The case for a Citizens Income

A couple of years ago, I was told of two young mothers who were studying for a qualification in nursing care. Towards the end of their studies a local Job Centre Plus insisted that they make themselves available for work or face sanction. They left their course and failed to qualify. They lost out and their time had been wasted. They were locked in the same oscillation between benefits and poor quality work. And society lost too - we need nursing care workers.

There seemed to be something so unjust in this story that it required further deep reflection. What sort of system could create this situation? The answer seemed to be one whose internal logic was arbitrary, coercive and short-sighted. The balance between the state and the individual was all wrong.

As the RSA pursues the ‘power to create’, this interface between the state and the individual needed further research and thought – especially as it was almost abusive in the case of the modern welfare state. That’s why we thought Basic Income might provide a better answer.

A Basic Income is an unconditional payment to each individual (ie it is not based on household). It is a building block for security and is designed to support the individual as they work, care (or are cared for), set up a business, or learn.

We have seen interest in the idea of a Basic Income swell over the past twelve months and as we developed our thinking, the work of the Citizen’s Income Trust (CIT) and others became crucial. CIT have spent the past three decades researching the proposition theoretically, practically, and fiscally. In the US, Switzerland, Netherlands, Finland and Canada there is an energetic debate about a Basic Income and pilots are being carried out. A system that has mainly been tried in the developing world is starting to gain real traction elsewhere including in the US state of Alaska. Basic Income-type experiments were first carried out in the US and Canada in the 1970s.

Increasing modern concerns about the impact of automation, artificial intelligence, and superlative computing power has also driven interest.

The RSA is becoming involved in the debate not simply to add to the considerable philosophical and theoretical thicket. We have accepted the arguments in favour – that Basic Income is the best system to support the range of contributions that people wish to make - as well as being the most humane system- and we set ourselves the goal of helping shift the idea more towards the mainstream and practical reality.

We accepted the 2012-13 modifications made by the Citizen’s Income Trust to a ‘pure Basic-Income’ model. Disability support and housing costs are not included in our scheme as they are not in CIT’s scheme. We do suggest, though, how housing benefit could be reformed to prevent means-testing combined with high withdrawal rates being reintroduced via the back door. These ideas range from low taper withdrawal to a new proposal for a Basic Rental Income. This would be a payment made on a local basis to all renters funded by a Land Value Tax. It’s an idea that we look forward to exploring further.

The major modifications we have made to the CIT model are three-fold: we have adopted a genuinely progressive tax system to make the tax simple and fair; we redistribute resources to families with young children to prevent losses in transitioning from Universal Credit; and we add some ‘design features’ to the model in order to emphasise that recipients, ie all of us, are expected to use this resource to make a contribution. Our model works as follows:

Payments are made to every citizen on a universal basis. EU nationals would receive them only after contributing to the system for a number of years in line with current EU law. Other international migrants would be subject to existing benefit rules. Prisoners would not receive it.

The weekly amount that any working age person receives is a ‘basic’ amount. In other words, if they are fit and able to work they would have a very strong incentive to do so. And they would not get trapped at low earning levels. This contrasts very heavily with the current system.

All recipients over 18 could be required to be on the electoral roll, thereby reinforcing citizenship.

A ‘contribution contract’ for those aged 18-25 could also be introduced. It is made with their friends, family and community to ensure they are contributing and these ‘contracts’ would be in return for the basic income. However, there should be no state monitoring of these contracts and sanctions will not be imposed if commitments are not kept to for any reason. This stops sanctions being re-introduced via another mechanism.

The Basic Income would be paid as follows (on the basis of 2012-13 prices):

Basic Income of £3,692 for all qualifying citizens between 25 and 65.

Pension of £7,420 for all qualifying citizens over 65.

A Basic Income for children aged 0-4 of £4,290 for the first child and £3,387 for other children aged 0-4

This is comparable to the benefits available to low-income households before the child begins school.

There would be a reduction in the Basic Income for a third child or more, potentially to zero. This would reduce the cost of the system and would align it even closer with prevailing political and moral expectations.

A Basic Income of £2,925 for those aged 5-24 years-old.

As a design option, the higher under-fives rate could be kept for older children too but at a cost of £3.7billion.

The tax system we outline would be shaped as follows (with the current system in blue for ease of comparison):

It is easy to see how this system achieves a much more sane, comprehensible and less distorting way of taxing and redistributing than the current ‘Himalayas’-style tax curve we can see above. The cost of our Basic Income system is greater than the current system or, indeed, the CIT alternative. We estimate that the changes we have made would cost up to 1 percent of GDP over and above the current model (including the abolition of personal allowances). This sounds like a considerable sum. However, it is no greater than the change that Gordon Brown made to tax credits and well below cumulative changes that George Osborne has made to personal allowances, VAT, inheritance tax and corporation tax despite austerity. If the benefits of Basic Income come to be accepted as did major changes to the pension system or NHS funding then 1 percent of GDP is more than affordable – especially in the context of a state that is forecast to be only 36 percent of GDP by 2020.

So who are the losers? Well, obviously, there are some losses for individuals earning over £75,000 compared with the current system. There are some losses for those who are locked for prolonged periods of time on very low hours. Serious thought is needed on how to address these individuals. Work conditionality and sanctions are not the solution - they are not working. Different types of support are needed and that applies just as much to the current system as it would do under Basic Income. However, the system is dynamic and people languishing in this way involuntarily is not as common as may first appear (people in this range tend to be on flexible and unpredictable hours/work and so their circumstances continually change up and down).

But the big game-changer that has yet to be seriously discussed is the introduction of Universal Credit and the ‘National Living Wage’. This changes the picture for a Basic Income system considerably. The National Living Wage means that incomes accelerate quickly beyond the point where there may be losses in a Basic Income system. This was a surprise to us but it needs further serious discussion as it quickly improves wage income to a level where there are net gains over the current system. We mapped the consequences of a National Living Wage combined with a Basic Income against the likely net income of five family types from 2020-21. The results were as follows:

This is an exercise we undertook before and after factoring in National Living Wage. That is the game-changer in all this. The large gains for families with two earners does raise the question of whether there is scope to make up some of the funding shortfall by looking at a higher tax rate at a slightly earlier level. Overall though, our redistributive adjustments mixed with the National Living Wage make Basic Income far more attractive as a relative proposition.

So that’s the technical bits out of the way. Why do this?

It’s quite simple: Basic Income supports people in nurturing their lives and frees them to create a new future. Those two young mothers who were taken off their nursing care courses are a case in point. Had there not been such an intrusion into their power to choose they would have got their qualifications and have a different life and be making a bigger contribution. With their new-found confidence they may even have got a degree by now or started a business. Does that matter? Their knowledge and experience about caring could be shared with others – not only on a professional but on a voluntary basis too. Their family life could have felt like it was on an even greater upwards trajectory instead of being locked between low quality work and an intrusive welfare state. Their mental health, educational outcomes, life satisfaction, all-round well-being could be much enhanced.That’s why. This is not simply a theoretical exercise. It’s about what should constitute social justice in a society such as ours.