Editorial
Whenever the political prospects for radical reform of tax and benefits are discussed, and particularly the likelihood of any reform which includes a Citizen’s Income as a major constituent, it is always said: such radical reform could not be achieved within a single parliament so no government will ever even think about it. (The same comments are made about major transport infrastructure investment. No government wants a future government of a different political hue to reap the rewards generated by current spending.)
A recent opinion poll might begin to change the tone of this debate. The Fabian Society and YouGov have recently conducted a poll amongst 2,506 electors and discovered that 54% want political parties to have policies which will do good in the long term and not just during the next year or two (a figure higher than for any other characteristic: only 13% of electors would support a political party because it had firm ideological principles).
This result suggests that parties in government will do themselves good rather than harm by pursuing policies which will benefit society in the longer term. So we look forward to the political agenda changing, and to priority being given to those longer-term issues which for too long have been neglected. In particular we would like to see a Royal Commission on the options available for tax and benefits reform. It will do the government no harm.
The truth the tables tell
If you want to know what’s going on in the world of benefits reform then there really is no substitute for obtaining a copy of the Tax Benefit Model Tables and spending a little time understanding the tables and graphs of this excellent annual publication. The April 2003 Tax Benefit Model Tables (Department for Work and Pensions, 2003) are particularly interesting because they show the full effect of the new tax credits regime. Disturbingly, they reveal deep and broad poverty traps which affect many types of family.
By the ‘depth’ of the poverty trap we mean the extent of the marginal deduction rate, i.e., the rate at which income is withdrawn for any particular level of earned income. So, to take the example below, a lone parent who is a private tenant and who has one child under 11 experiences a marginal deduction rate of 89.5% for any earned income within the range £126.44 to £321.81. By the ‘breadth’ of the poverty trap we mean the of earned incomes for which there is a high marginal deduction rate: so here the breadth of the poverty trap is defined by an earned income of £321.81 per week.
The table shows the situation quite graphically:
Lone Parent with 1 child under 11 , Private Tenant
| Gross earnings £ per week | Event | Marginal deducation rates |
| 21.89 | Income reduces HB/CTB | 85.0% |
| 81.33 | CTB disappears | 65.0% |
| 88.75 | Tax payable at 10% | 71.4% |
| 89.00 | NI becomes payable | 72.4% |
| 96.79 | WTC reduced by pay | 85.3% |
| 126.44 | Tax payable at 22% | 89.5% |
| 253.24 | WTC disappears/CTCreduced by pay | 89.5% |
| 321.81 | HB disappears | 33.0% * |
| 595.00 | NI Upper Earnings Limit (UEL) | 23.0% |
| 675.29 | Tax payable at 40% | 41.0% |
| 956.28 | CTC family element reduced by pay | 47.7% |
| 1,104.34 | CTC disappears | 41.0% |
[* We have corrected a mistake at this point. The table in the publication has 70% here whereas the detailed tables show that it should read 33%]
HB = Housing Benefit
CTB = Council Tax Benefit
NI = National Insurance Contributions
WTC = Working Tax Credit
CTC = Child Tax Credit
What is most disturbing about the tables is that it is families with children which suffer the deepest and the broadest poverty traps. All families with children (whether with one parent or two) experience marginal deduction rates of over 60% on gross earnings at least up to £300 per week and often beyond £400 per week, and some family types experience marginal deduction rates of over 80% on gross earnings up to £300 per week. This situation makes it difficult for families with children to lift themselves out of poverty by earning more.
The detailed tables in the publication make it clear that the one benefit which both reduces child poverty and does not contribute to marginal deduction rates is Child Benefit. This is because Child Benefit is paid unconditionally, so to increase it is to reduce child poverty because 1) it increases the net income of families with children, and 2) it reduces the marginal deduction rates for families with children and thus enables families to lift themselves out of poverty by earning more.
The detailed tables make it equally clear that the major culprits in the deepening and broadening of poverty traps are Working Tax Credit and Child Tax Credit. Whilst the motives for their introduction were excellent (and they have indeed reduced poverty for many families with children), their long-term effects might be little short of disastrous because they make it very hard for families with children to earn their way out of poverty.
If the government were looking for a way to continue to reduce child poverty at the same time as increasing families’ incentives to increase their net income by improving their skills and increasing earned income (good for them, and good for the economy), then the obvious way forwards would be to reduce tax credits and at the same time increase Child Benefit.
As Rosalind Capisarow suggests: “There is a huge market out there of between one and five million people who are stuck between the welfare system and private enterprise, with too much red tape and significant welfare disincentives to progress. We need to redesign the incentives so that the more effort people make the more advantaged they become.” **
Malcolm Torry
** Rosalind Capisarow, Chief Executive of Street (UK), a microfinance institution, in an interview reported in Voluntary Sector, June 2003, p.16.
Response: Philip Vince’s second thoughts on the report Citizenship and a Citizen’s Income
In our last edition we published a report on Citizenship and a Citizen’s Income in which the working party which prepared the report recommended that the electoral register might be used as the basis for entitlement to a Citizen’s Income.
Philip Vince writes as follows:
There is no possibility that the electoral register will ever be complete enough to be the basis for entitlement to a Citizen’s Income. Even though electors now have the option to be excluded from the edited version publicly available and to be included only in the full version to which access is restricted, many people still fail to register. This is a criminal offence, but it is rarely, if ever, enforced. (Incidentally, some electoral registration officers have found ways of including people with no address).
