominent academic arguing in favour of
a Citizen's Income, it is a shame that Dorling's discussion
of the pros and cons of the policy, as well as the undoubted
difficulties which would stand in the way of its implementation,
should be so short as to seem superficial. However, the
second and perhaps more important point of relevance to
the Citizen's Income cause is the argument for 'heterodox
economics' which Dorling advances throughout the book. Drawing
on exciting new economic thinking, such as Molly Scott Cato's
Green Economics, Dorling makes the case for a steady-state
economy - something for which The Spirit Level also
argued. Throughout, Dorling engages productively with the
idea that there might be limits to sustainable economic
growth. It is this sort of economic thought - focused on
people not profit - which can take us beyond the impasse
reached by neoliberalism, and which might be a precursor
to the establishment of a Citizen's Income.This reader disagrees
with Dorling's prioritisation of ideas over and above political
action, believing instead that a more intricate combination
of the two is required. However, Dorling is surely correct
to argue that ideas have material consequences, and as such
his work needs to be taken up by those working to change
both the ideas which structure society, and the very structures
themselves. Certainly, at a time when David Cameron and
Iain Duncan Smith, with Nick Clegg as their willing accomplice,
are launching their assault on the welfare state, the challenge
to conventional thinking offered by Dorling is more important
than it has been for a generation. This book deserves a
wide readership, and ought to be engaged with by anybody
hoping to contest the ideas which underlie social injustice
Daniel
Whittall
Tony
Fitzpatrick, Voyage to Utopias: A fictional guide through
social philosophy,
Policy Press, 2010, 256 pp, pbk 1 84742 089 3, £12.99
Two
children, Zadie and Jake, visit their grandfather, Cramps,
and he takes them on a journey through time and space. Each
time they land they're in a world which represents a social
philosophy. We meet the Noughts, paid for queuing; the Rads,
who want to change things; the free market Dearbrook; Williams
the communist; Myllan the egalitarian; Hughes, the pragmatic
environmentalist; a Remoralisation Centre; the Museum of
Cultural Identity; and a communitarian, a republican, and
a radical devolutionist. We meet Aon and Kayne, who get
swept along in Cramps', Zadie's and Jake's time travels;
we meet Virgil, the machine which controls it all and sometimes
doesn't; and we find out that Cramps and Virgil have an
interesting history.
Fitzpatrick
has written an 'educational novel' which he locates in the
same category as The Pilgrim's Progress, Gulliver's
Travels and Sophie's World. The 'educational'
intent is clearly signposted by the table at the beginning
which tells the reader which social philosophy can be found
in which chapter - 'Free market liberalism: chapters three
- four' - and by the notes and reading lists at the end
of the book. Fitzpatrick is clearly hoping that the book
will help undergraduates to get to grips with the variety
of social philosophies, which is what the book's dialogue
is all about.
But
is it a good novel? In The Pilgrim's Progress the
plot and the educational content draw from the same theological
wells, which is why the book works so well. The structure
of Voyage to Utopias is a time travel story, whereas
the dialogue is social philosophy, so we sometimes feel
as if we're reading two books at once, the latter of which
feels more like William Paul Young's The Shack than
Bunyan's The Pilgrim's Progress. The Shack
was a huge success, and I hope that Fitzpatrick's book will
be too.
For
the twelfth chapter's brief vision of environmental disaster
alone the book should be on the reading list of every student
of social philosophy.
Julian
Le Grand, Carol Propper and Sarah Smith, The Economics
of Social Problems, Palgrave Macmillan,
4th edition 2008, viii + 208 pp, pbk, 0 230 55300 1, £24.99
This
is the fourth edition of an important textbook which for
over thirty years has helped students of social policy to
understand economic theory and the ways in which economic
analysis contributes to social policy. Equally, it has helped
students of economics to experience their discipline as
a practical one which can inform social problems just as
much as it can inform such economic problems as inflation
and economic growth.
This edition contains new chapters on pensions and on climate
change, and all of the other chapters have been rewritten,
but the basic approach of the book is as before: to understand
social policy's aims as efficiency and equity; to ask whether
in each social policy field the private market can achieve
these aims; and to evaluate the effects on efficiency and
equity of government intervention. 'Government failure'
is now as much a part of the agenda as 'market failure'.
Of
particular interest to readers of this Newsletter will be
the new chapter on pensions. Here, efficiency is understood
in terms of income smoothing, and concepts such as the diminishing
marginal utility of consumption discounting and expected
benefit are explored. Equity as an aim generates a discussion
of relative poverty and of different ways of measuring poverty.
