A review of
Luke Martinelli, The Fiscal and Distributional Implications of Alternative Universal Basic Income Schemes in the UK, Institute for Policy Research, 2017, 70 pp, pbk, free to download.
This report is the first major publication from the Basic Income research project at the Institute for Policy Research at the University of Bath: and it is a most useful contribution to the increasingly widespread debate about Basic Income.
Basic Income is correctly defined; reasons for seeking the establishment of a Basic Income are briefly discussed; and the report then launches into its main subject-matter: a study of a variety of illustrative Basic Income schemes, with different levels of Basic Income and accompanied by different rearrangements of the existing tax and benefits systems.
The report presents microsimulation results relating to what the author calls ‘full coverage’ schemes – that is, Basic Incomes for everyone, with four different levels of generosity, and four different rearrangements of the tax and benefits systems for each level of Basic Income. It then offers results for ‘partial coverage’ schemes: that is, Basic Incomes for particular age groups – a Citizen’s Pension, Child Benefit Plus, a Young Adult’s Income, and a Third Age Income. For ‘full coverage’ and ‘partial coverage’ schemes net costs are calculated. Finally, the report calculates the increases in Income Tax rates required to make a series of illustrative schemes revenue neutral. The report correctly identifies the only permissible conditionality as that of different levels of Basic Income for different age groups, but unfortunately then adds disability premiums. This would compromise the simplicity of the Basic Income, and would require the incomes to be actively administered by a bureaucracy. The temptation should be resisted.
The research project employed the IPPR’s microsimulation programme to test this variety of schemes, and the report lists a number of results for each of the schemes: revenue implications for each of the ‘full coverage’ and ‘partial coverage’ schemes in which Income Tax rates remain as at present; tax rate increases required for the revenue neutral schemes; and, for all of the schemes, implications for levels of poverty and inequality. For the revenue neutral schemes, the author includes tables and a graphs showing average gains and losses by income quintile, by household type, by number of children, and by labour market status.
In his conclusions, Martinelli regrets that microsimulation is a static model, in the sense that it cannot report on changes in labour market activity that would follow the implementation of a Basic Income. He promises further work on this, and we look forward to seeing that. Modelling changes in labour market activity is far from easy. Theoretical models are precisely that, and cannot capture the complexity of labour market activity; and although there are empirical results that might suggest the ways in which labour market activity would change if a Basic Income scheme were to be implemented, the only genuine Basic Income pilot projects so far undertaken have been in developing countries and so cannot predict behaviour change in the very different labour markets of developed countries. The only way to discover how labour market activity would change on the implementation of a Basic Income is to establish a Basic Income.
A useful section of the conclusions contains graphs showing changes in inequality and poverty indices in relation to fiscal cost for the different schemes. Martinelli employs these results to ask whether the schemes offer value for money: but more important than this kind of analysis is table 6 in section 5 of the report, which shows changes in poverty and inequality indices for revenue neutral (i.e., zero net cost) schemes. To reduce poverty and inequality at no net cost is surely the holy grail of social policy: and there are Basic Income schemes that can achieve this.
At the beginning of the report Martinelli suggests that trade-offs are inevitable: for instance, a scheme that abolished means-tested benefits would offer simplicity of administration but would impose losses on low-income households, whereas a scheme that retained and recalculated means-tested benefits would avoid such losses but would sacrifice simplicity and would not abolish poverty and unemployment traps (p. 6). What the report does not offer is detail: and it cannot, because it does not contain the necessary statistics, and presumably the project has not calculated them. A scheme that retained and recalculated means-tested benefits could still float a lot of households off means-tested benefits, and would ensure that everyone on means-tested benefits would end up on lower amounts of them, thus providing households with a greater opportunity to come off means-tested benefits. For all of those households, greater simplicity would be achieved, and the poverty and unemployment traps could be abolished. Trade-offs need to be studied in relation to individual households and not just in relation to the overall structure of a scheme: so what we need to see is the number of households that would find themselves no longer in receipt of means-tested benefits (including Tax Credits and Universal Credit) and the number of households whose Basic Incomes would reduce their means-tested benefits claims to negligible amounts. Research using the EUROMOD microsimulation programme at the Institute for Social and Economic Research shows that it is possible to generate the information required. [1]
Another vital set of statistics is also missing. The report gives us lists of average household gains and losses. This is not adequate. Averages can hide significant variations: so an average gain for low income households can mask some sizeable losses for rather a lot of households, which would render a scheme infeasible. What we need to know is precisely how many low income households would suffer losses of 5%, 10%, etc.. The EUROMOD research mentioned above shows that such results can be achieved, and also that minimal losses can be achieved if means-tested benefits are retained and recalculated, but not otherwise. We need to see such information for the schemes tested by the IPR.
But having pointed out some omissions (which we hope to see rectified in further reports from the IPR), it needs to be said that this is a most useful report. Where an IPR scheme is broadly similar to a scheme tested using EUROMOD the results are broadly similar, which is encouraging; and the report provides useful information as to the kinds of scheme that deserve further research, and the kinds of scheme that don’t.
We look forward to seeing a lot more useful research from the IPR.
Note
[1] Malcolm Torry, An evaluation of a strictly revenue neutral Citizen’s Income scheme, Colchester: Institute for Social and Economic Research, 2016, EUROMOD Working Paper EM5/16; Malcolm Torry, Citizen’s Income Schemes: an amendment, and a pilot project – addendum to EUROMOD Working Paper EM5/16, Colchester: Institute for Social and Economic Research, 2016, EUROMOD Working Paper EM5/16a.