Citizen’s Income News, Spring 2013

Two pilots in Madhya Pradesh, India

Professor Guy Standing, who gave his inaugural lecture as Professor at the School of Oriental and African Studies in the University of London on the 19th June, has reported on a series of Citizen’s Income pilot projects organised in India by a partnership between the Self-Employed Women’s Association (SEWA) and UNICEF. For 18 months, over 6,000 individuals received small unconditional monthly payments. Their situation before, during and after receiving the grants was evaluated by three rounds of statistical surveys and by case studies, comparing the changes in the period with what happened to a control group that did not receive grants. In total, the surveys covered over 12,000 individuals. In the larger of the two projects, in eight villages, each adult received 200 rupees a month, and each child 100 rupees (subsequently increased to 300 and 150 rupees respectively). In the tribal village project, the amounts were 300 and 150 rupees for a twelve month period. These figures mean that an average family received the equivalent of $24 or £15 a month (about a quarter of the income of median-income families, and just above the current official poverty line). Some of the results were as follows:

  • The project has led to financial inclusion: Savings increased and households began using their accounts for saving, rather than keeping money at home;
  • Recipients of basic income grants were significantly more likely to make improvements to their dwellings or to construct new dwellings;
  • Using the WHO’s z-score index, income grants were associated with an improvement in children’s weight-for-age, with the main effect being among young girls;
  • Cash grant recipients were significantly more likely than others to have enough income for their daily food needs;
  • Cash grants led to more varied diets, with greater relative consumption of fruit and vegetables, rather than simple reliance on subsidised staples;
  • Those receiving cash grants were not more likely than others to increase spending on ‘private bads’, such as alcohol or tobacco;
    Improved health was attributed most to an increased ability to afford medicines, although many families also mentioned it was due to more or better food and reduced anxiety;
  • Case studies showed that the cash grants enabled some disabled people to become economically active, overcoming constraints to their full membership in village society;
  • Cash grants were associated with improvement in school enrolment. The enrolment rate for children from 4 to 18 years was 12% higher in the cash transfer villages;
  • Cash grants were associated with more regular school attendance, with 29% of cash transfer households reporting an improvement, compared with 13% in control villages;
  • Income Grants were associated with improved school performance. Grades over time taken from actual registers of schools showed that more children from cash transfer families were doing better than children of non-grant families. Scheduled-tribe households were the most likely to show an improvement in performance in terms of grades;
  • Contrary to a common criticism of cash transfers, cash grants were associated with an increase in labour and work;
  • Cash grant households were twice as likely to have increased their production work as non-transfer households;
  • Cash grants led to an increase in own-account work, and a relative switch from wage labour to own-account farming and small-scale business. This was especially true for scheduled caste households and for women workers;
  • The shift from labour to own farm work was especially marked in the tribal villages.
  • Many families used cash grants to buy small items for production, such as sewing machines and seeds and fertiliser;
  • Cash grant households were more likely to increase their income from work, in spite of it being a difficult year due to weather conditions in the area;
  • Cash grant households were three times as likely to start a new business or production activity as others, with a majority attributing that to the cash grants;
  • Cash grants were associated with a significant reduction in indebtedness, both because recipients used the money to reduce existing debt and because they used the money to avoid going into further debt. Those receiving cash grants were more than twice as likely to reduce debt;
  • Cash grants led to a significant increase in savings, even in households with debt. Households often used the money to give themselves vital liquidity.

In conclusion: basic income grants are potentially transformative for Indian families and communities. They can unlock constraints and enable people to gain greater control of their lives.

Other news

The Basic Income Initiative in Switzerland has collected 100,000 signatures on a petition calling on the Swiss parliament to hold a referendum on the payment of a Citizen’s Income of 2,500 Swiss francs (£1,726) per month, and under Swiss law such a referendum will have to be held. The date is yet to be announced.

The Pensions Policy Institute has published a briefing, The impact of the Government’s single-tier state pension reform: ‘Under the single tier, eligibility for [means-tested] Pension Credit is halved compared to the current system in the first few years of reform, and ultimately falls to around 5% cent by 2060. However, a number of pensioners will still remain eligible for Pension Credit for different reasons, such as having less than the 35 years necessary to qualify for the full single-tier pension or because of having a disability or caring responsibilities’ (pp.3-4).

