Citizen’s Income Newsletter 2004 – Issue 2


We still occasionally hear the term ‘third way’, meaning something like a middle course between public provision of education, income maintenance, health care and other necessities and private provision of the same. But what the term ‘third way’ cannot express is the necessity of public provision of the fundamental necessities which only public provision can properly provide, the necessity of private provision of those non-essential goods which people might or might not choose to possess if they have the means, and the necessity of hybrid provision of that large range of goods between the absolutely necessary and the not necessary.

What we need is ‘three ways’, not a ‘third way’.

This could not be clearer than in the provision of pensions. There is a minimum standard of living to which society as a whole believes elderly people are entitled. Beyond this there is a standard of living to which people have legitimately become accustomed by virtue of their earnings. And beyond this there are plans which people have developed for their retirement. The first, being a necessity, is best provided by a state pension (and since it is a necessity, is probably best provided by a universal non-withdrawable flat-rate pension, a ‘citizen’s pension’). The second is best provided by an employer’s pension scheme or similar. And the third by private provision in the pensions market.
And if ‘the three ways’ is the right way to go about provision of retirement income, then maybe it’s the right way to go about the provision of income throughout the rest of adult life.


Further support for a Citizen’s Pension

In 2002 the National Association of Pension Funds, in their publication Pensions – Plain and Simple, recommended a Citizen’s Pension: a universal, non-withdrawable flat-rate pension worth 22% of average earnings, rising in line with earnings. (Beyond that people would be encouraged to make their own provision for retirement income through employer schemes and private pensions.) 1 And now the Pensions Policy Institute has suggested that “a Citizen’s Pension of around 22-25% of national average earnings is a possible model for the UK.” 2

The Pensions Policy Institute was launched in 2002 as an organisation independent of government in order to analyse and publish information about current and future pension provision in order to inform future pensions policy. The Institute is currently undertaking a research project on the state pension scheme, and the first publication relating to this project was a discussion paper, State Pension Reform: The Consultation Response, which reports on a consultation designed to formulate criteria for a state pension scheme. It found consensus that the current system is too complex, and that “state pensions are getting worse because of the increasing extent of means-testing.” 3

The report concludes that the most important features of a future state pension scheme are sustainability and simplicity, and it also offers a list of ten criteria for a state pension scheme:

1. Sustainability
2. Poverty risk minimised
3. Affordable now
4. Affordable long-term
5. Robust to life expectancy trends
6. Fair
7. Simple
8. Does not disadvantage the oldest pensioners
9. Enables saving
10. Transition is simple. 4

Of the options on which opinion was sought, the most widespread support was for a Citizen’s Pension or for scrapping the state second pension and increasing the Basic State Pension. 5

The second report has now been published: Citizen’s Pension: Lessons from New Zealand. 6 New Zealand has had a Citizen’s Pension for 65 years, and the report draws lessons from this experience and concludes that a Citizen’s Pension passes all of the tests outlined above and that “there could be significant advantages compared to the current pension system from adopting a Citizen’s Pension in the UK, and it appears practically and economically feasible. It should be investigated further.” 7

As Alison O’Connell, the Institute’s Director and author of the report, says: “A Citizen’s Pension set at the Guarantee Credit level would not only be economically viable but would also ensure that pensioners are guaranteed a minimum level of income without the need for extensive means-testing. It would be simple, and cheap to run. It could be introduced overnight and then sustained well into the future. We haven’t answered all the questions yet, but there appears to be no ‘show-stopper’ against the Citizen’s Pension. We are at a crossroads in pension policy. We could carry on making more changes to the unsatisfactory current pension system. But there is a growing realisation that a significant change to a Citizen’s Pension could be good for today’s and tomorrow’s senior citizens.” 8

The Pensions Policy Institute is at King’s College, Waterloo Bridge Wing, Franklin Wilkins Building, Waterloo Road, London SE1 9NN, tel. 020 7848 3751, email:, website:
The National Association of Pension Funds is at


1. National Association of Pension Funds, Pensions – Plain and Simple (London: National Association of Pension Funds, 2002).
2. Alison O’Connell, Citizen’s Pension: Lesson’s from New Zealand (London: Pensions Policy Institute, 2004), p.3.
3. Alison O’Connell, State Pension Reform: The Consultation Response (London: Pensions Policy Institute, 2004), p.3.
4. Alison O’Connell, State Pension Reform, pp.3, 13
5. Alison O’Connell, State Pension Reform, p.3
6. Alison O’Connell, Citizen’s Pension.
7. Alison O’Connell, Citizen’s Pension, p.3
8. Press release, Pensions Policy Institute, 10th March 2004

Main article:

The Blue Book: Taxes, transfers and government expenditure

by Anne Miller

The purpose of this short article is pedagogical, to introduce those not already familiar with ‘The Blue Book’ to its fascinating figures, and, more importantly, to point out what is concealed.

