A review of articles by David Piachaud and John Kay

David Piachaud, Citizen’s Income: Rights and wrongs, Centre for Analysis of Social Exclusion, London School of Economics, 2016,

John Kay, ‘The Basics of Basic Income’, Intereconomics, Mar 2017, Vol.52(2), pp.69-74

We are reviewing these two essays together because they complement each other. Piachaud uses ‘Citizen’s Income’ terminology, and Kay ‘Basic Income’ terminology. This review will use Citizen’s Basic Income terminology.

Piachaud usefully distinguishes between different varieties of Citizen’s Basic Income: A ‘bonus’ Citizen’s Basic Income is paid out of a national windfall, and so should probably not be called a Citizen’s Basic Income. Piachaud defines a ‘Partial Citizen’s Basic Income’ as a Citizen’s Basic Income ‘that goes only to some groups in society’ (p. 2). He suggests that Child Benefit was such an income: in fact, it still is. It has never been means-tested. What has happened is that a tax is now charged to high-earning individuals living in households receiving Child Benefit, so that we now have an unconditional income for children accompanied by a tax on children. Whereas Piachaud is correct to emphasise Child Benefit’s impact on child poverty, recent microsimulation research [1] has shown that to implement a small Citizen’s Basic Income for every individual could reduce child poverty more than Child Benefit does, and that it could reduce every other poverty index as well.

Piachaud defines a ‘Supplemental Citizen’s Basic Income’ as a modest Citizen’s Basic Income implemented alongside the current means-tested benefits system. His objection to such a scheme is that it does not achieve the simplification promised. What he appears not to have noticed is the number of households that such a Citizen’s Basic Income would remove from a variety of in-work and particularly out-of-work means-tested benefits. For those households a greater simplicity would indeed be achieved. While it is true, as Piachaud suggests, that increasing the rates at which means-tested benefits are paid would reduce poverty, it would also increase marginal deduction rates and/or the earnings ranges across which high marginal deduction rates would extend, thus reducing the possibility of poorer households earning their way out of poverty. A small Citizen’s Basic Income would provide households with a greater ability to escape from means-tested benefits and thus to ‘make work pay’.

Most of Piachaud’s paper addresses a ‘Full Citizen’s Income’: an unconditional income at a level high enough to live on. Whether the reader is with Piachaud or Philippe Van Parijs in their interpretations of Rawls or in relation to a ‘real freedom for all’ argument, the justice of an unconditional income cannot be as easily dismissed as Piachaud suggests. Neither our income nor our wealth are entirely the result of our own work. They are largely the result of natural resources, which, if they belong to anyone, belong to us all; and they are also the result of previous generations’ work and ingenuity. Therefore to distribute an income unconditionally could not be unjust, and could legitimately be claimed to be just. The additional argument that for Van Parijs’s Malibu surfers to be counted as members of society, and therefore entitled to a Citizen’s Basic Income, they need to behave like members (p. 9) is a version of the ‘reciprocity’ argument: that the State has a right to expect a contribution from society’s members before the State reciprocates, Stuart White’s ‘just reciprocity’ argument requires that the situation should already be just for a contribution to be expected from society’s members: and White suggests that a Citizen’s Basic Income would contribute to the establishment of a situation sufficiently just. [2]

Piachaud rightly suggests that a ‘full’ Citizen’s Basic Income could not totally satisfy the needs of people with disabilities, and could not cope with differential housing costs: and in the context of any currently conceivable level of Citizen’s Basic Income we would need additional benefits (whether means-tested or not) to satisfy these needs. Where he is wrong is to assume that the Government should necessarily reap the economies of scale related to cohabitation. We do not assume this in relation to earned incomes or income taxation, and there is no reason why we should assume it in relation to incomes provided by the State. The cohabitation rule attached to means-tested benefits is degrading, and it discourages household formation, and it needs to go.