The World Bank blog reports that ‘Marcelo Giugale, World Bank’s Director of Economic Policy and Poverty Reduction Programs for Africa, makes the case with enthusiasm for direct cash payments from natural resource revenues to the citizens of a country: a mechanism by which citizens of a nation share in its asset earnings while making sure that the earnings keep growing for future generations. Marcelo offers a tantalizing prospect: even a fraction of mineral and hydro carbon revenue as direct dividend payments to citizens would be enough to end poverty! Imagine that.’

On Monday 1st July 2013 the Centre for Analysis of Social Exclusion (CASE) at the London School of Economics launched the results of the first stage of its Social Policy in a Cold Climate research project: an evaluation of the last Labour government’s social policy record. Because of changes to tax credits, ‘out of work incomes for families with children rose to some extent … and continued to rise slowly in relation to the poverty line … A corollary of such changes might have been expected to be deteriorating work incentives for those with children … However, the actual overall pattern of incentives to work at all was little different in 2009-10 than it had been in 1996-7. What did reduce somewhat was the incentive for some of those in work to earn more, particularly as more working families were affected by the tax credit means-tests: such families were better off than they would have been without the tax credits, but at the margin gained less from extra earnings’ (Social Policy in a Cold Climate, Working paper 5, Labour’s record on cash transfers, poverty, inequality and the lifecycle 1997-2010, by John Hills (CASE), p.22)

The Labour Party’s Love Affair with Means-testing

Ed Miliband MP said this during a speech that he made on the 6th June:

It doesn’t make sense to continue sending a cheque every year for Winter Fuel Allowance to the richest pensioners in the country.

We beg to differ. It makes a lot of sense to send a cheque to every pensioner, including the wealthiest, because the process is automated and the scheme costs almost nothing to administer. It is true that the wealthy ‘don’t need it’: but they are already paying far more in Income Tax than they receive for their Winter Fuel Allowance; to means-test the Winter Fuel Allowance so that the wealthy no longer received it would be expensive; means-testing would require those who did need the Allowance to complete a complex form which they might not be capable of doing and might not wish to do (because a benefit that goes only to the poor is inevitably experienced as stigmatising); and to means-test the Allowance would mean one less welfare benefit contributing to social cohesion. The downsides related to means-testing the Winter Fuel Allowance far outweigh the benefits of retaining it as a universal benefit: As a universal benefit, the Winter Fuel Allowance goes automatically to the poor who need it, without stigma and without the completion of a claim form; it is extremely cheap to administer; and it is no problem that we give it to the wealthy because they already pay far more in Income Tax than they receive in their Winter Fuel Allowance.

When the Chancellor of the Exchequer found that it would be impossible to administer his proposed means-test for Child Benefit, he decided to withdraw through the tax system the value of their Child Benefit from households containing at least one higher rate taxpayer. To withdraw the whole of the value of the Winter Fuel Allowance through the tax system would not be as complex as withdrawing the value of Child Benefit, but it would still add yet another unnecessary complication to our already complicated Income Tax system. To tax the Winter Fuel Allowance in the same way as the Basic State Pension is taxed would be a simpler option.

Means-testing of the Winter Fuel Allowance might happen, of course. Tax and benefits policy is rarely rational; and because whichever way a future Labour Chancellor decided to withdraw the value of the Winter Fuel Allowance would increase the size of the relevant Department, we should expect departmental heads to brief in favour of the idea and to downplay the difficulties. The best we can hope for is a more complex Income Tax calculation for pensioners. The worst option would be that of means-testing the Winter Fuel Allowance itself.

In the same speech, Ed Miliband said this:

When it comes to the decisions of the next Labour government it won’t be our biggest priority to overturn the decisions this government has made on taking child benefit away from families earning over £50,000 a year.

This government has not taken Child Benefit away from families earning over £50,000 a year. It has asked those paying higher rate Income Tax to declare their household’s receipt of Child Benefit, and has withdrawn its value, on a sliding scale, through their tax code. Some households have chosen to avoid this method by discontinuing their Child Benefit claims. The outcome for those households continuing to receive Child Benefit is the first ever tax on children. We very much hope that any future Labour government would maintain Child Benefit as a universal, unconditional and nonwithdrawable benefit, and would abolish the present government’s Child Tax.

The same arguments apply here as apply to the Winter Fuel Allowance. The wealthy are already paying far more in Income Tax than they are receiving in Child Benefit; Child Benefit is cheap to administer; Child Benefit contributes to social cohesion; and a universal Child Benefit stigmatises nobody.