The ‘Blue Book’ is the popular name for the United Kingdom National Accounts published annually by the Office of National Statistics (ONS). It is an expensive publication at around £40, but it appears on library shelves around September or October. It contains runs of 9 years of data, or in some tables 18 years, ending with the previous year. Thus the 2003 edition contains series of annual data for 1994 to 2002, or in some tables 1985 to 2002 inclusive.

The data series can also be accessed through the internet address Look for ‘Quick Links’ at the bottom left of the home page, click on the ‘Time Series Data’; look for ‘Navigation’ and click on ‘Access individual series’; look for ‘Titles’ and click on ‘Blue Book’. One can access a time series of annual data going back to 1948 in some cases.

The national accounts give details of income, expenditure and net products of industries. The accounts are given for the whole economy and for the main sectors of the economy: personal sector, company sectors, public sector (central and local government) and a rest of the world sector.

Table 1 gives figures for the year 2002 of Gross Domestic Product, GDP, (£1,043,945m) and Gross National Income, GNI or GNP, (£1,063,090m) both at current market prices. The difference between the two (national and domestic) figures is accounted for by various small components, which together may be called ‘net income from abroad’. These measures of economic activity are used to monitor the economic well-being of the nation, although it is recognised that they contain major flaws for this purpose. There are three different ways in which they can be calculated, a) by calculating the value added to components which create economic output, b) by calculating all the expenditures of all sectors in the economy, and c) by adding up all the incomes of all sectors of the economy. One column of the table is headed REF and contains a very useful four letter indicator, which enables one to trace the same series through several different tables or publications.

Table 1. Some figures for 2002

Blue book TABLE Blue book REF
21.89 YBHA GDP at current market prices (output approach)
£1 043 945m
1.2 ABMX Gross National Income at current market prices
£1 063 090m
1.5 DYAY Home population
59 207
Population under 16
12 824
Household population aged 16+
1.5 MCRQ Self-employed
3 124
1.5 MGRN Employees
24 339
1.5 MGRZ Total employment *
27 659
1.5 MGSC Unemployed
1 524
1.5 MGSF All economically active population
29 183
1.5 MGSI Economically inactive population
17 199
1.5 MGSL Total
46 383
1.5 IHXT GDP at current market prices per head
£17 632

* This includes people on government-supported training and employment programmes and unpaid family workers.
Source: United Kingdom National Accounts, 2003 edition

No figure tells us much in isolation. Another figure is required with which to compare it – the comparable figure from a previous time period to see if fortunes have increased or decreased in the meantime, or a figure from another country in comparable units, for instance. In this case, the figure for comparison with GDP is the total population, which yields series IHXT, GDP per head, giving a figure of £17,632 for 2002. It is much easier to grasp the concept of £17,632 per head, than of £1,000,000m for an economy.

This figure of £17,632 per head of population of man, woman and child is quite revealing. It is an average figure for the whole UK, and, it implies that, if GDP had been distributed evenly over the population, then a family of four (mum, dad and two children) would have received a gross income (before tax or benefits) of £70,528 in 2002. Given that most children do not have a gross income of their own, maybe it is more appropriate to divide GDP by the population who are aged 16 and over, giving an average figure of £22,507 per adult. But some of these are ‘economically inactive’, such as students, carers, unemployed and retired people. Whilst a significant proportion of retired people are in receipt of an occupational pension, and have unearned income, a sizeable proportion, mainly women, are still entirely dependent on their DSS pension. According to The Monthly Digest of Statistics, also compiled by the ONS (online. Table 4.1, series BDAE), the number of retired people in Great Britain in receipt of a National Insurance retirement pension in September 2002 was 10,288,000. Let us assume that about half of these also have other income.

The figure of GDP divided by the employed and self-employed population (27.659m) together with half of the GB retired population assumed to be in receipt of other gross income (5.144m), gives an average gross income of £31,825, which gives a clearer indication of the amount of wealth generated in the UK society. For any skewed distribution, as of the distribution of income for instance, the mode (or most frequently occurring value), the median (the value where half of the observations are less than the median and half are greater), and the average or mean, occur in this reverse alphabetical order, and, as a rough rule of thumb, the difference between the values of the mode and the mean is about three times the difference between the median and the mean. All this goes to show that there must be many gross incomes in excess of £31,825. It is significant that the Blue Book used to publish a ‘Gini coefficient’ which gave an indication of the degree of inequality of gross income in the UK, and this practice was dropped in the mid 1980s, presumably to avoid drawing attention to the increasing inequality in the population, and the practice has not been resumed under new Labour, presumably for similar reasons.