Equity requires government to intervene in order to provide
sufficient income for those who cannot save enough during
their working lives; and because a lack of information about
investment options and their outcomes makes individual planning
difficult, government also has to intervene in the cause
of efficiency. The chapter compares different countries'
systems and also the different instruments available to
governments: means-testing, pay-as-you-go state pensions,
funded 'social insurance', and the subsidy and regulation
of private provision. The chapter might have benefited from
discussion of the Pensions Policy Institute's work on a
Citizen's Pension and in particular of the New Zealand example.
Of
equal interest will be the chapter on poverty and welfare.
A discussion of poverty and of the measurement of inequality
is followed by one on objectives: minimum standards, social
justice, and equality. The market's unwillingness to insure
where the insured possesses more information about risk
than the insurer does means that government taxation, provision
and regulation are essential, and the chapter closes with
a discussion of tax credits as a response to the poverty
trap induced by means-tested benefits.
By
relating economic theory to real-world social policy problems
this textbook aids learning in ways in which a book simply
about social policy or a book simply about economic theory
could not hope to achieve.
If a fifth edition is contemplated then it would be interesting
to see each chapter extended by the use of economic theory
to suggest reforms in the field under review; and it would
be particularly interesting to see a treatment of unversalism
in each field. Universal provision works in health care
and education, and there are reasons why it works; Child
Benefit works; and new expressions of universalism in practical
policy could work too. It would be pleasure to find 'universalism',
'Child Benefit' and 'Citizen's Income' in the fifth edition's
index.
Viewpoint
Lessons
of the Alaska Dividend
At
a time when progressive social policies are under attack
across the industrialized world, the Alaska Dividend continues
to be extremely popular. It distributes a yearly dividend
to every man, woman, and child in Alaska without any conditions
whatsoever. It has helped Alaska maintain one of the lowest
poverty rates in the United States. It has helped Alaska
become the most economically equal of all 50 states. And
it has helped Alaska become the only U.S. state in which
equality has risen rather than fallen over the last 20 years.
Certainly Alaska is doing something right.
As
newsletter editor for USBIG (United States Basic Income
Guarantee), I've followed the Alaska Dividend for the past
ten years. I am currently in the process of co-editing a
book on the dividend entitled Exporting the Alaska Model
(Palgrave-MacMillan, forthcoming). In the process, I've
learned several lessons that I believe are valuable to people
interested in progressive social policy and the basic income.
The
first and simplest lesson is that resource dividends are
popular once they're in place. I'll talk about this more
as I go.
The
second and most important lesson is that the Alaska model
can be exported. You might be tempted to think that anything
connected with the Alaskan oil industry is an aberration;
something possible only because of Alaska's oil windfall.
But you do not have to be resource rich to have a resource
dividend. There are three reasons why I know this is true.
First,
Alaska isn't unusually rich. Oil has brought them from being
one of the poorer states to being one of the wealthier states,
but they are not the wealthiest state in the union. In fact,
including the District of Columbia, Alaska ranks only tenth
with a per capita GDP of about $42,000-only $2,500 higher
than the national average.
Second,
Alaska uses only a tiny fraction of its resource wealth
to fund the entire dividend. Alaska has many valuable natural
resources including forestry, fisheries, gold, land value,
and so on. Only taxes on oil pay into the dividend. The
taxes on oil drilling in Alaska are low by international
standards. And, only one-fourth of the taxes on Alaska's
oil go into the fund that supports the dividend. Alaska
used most of its oil windfall to give itself an enormous
income tax cut. It went from having one of the highest state
income tax rates in the United States to having no income
taxes at all. And it funded the dividend from what was left
over. If Alaska actually used its resources to support the
dividend, there is no telling how high it would be. Leaving
income taxes as they were and devoting all of the oil taxes
to the fund would have made the dividend at least four times
what it is now. Raising oil taxes and treating other resources
the way Alaska treats oil would make it higher still.
Third,
every country, state, and region has resources. Gary Flomenhoft
estimates that Vermont (a state not known for resource wealth)
could support a dividend larger than Alaska's, if it made
judicious use of resource taxes. The most resource-poor
countries in the world are probably Hong Kong and Singapore,
where millions of people are crowded together on a little
island, and they have to import almost everything they consume.
But these countries have fabulously valuable real estate.
I wouldn't be surprised if a tax on Singapore's land could
support something much larger than the Alaska Dividend.
All
of this shows that Alaskans don't have the dividend because
they are resource-rich; they have it because they took advantage
of the opportunity. This is the third lesson: look for opportunities.
Again, the Alaskan experience is no aberration. Common resources
are being privatized all the time all over the planet. Every
new well that's drilled is an opportunity to assert community
control of resources. So is every new mine that's dug and
every new reserve that's discovered.
Many
other opportunities are less obvious. Recently, the United
States government gave away the digital broadcast spectrum
to television companies. If they had auctioned off leases
to the highest bidder, they would have raised billions of
dollars per year. The need to do something about global
warming is another opportunity. Two strategies currently
being discussed, "tax and dividend" and "cap
and dividend" would make polluters pay for the damage
they do to the environment and return the proceeds to everyone.