Free school meals

A recent report has recommended that primary schools should provide universal free school meals:

We have also recommended that free school meals should be extended to all primary school children, starting with the most deprived areas. This is the only one of our recommendations that the government has not agreed to yet. We understand that the considerable cost and the need to involve other departments make it a big ask. But we are pleased that the Secretary of State agrees with us in principle and we would urge schools and councils to consider funding universal free school meals themselves.

As Kate Bell of the Child Poverty Action Group puts the argument:

Universal free school meals – already adopted by several local authorities – would not only remove a continued source of stigma for poor children, but would also improve work incentives and increase educational attainment. [note]Kate Bell, ‘Investing in childhood’, Fabian Review, vol. 125, no.2, Summer 2013, p.19[/note]

We were pleased to see the Government’s announcement of free school meals for children in school years 1, 2 and 3. The same arguments that have been made for free school meals would apply to a Citizen’s Income, and we look forward to the Government giving serious consideration to the implementation of a Citizen’s Income sooner rather than later.

Zero hour contracts

There has been much discussion recently of zero hours contracts: employment contracts that require workers to attend the place of work as and when required, and that pay them only for the hours worked. In one sense there is little to object to, as such contracts can result in earned income patterns similar to those experienced by self-employed workers. A self-employed plumber might earn nothing one week, and £1,000 the next, and might not regard this as a problem. But there are two problems with zero hour contracts. Some such contracts prevent the worker from accepting any other employment. This means that, even if no paid hours are offered, if other temporary employment becomes available the worker is not permitted to accept it. The other problem relates to disposable income after tax and benefits: A gyrating earned income can play havoc with a family’s disposable income, particularly if the family is claiming in-work means-tested benefits. Changes in earnings have to be reported, which can be time-consuming, and missed or inaccurate benefit payments will often be the result. (Once Universal Credit has been implemented, employers’, HMRC and DWP computer systems will need to communicate information on changing earnings regularly and faultlessly, which will be particularly problematic if a person has more than one zero hours contract.)

A Citizen’s Income would provide a substantial portion of a household’s subsistence income, and, because the Citizen’s Income would not change as earnings changed, it would provide a secure income floor on which workers could build with a combination of self-employment and one or more zero hours contracts. The combination of a Citizen’s Income with mutually agreed zero hours contracts could deliver both the flexibility that companies need and the combination of secure disposable incomes and labour market flexibility that many households would like to have.

Cyprus

The President of Cyprus has announced the establishment of a ‘Guaranteed Minimum Income’. ‘Beneficiaries will be all of our fellow citizens who have an income below that which can assure them a dignified living.’ That is, it will be a means-tested benefit. It will also be work-tested, which of course it will have to be, because means-tested benefits are withdrawn as earned income rises and so fail to provide the employment and enterprise incentives that an economy and a labour market need if they are to recover.

The benefit will do what it says: it will guarantee to all citizens a minimum income; but because it will go to some and not to others, it will not provide the social cohesion that Cyprus needs, and it will come with a substantial administrative price tag attached.

The President says that ‘the troika had accepted the government’s proposal “for a modern conceptualization on the policy of social welfare and prosperity”‘. 4 The troika (the European Commission, the European Central Bank, and the International Monetary Fund) will have accepted the scheme because it matches the means-tested systems that other countries involved operate, and particularly those operating in the USA and the UK.

There are two lessons to be drawn here. One is that means-testing is an intuitive default position even though it is inefficient, costly, socially divisive, and entirely unnecessary in the context of a progressive income tax system. This default position means that it will not be easy for a social security system based on universal benefits to rise to the top of governments’ policy agendas, even though universal benefits are efficient, are cheap to administer, incentivize employment, self-employment and enterprise generally, are financially feasible, and are conducive to social cohesion.

The second lesson is that the word ‘guarantee’ is so ambiguous that advocates of universal benefits should stop using it. ‘Basic Income Guarantee’ is generally intended to mean the guarantee of a universal benefit, a concept that is at the opposite end of the spectrum from the means-tested ‘guaranteed minimum income’ proposed in Cyprus. The former means a Citizen’s Income; the latter a minimum net income guaranteed to a household by a means-tested benefits system. The previous Labour Government’s ‘Minimum Income Guarantee’ for pensioners was of the latter variety, and so particularly in the UK context we should be especially careful to reserve ‘guarantee’ language for a minimum net income to be reached by means of means-tested benefits, and never to use the word in the context of a discussion of universal benefits.

We would be content to forgive the President of Cyprus his use of the word ‘guarantee’ if he had meant by it a Citizen’s Income. But he did not.

Footnotes

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.