Table 2. UK taxes, transfers and government expenditure in 2002

Ref: Blue Book, edition 2003. Tables T.11.1, T.11.2, T.5.2.4S and T.5.3.4.S, £ million

Taxes paid by UK residents (T.11.1) General Government Outlays

Ref Ref
Taxes on income and wealth Social protection, including workers’ salaries
DRWH Household income taxes
109 399
ADAL Total social assistance benefits in csh (local govt.)
12 969
NMDE NI self employed
2 146
QYRJ total soc sec bens in cash
56 656
GCSE NI employees
25 543
NZGO Total soc assist bens in cash (central govt.)
54 688
137 088
Total social benefits in cash
124 313
Tax expenditures
c120 000
Other (local and central govt)
16 554
Total (potential)
c250 000
NNAD Social benefits
140 867
Other (central govt)
23 304
QYXB Total social protection
164 171
CEAN NI employers
35 683
Other taxes on income and wealth
DBHA Petroleum revenue tax
BMNX Other corporate taxes
32 160
CDDZ Motor vehicle duty (domest)
2 666
NMIS Council tax, etc. (local government)
16 412
Other taxes on income
1 208
53 392
Total taxes on production and imports General government expenditure
NZGF VAT to central govt.
69 394
QYXA Health
66 972
2 934
QYWZ Education
53 328
GTAN Wines, etc.
4 332
QYWX Defence
27 672
GTAO Tobacco
7 947
QVEU Economic affairs
26 566
GTAP Hydrocarbon oils
22 070
QYWW General public services
23 511
CUKY National non-dom rates
16 606
QYWY Public order and safety
21 976
GTBC Stamp duties
7 436
QYXD Housing
6 772
14 661
QYXC Recreation, culture
5 593
145 380
QYXE Environmental protection
5 941
NMBY Paid to central govt
140 479
NMYH Paid to local govt
FJWB Paid to the EU
4 752
NZGX Total
145 380
NMGI Capital taxes
2 386
Total taxes in this box
236 841
238 331
Total taxes and compulsory social contributions Total government outlays
GCSS to central government
352 616
QYXB Social protection
164 171
GCST to local government
16 561
Government expenditure
238 331
FJWB to the EU
4 752
NMYX Other
21 206
GCSU Total
373 929
QYXI Total outlays
423 708
GDWM Total as % of GDP

We now move on to examine the sources of government revenues from taxation, in Table 2. I have started with taxes on personal income. Household income taxes account for £109,399m. Many people are surprised that the yield from income tax is so low. £109,399m. is barely 10.5% of GDP. Even making heroic assumptions about every adult having enough income to cover the personal allowances (0.25 of £4,545 for the 2001-02 tax year, plus 0.75 of £4,615 for the 2002-03 tax year) and enough to pay 10% on their next tranche of income (0.25 of £1880 and 0.75 of £1920), would yield £8,859 m taxes on incomes of £301,721m. Income tax at 22% on the remainder of the GDP should yield £163,289 m, and this ignores tax revenues from higher income tax rates of 40% on incomes of about £34,370 and over. The 10% and 22% rates of income tax would together yield some £172,148m. instead of £109,399m.

Some of the difference can be explained by allowable deductions from income, such as the necessary expenses outlaid in order to generate the income. However, the bulk of it can be explained by ‘Tax Expenditures’. These are the tax breaks given to the better-off half of society (such as paying only a notional 10% tax on dividends and only 20% tax on bank and building society interest), which are not published by the ONS, but are estimated by some sources to be in the region of £120,000m. This is of the same order of magnitude as ‘Total social benefits in cash’, the sum (ADAL + QYRJ + NZGO) totalling £124,313m., the details of which are given on the right hand side of Table 2 above. There tends to be much fuss in the press about the amount of visible cash benefits going to the poorer sections of society, but hardly a whisper about the hidden Tax Expenditures of equal magnitude subsidising the better-off sections of society. One of the effects of this policy is that it reduces the tax base, and increases the tax rate from what it might otherwise have been, for those who pay the tax.

Income tax revenues (the largest single source of tax), together with ‘National Insurance contributions by self-employed and employed people’ (which are little different from income tax revenues, and so can be added to them), gave a total of £137,088m., and accounted for only about 37% of the total tax revenue of £373,929m. (GCSU) in 2002. So, where does the rest of the revenue come from? The next largest item of tax revenue is from Value Added Tax (NZGF) at £69,394m. Other taxes on production and imports (including taxes on hydrocarbon oils and national non-domestic rates) together yielded £75,986 m. These two items, together accounting for ‘Total taxes on Production & Imports’ (NZGX) yield £145,380m, which represents 39% of total tax revenue. ‘Employers’ National Insurance contributions’ account for £35,683m. and other corporate taxes £32,160m. Many people are surprised at how relatively little Council Tax accounts for at £16,412m, given how painful a tax it feels. Similarly, capital taxes, such as Capital Gains Tax, have a typically low yield. One can only conclude that they are relatively easy to avoid legally.