Of
course, there is a danger in selling off resources and using
the proceeds for the public benefit. People might then want
to sell more resources to make more money. Once corporations
have bought off the people, perhaps they can get away with
doing even more damage to the environment. The solution
to this problem is the fourth lesson: think like a monopolist.
That is, once we assert community control of resources,
members of the community need to remember that, as a group,
they have a monopoly over those resources.
Monopolists
maximize revenue, not by selling all they can at bargain
prices, but by restricting supply, selling less at higher
prices. One monopolist that we should take as a model is
Johnny Carson. In the 1970s, he found himself to be the
most popular entertainer on American television. He demanded
and got a record high salary, but he didn't stop there.
He had his workload reduced from five to four days per week,
and his vacation time increased to something like three
months per year. He realized that his time was not only
valuable when he sold it, but also when left unsold. Our
resources and our environment are valuable not only as items
for potential sale; they are valuable just as they are.
As community owners of our environment, thinking like the
stockholders of a monopoly, we could have more money coming
in at the same time that we also have larger parks, larger
nature reserves, less pollution, and better resource management.
As
for the danger that a dividend will buy off individuals'
environmental diligence, remember that polluters have been
doing a job on our environment for thousands of years without
buying off the people they harm. Nobody got a dividend when
the Stone Age Maori hunted the New Zealand moa to extinction.
Nobody got a dividend over the hundreds of years it took
the fishing industry to slowly destroy the cod fisheries
on the Grand Banks. Nobody gets a dividend for the arsenic
in our water or the sulphur dioxide in our air.
The
assertion of the community's right to demand compensation
for individual or corporate exploitation of our environment
can actually be an important part of the solution to our
environmental problems. The right to compensation is part
of the right of ownership, and along with ownership comes
the right to manage, regulate, and restrict access. Receiving
payment for resources helps the members of the community
to think of themselves as joint owners of the environment
with the power to command that tenants be good stewards
of the environment.
This
feeling of shared ownership is one of the reasons why resource
dividends tend to be so popular once they're in place, leading
me to the fifth lesson: build a large constituency. One
way to build a constituency is through universal rather
than targeted policies. Economically and philosophically
speaking, I am indifferent between programs for all people
and programs for all of the poor. As long as we permanently,
unconditionally, eliminate poverty, I don't care whether
we do it through a targeted negative income tax or a universal
basic income or any other system. But politically speaking,
my observations have taught me that we are much more likely
to eliminate poverty with universal programs, because universal
programs build a large constituency that will protect the
program from political attack. It is easy for politicians
to single out the recipients of target programs, because
they are relatively weak and small.
Another
way to build a constituency is to be significant. Insignificant
gimmicky programmes might be easier to pass, but they are
also easier to cut when a different administration comes
into power. If a politician proposed cutting the Alaska
dividend, every Alaskan would face losing $1,000 a year
or more for the rest of their lives. Whether that politician
was promising a tax cut or some other spending program,
they would put a universal constituency of Alaskans in the
position where they would sacrifice something very significant
for the uncertainty about whether the replacement will be
delivered.
The
British Labour Party recently failed to build a sufficient
constituency to defend its Child Trust Fund. This program
was intended to be universal. It was designed to ensure
eventually that every native born British citizen
would own something. But the government decided to phase
in universality by granting a small 'baby bond' only to
children born in or after 2002. Each child would receive
a bond of £250 at birth and another of £250
at age 7. This investment would provide enough for a one-time
dividend of perhaps £2000 at age 18-hardly a life-changing
amount.
When
the new Conservative-Liberal-Democratic coalition government
came into power, the Child Trust Fund was one of the first
programmes they announced that they would eliminate. The
only people directly harmed by the cuts are babies born
after 2010. The loss will only be a small one-time dividend,
and they won't feel the loss in their wallets or be able
to vote on it until 2028. It is not surprising that no significant
opposition developed to the new government's plan to scrap
the Child Trust Fund. The previous government did not create
a program that was significant enough to a significant number
of voters to make it worth defending.
The
companion to building a large or universal constituency
in favour of a programme is the sixth lesson: Avoid creating
an opposition. Policies, such as the minimum wage and rent
control, put most of the burden on one, specific, easily
identifiable group who will probably fight the programme
as long as it exists. Even programmes financed by broad-based
income tax can create an opposition if people connect the
burden of paying taxes with programmes they see themselves
as unlikely to need. But the Alaska Dividend has virtually
no opposition. No one has reason to feel burdened by its
creation and continued existence. The yearly dividends are
financed by the returns on state-owned investments. They
don't cut into anyone's perceived ownership.
