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 It will also be work-tested, which of course it will have to be, because means-tested benefits are withdrawn as earned income rises and so fail to provide the employment and enterprise incentives that an economy and a labour market need if they are to recover.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.