When considering what governments do with the tax revenues raised it is important to distinguish between ‘transfers’ between different sections of society, and ‘expenditure’ spent by the government on goods and services on behalf of the public. ‘Expenditure’ is clearly laid out in Table 11.2 of the Blue Book, and is reproduced in the right hand column of Table 2 above. There are two main points to make here. One is that in 2002 the total of government expenditure at £238,331m. is of roughly the same order of magnitude as ‘Tax revenue other than that from personal income tax’ at £236,841m. Government Expenditure represents nearly 23% of GDP. The second point is to identify the largest components of the expenditure. By far the largest two of all are ‘Health’ representing 28% of all government expenditure, closely followed by ‘Education’ representing 22%. The other main items are ‘Defence’ 12%, ‘Economic Affairs’ 11%, ‘General Public Services’ 10%, and ‘Public Order and Safety’ 9% of government expenditure (£238,331m.)

Before leaving Table 2, it is worth noticing that Table T.11.2 of the Blue Book has a general heading of Social Protection, of which only £124,313m. of the £164,171m. total represents social benefits in cash. The other quarter covers some workers’ salaries, some unfunded pensions including those of the fire and police services, and other unspecified (presumably administrative) costs. It is not easy to sort out these merely from the Blue Book tables; other information is needed. Another mystery item is the ambiguous component from Table 11.2, headed ‘Expenditure not classified by division’, with the sub-heading ‘Property income’ (NMYX). This would not matter too much, but it is a large item of some £21,206m of government expenditure. This just serves to illustrate the fact that the tables can be both fascinating and frustrating.

Finally, Table 3 gives a more detailed breakdown of Social Benefits financed by central and local governments. The main breakdown is into National Insurance benefits, based on contribution records, and Social Assistance benefits, based mainly on means-tested benefits and administered by both central and local government. Social Assistance will include the ever-popular Child Benefit, but it is not clearly flagged in this table. It is probably subsumed in ‘Family benefits’ (CSDB). It can be seen that the largest single item of social benefits by far is the cost of ‘Retirement pensions’ (CSDG) at £43,985m. This is followed by ‘Other social security benefits’ (CSDC) £16,975m and ‘Income Support’ (CSDE) £14,439m. ‘Rent rebates and allowances’ (CTML + GCSR) together add up to £12,081m. The next largest items are ‘Family benefits’, ‘Other grants to households’, ‘Incapacity benefit’ and ‘Income tax credits and reliefs’, each costing over £6,000m.

It is anticipated that a Citizen’s Income scheme could simplify these payments into Citizen’s Incomes (for adults, children and older citizens) and costs of disability (including expenses due to disability, mobility and care), and probably there will need to be a housing benefit scheme to cope with continuing large differences in housing costs between different areas.

Table 3. Social benefits, 2002

Ref: Blue Book, 2003 edition, Tables T.5.2.4S, T.5.3.4S and T.11.2.

£ million

Social benefits, central government
Social security benefits in cash
National insurance fund
CSDG Retirement pensions
43 985
CSDH Widows’ and guardians’ allowances
1 096
CJTJ Jobseeker’s allowance
CUNL Incapacity benefit
6 754
CSDL Maternity benefit
CSDQ Statutory sick pay
GTKZ Statutory maternity pay
ACHH Total national insurance fund benefits
53 160
GTKN Redundancy fund benefits
GTLQ Social fund benefits
1 923
FJVZ benefits paid to overseas residents
1 338
3 496
QYRJ Total social security benefits in cash
56 656
QYJT Total unfunded pensions and employee social benefits
13 837
Social assitance benefits in cash
CSDD War pansions and allowances
1 173
CSDB Family benefits
8 906
CSDE Income support
14 439
CSDC Other social security benefits
16 975
NZGI Other grants to households
6 807
RYCQ Income tax credits and reliefs
6 338
RNNF Benefits paid to overseas residents in cash
NZGO Total social assistance benefits in cash
54 688
NMDR Total social benefits (central government)
125 181
Social benefits, local government
GCMO Total unfunded employee social benefits
2 717
Social assitance benefits in cash
GCSI Student grants
CTML Rent rebates
5 237
GCSR Rent allowances
6 844
ZYHZ Other transfers
ADAL Total social assistance benefits in cash
12 969
NSMN Total social benefits, local government
15 686
NNAD Total social benefits other than social transfers in kind
140 867