Of
course the Alaska fund is created and continually enlarged
by taxes (or "royalties") on oil drilling. But
the oil companies aren't complaining. It was part of the
deal they made to obtain the right to drill. Complaining
about that now would be like complaining that they have
to pay a price for the steel from their suppliers. It doesn't
make sense to complain about what is obviously an unavoidable
cost of doing business. The state owns the oil fields. Anyone
who wants to drill must pay. That's just the way of the
world. But notice how atypical that model is. Usually the
state awards ownership of resources to corporations for
free. Anyone who wants to use those resources must pay the
corporations. And that's just the way of the world. Policies
like the Alaska Dividend remind us that it's possible to
change the way of the world.
There
are times when corporations will fall all over each other
to pay taxes. "Medical" marijuana producers in
California are asking to be taxed so that they can be seen
as legitimate businesses. Returning to the broadcast spectrum
example, had the government sold it (instead of giving it
away), they would have found many willing customers. Trying
to impose those taxes now is more likely to create an opposition,
but once we firmly establish the idea that taxes and regulations
reflect community ownership and custodianship of the environment,
there is little for an opposition to build around.
The
Alaska dividend is not as large as it should be, but it
has significant progressive effects, it works, and it's
popular. Perhaps it's time to recognize it as a model we
can build on.
Karl
Widerquist, Morehead City, North Carolina, August 2010
This
article was originally published in the USBIG Newsletter,
vol 11, no. 57, Summer 2010
With
apologies to 'Yes, Minister'
Minister:
Undersecretary …
Undersecretary:
Yes, Sir?
M:
What did you think of the Chancellor's conference announcement?
U:
Which one, Sir?
M:
The one about Child Benefit.
U:
Masterful, Sir.
M:
I agree. Saves money, and it's good for our social
justice image.
U:
We're very pleased.
M:
You are?
U:
The Department, Sir.
M:
How so?
U:
We're going to have to collect huge amounts of information
on who's living with whom. We've been doing that amongst
the lower classes for years, but we'll now have to do it
for the wealthy as well. That will be interesting.
And then we'll have to connect that information with data
on who's paying higher rate tax, and on who's receiving
Child Benefit. Do you think we should ask the company which
tried to computerize means-tested benefits if they can do
it?
M:
Shouldn't it go out to tender?
U:
Of course. I'll see if anyone knows how to write a specification.
M:
But do you think we need to do all that? Can't we just ask
Child Benefit claimants to tell us if they've got someone
in the household who's paying higher rate tax?
U:
Yes, we could. But then we'll need to check up on them.
So we'll need a wonderfully large fraud department, and
we'll need to train some more snoopers. Now that will be
really interesting.
M:
O dear, do you think so?
U:
And we'll need to collect millions of changes of circumstances
every year. And we'll need a department to look after underpayments
and overpayments. We don't have to worry too much about
that at the moment.
M:
Don't HMRC have all that trouble with tax credits?
U:
They do, Sir. I'm sure we could ask them to give us lessons.
… And we'll need tribunals, too. They take quite a
bit of admin. So we're really very pleased; and so are the
unions, because we'll be able to redeploy all the people
we were going to have to get rid of.
M:
I wonder if I should have a word with the Chancellor?
U:
I think it was the Prime Minister's idea, Sir. And they
both thought it was a good one. But don't worry. I'm sure
we can manage it. I'll have a note of the extra admin. costs
for you by tomorrow so you can tell the Chancellor how much
he won't be saving.
M:
It hope it won't be too embarrassing.
U:
I'm afraid it already is quite embarrassing, Sir.
But at least we won't need to employ consultants. We've
all the all expertise we'll need in the means-testing sections
of this department, and in tax credits at HMRC.
M:
I suppose that's a help. … But the argument's right,
isn't it? That it's wrong for low earners to be paying for
Child Benefit for the wealthy?
U:
Of course, Sir.
M:
Do you really think so? … You don't, do you.
U:
It's as good as the argument that we should stop higher
rate taxpayers using the NHS.
M:
O dear … You're really quite keen on universal benefits,
aren't you.
U:
If I can speak in a personal capacity and off the record
… It's much more efficient to give Child Benefit to
everyone. The wealthy are paying far more in tax than they
receive in Child Benefit so there's really no problem. But
the Department rather you didn't make that argument too
clearly, Sir.
M:
I can see that.
U:
On the other hand, if you're interested, there is another
strategy. You could tell them how cheap Child Benefit is
to administer and suggest that they turn tax credits into
a universal benefit. But only do that if you can be sure
that this department gets to run it. Which means
that you'll need to get the PM to understand, and not the
Chancellor.
M:
Do you think he will?
U:
I think he can.
M:
That's not what I asked.
U:
I agree, Sir.
©
Citizen's Income Trust, 2010
|