The concept of finding out where everyone lives by canvassing from door to door is irremediably flawed. This is demonstrated by recent decennial censuses, in which it is estimated that several hundred thousand inhabitants (about 1% of the population) are unaccounted for. This has resulted in negotiations between the Office for National Statistics and local authorities to guess what is the real population of each area because central government financial support is determined by this. It is anarchic that the state does not know where so many of its inhabitants reside. There are a few people, such as women avoiding abusive ex-partners and witnesses threatened in some criminal cases, who are entitled to keep their addresses secret, but we must repudiate the notion of civil liberties zealots that there is a right to privacy about where one lives. I believe that in most other European countries there is better information provided to government about changes of address.
It is essential that the database of names and addresses of all residents is maintained continuously, not updated periodically like the electoral register. The social security database is the best source. For children under 16 omissions are likely to be negligible. For the adult population it may be less complete, even though it is now linked to the income tax database to enable tax credits to be paid. The introduction of a Citizen’s Income could provide an incentive to anyone who has avoided a social security record to be included in future. However, payment will in most cases be made to bank accounts, so that arrangements would still be needed to ensure that all permanent changes of address were notified. When deaths are registered, the social security authorities have to be informed; maybe all permanent changes of address should be registered, with similar social security notification.
The requirement for recipients of Child Benefit to have been in the country for 26 weeks during the past year applies to the mother, so it is almost always satisfied from the date of the child’s birth. It would not be sensible to require legitimate migrants to the UK to wait six months before they became entitled to a Citizen’s Income.
The right to a Citizen’s Income is linked to the duty to pay tax on all other income, and therefore ought to be paid to legally resident aliens as well as to those who have British nationality (unless they arrange to pay tax to their home country and not to the UK). There are complex Inland Revenue rules about domicile and being ordinarily resident, and the rules about entitlement to a Citizen’s Income, and indeed to citizenship, would need to be aligned with these (though they would not necessarily need to coincide with them).
The Citizen’s Income regime includes the replacement of contributory retirement pensions by enhanced Citizen’s Incomes for citizens above certain ages. However, it is reasonable that payment of these increases should be subject to residence for a minimum number of years, perhaps twenty, in the UK or in a country with which we have reciprocal arrangements. Conversely, we should pay Citizen’s Incomes to any who meet the UK’s residence requirements but have chosen to retire abroad in countries with which we do not at present have reciprocal arrangements.
The Tenth Basic Income European Network Congress in Barcelona (19th and 20th September 2004)
The Tenth Basic Income European Network Congress will be part of The Universal Forum of Cultures (9 May – 26 September 2004) in Barcelona. This massive event will take place on a new site currently under construction along the sea-front, to the East of the Olympic village, about 4 km from the city’s old centre, with a good metro/bus/cyclepath connection. The initiative of the Forum was taken by Barcelona’s city council and is expected to consist of an overlapping sequence of 44 congresses (the “Dialogues” section of the Forum), 24 exhibitions, 30 celebrations, 423 concerts, and 48 street shows. Five million visitors from across the world are expected over the four month period. The organisers describe the Forum’s purpose as follows: “The profound changes wrought by the globalisation process have brought new challenges and opportunities which affect our present and shape our future. The Universal Forum of Cultures provides a meeting point and platform for dialogue, where people from the world over can come together to look for solutions and jointly tackle the questions addressed.” The three focal themes of the forum are “Cultural diversity” (“constructive dialogue among different peoples”), “Sustainable development” (“new ways of growing that respect natural resources”) and “Conditions for peace” (especially “respect for other cultures and for the environment”).
UNESCO is co-sponsoring the event, but the bulk of the funding is coming from the municipality of Barcelona, the autonomous region of Catalonia and Spain’s central government. There will be a standard registration fee (in the range of EUR 60-80 for a four-day period) which would cover access to all Forum events, a public transport pass, lunches and coffee breaks. In addition, the Forum will organise accommodation at discount rates in a broad range of hotels and university residences.
The Dialogue on emerging rights (18-21 September 2004) will consist of five events under one general heading provisionally formulated as ‘Human rights, emerging needs and new opportunities’. The BIEN congress will be one of these events under the provisional title ‘Right to basic income: Egalitarian democracy’. The present plan is to have a part common to all five events, namely the first day and the morning of the fourth, with all participants of the separate events strongly encouraged to take part in this common part, whose exact content remains to be determined. The five separate events will take place on the second and third day (Sunday 19 and Monday 20 September). Simultaneous translation will be provided at the plenaries for Catalan, Spanish, English and French. The daily timetable for the sessions should be 9.30am to 1pm and 2pm to 5.30pm, with people free to spend their evenings attending other Forum events. BIEN’s General Assembly should take place on the evening of Monday 20 September. A local event on basic income (in Catalan and Spanish, preferably in the city centre) is due to be organised just before, namely in the evening of Friday 17 September.
BIEN’s two-day Congress will combine, as usual, plenary sessions with guest speakers (first morning and second afternoon) and parallel workshops with volunteered papers (first afternoon and second morning). The first session (Sunday morning) will consider issues of principle (two sub-themes are being explored: ‘Family-friendly policy and parental wage’ and ‘Right to basic income and duty of reciprocity’), while the final session (Monday afternoon) will consider prospects for (important steps towards) basic income in the North and in the South.
For further information on the congress contact BIEN on bien@basicincome.org or contact the Citizen’s Income Trust.