When Piachaud turns to economic efficiency, he follows the natural intuition that to reduce poverty we need to give money to the poor. However, there is nothing ‘wasteful or costly’ about providing an unconditional income to every member of a population and raising the money to pay for it through income and other taxation. It is in fact a highly efficient way of doing it. As Piachaud recognises, Child Benefit reduces child poverty, and does not accuse of being ‘wasteful or costly’. A Citizen’s Basic Income would do the same for everyone, as recent microsimulation research shows. [3] And as for ‘churning’, which Piachaud criticises: this is no problem in relation to Child Benefit, and it would be no problem in relation to a Citizen’s Basic Income.

Piachaud is correct to suggest that with a Full Citizen’s Basic Income the effects on employment market behaviour could be unpredictable. However, with a Supplemental Citizen’s Basic Income, either there would be little change, or the change would be towards increasing employment incentives. [4] As the Citizen’s Basic Income rose, we would no doubt see a certain amount of withdrawal from the employment market. What would matter would be the balance between the greater employment incentive due to reduced marginal deduction rates and the decreased employment incentive due to a reduced need to earn an income. With a Supplemental Citizen’s Basic Income, the balance would be towards increased incentives.

The final section of Piachaud’s paper is a brave foray into the field of political feasibility which assumes that public opinion is set in stone and that the political process is rational. Recent events should be sufficient to disabuse us of these ideas. And just as we saw public opinion over same sex marriage change very rapidly, so we might see public opinion change in relation to unconditional benefits. In fact, it might already be changing, and we hadn’t noticed. A recent opinion poll conducted in six European countries has shown that both understanding and approval of Citizen’s Basic Income are increasing rapidly, with 63 per cent of polled individuals being familiar with the idea of a Citizen’s Basic Income (up 5 per cent on a year previously), and 68 per cent of the sample saying that they would vote for it (up 4 per cent on the previous year). [5] The UK was not one of the countries in which the survey took place, but even if the results were somewhat lower in the UK, which presumably they might be, we can no longer assume that ‘most people’ think unconditional benefits to be ‘unfair’. And just as we can’t predict political events with any accuracy, we can’t predict the future course of automation and of the employment market. We simply don’t know how they will evolve. This uncertainty requires of us a tax and benefits system that will suit any conceivable employment market, and inconceivable ones as well. It would be difficult to argue that our current system, designed for the employment market of the 1940s, will be adequate to the task. A Citizen’s Basic Income would suit any employment market, so to begin the process of implementing one would be a useful precautionary step.

Piachaud concludes that full employment achieved via a government job guarantee, and investing in human capital, are the way forward. These are not necessarily ‘alternatives’ to a Citizen’s Basic Income, as he suggest. They could just as easily be complements. And as for the suggestion that what matters is establishing goals and then asking how they might be met: those of us who have administered means-tested benefits, who have long experience of families suffering from their effects, who have understood a Citizen’s Basic Income’s advantages over means-testing, and who have noticed that all of the goals of poverty reduction, inequality reduction, human dignity, employment incentives, employment choice, and administrative simplicity, would be well served by a Citizen’s Basic Income, have in fact done the work required by Piachaud. We have tested Citizen’s Basic Income, and found it to be both useful and feasible. It would appear that an increasing number of people are coming to agree with us.

 

John Kay’s rather different article leaves to one side arguments from justice, and from the future of the employment market, and concentrates on what he calls ‘the fiscal arithmetic’ (p. 69). He uses a national accounting approach to evaluate the financial feasibility of Citizen’s Basic Incomes of a variety of levels, and concludes that

The provision of a universal basic income at a level which would provide a serious alternative to low-paid employment is impossibly expensive. Thus, a feasible basic income cannot fulfil the hopes of some of the idea’s promoters: it cannot guarantee households a standard of living acceptable in a modern society, it cannot compensate for the possible disappearance of existing low-skilled employment and it cannot eliminate ‘bullshit jobs’. Either the level of basic income is unacceptably low, or the cost of providing it is unacceptably high. And, whatever the appeal of the underlying philosophy, that is essentially the end of the matter. (p. 72)

This passage makes a number of unfounded assumptions: that it is a necessary aim of a Citizen’s Basic Income on its own to provide a standard of living acceptable in a modern society; that on its own it should eliminate ‘bullshit jobs’; and that on its own it should compensate for the loss of low-skilled employment. What Kay does not ask is whether a smaller Citizen’s Basic Income would have useful effects in these particular directions, and in other directions as well (for instance, in relation to poverty reduction, inequality reduction, household construction, administrative simplicity, removing households from stigmatizing means-tested benefits, incentivizing paid employment, and so on).

Kay is of course correct to suggest that a Citizen’s Basic Income should vary with someone’s age. He appears not to have noticed that illustrative schemes usually assume that this will be the case. He also appears not to have noticed the illustrative schemes that retain a housing-related benefit. Kay believes that Citizen’s Basic Income can be ‘rescued’ by introducing conditionalities related to location and employment status, which means that he is no longer discussing anything remotely like a Citizen’s Basic Income. A realistic Citizen’s Basic Income scheme would not require the ‘reintroduction’ (p. 74) of elements of the current benefits system: it would require their retention; and yes, of course, the resulting welfare system would resemble those that already exist. Why is this a problem? What matters is the direction of travel. A system designed for the 1940s is no longer appropriate, and it hasn’t been for some time. It will be increasingly irrelevant, and therefore increasingly difficult to manage. Just as social insurance made a means-tested system manageable, and Child Benefit fulfilled a similar function for a system based on both means-testing and social insurance, so new unconditional benefits would reduce the prevalence of means-testing and would enable social insurance to continue to fulfil a useful role. A Basic Income is a ‘sensible, feasible and necessary reform’ (p. 74): it is sensible because it would work well alongside any existing benefits system, and it is sensible because it is radically simple and therefore easy to administer.

It is difficult to see how the distinction between the circumstances of a single parent at home with children and the wife of a millionaire out to lunch with her friends supports an argument for calculating benefits on the basis of the household rather than the individual; Arthur Cockfield’s tax credits proposal was for genuine tax credits, whereas the ‘tax credits’ implemented by Gordon Brown were a renaming of Family Credit, a means-tested benefit; the fact that timescale is a problem to the current ‘tax credits’ is not an argument that timescale would be a problem to Citizen’s Basic Income; there are of course Citizen’s Basic Income schemes that would impose significant losses at the point of implementation, but there are also schemes that would not; [6] and the Shadow Chancellor is John McDonnell, not John McDermott.

David Piachaud and John Kay have between them offered some intuitive and mainly well-argued objections to Citizen’s Basic Income. Any illustrative scheme will need to pass the tests that their objections imply. Those tests can be passed.

 

Notes

[1] Malcolm Torry, A variety of indicators evaluated for two implementation methods for a Citizen’s Basic Income, Colchester: Institute for Social and Economic Research, 2017, table 10, p. 17

[2] Stuart White (2003) The Civic Minimum: On the Rights and Obligations of Economic Citizenship, Oxford: Oxford University Press, p. 168

[3] Malcolm Torry, A variety of indicators evaluated for two implementation methods for a Citizen’s Basic Income, Colchester: Institute for Social and Economic Research, 2017, table 4, p. 9

[4] Malcolm Torry, A variety of indicators evaluated for two implementation methods for a Citizen’s Basic Income, Colchester: Institute for Social and Economic Research, 2017, pp. 10-14

[5] The EU’s growing support for Basic Income, Berlin: Dalia Research, 2017

[6] Malcolm Torry, A variety of indicators evaluated for two implementation methods for a Citizen’s Basic Income, Colchester: Institute for Social and Economic Research, 2017, table 1, p. 6

Footnotes

  • ConallBoyle

    There’s no point nit-picking with Piachaud. He clearly demonstrates the weakness of Citizens Basic Income as welfare reform: However worthy, it costs income-tax payers too much, and politically the image of subsidising loafers is toxic.

    Better to ‘frame’ the case for BI as encouraging everyone to be productive, creative and caring (and not obsessing about jobs). So too BI should be seen as an entitlement, not a handout, paid for Alaska-style by capturing unearned economic rent.