Is Citizen’s Income the answer to workfare?

Introduction

The context of the Citizen’s Income (CI) debate now includes Universal Credit (UC), about which opinions differ. Bill Jordan, a long term advocate of CI, has seen UC as a step towards it (Jordan, 2012), and writers from one libertarian left group, Plan C, have recently argued that

those seeking to transcend capitalism should consider placing the universal basic income at the center of their discourse and action. The expansion to all of the newly introduced UC, its increase to the median income level and the removal of the conditions which dictate its receipt must be central to such a program.

A CI is of course very different from UC. The former is a universal individual benefit, without work test, and the latter is a means-tested and work-tested benefit.

Some advocates of CI (for example Hermione Parker, 1989) have seen it as a way of ‘pricing people into work’ and therefore argued that a state benefit of this kind would be a substitute for minimum wage legislation. Others, such as the Green Party, call for a rise in minimum wages to the ‘living wage’ standard. But a book on CI by prominent Green Party activists, Clive Lord et al (2012), sees CI as making minimum wage rules redundant (Lord et al, 2012: 131).

CI might make it easier or more difficult to refuse low pay, depending on its level. Many writers have argued for a ‘partial’ introduction of CI until a ‘full’ CI can be afforded, where a ‘full’ CI is defined as enough to cover basic subsistence needs even if no work was wanted or available. The danger is that a low, ‘partial’ CI would simply make low pay more acceptable. In any case, the level at which a wage is a ‘living’ wage depends on circumstances: for instance, on how well their area is endowed with public transport, childcare facilities, properly insulated housing, and so on.

What is clear is that a very low level of unconditional benefit would increase the supply of job applicants to low-paying or very part-time jobs, whereas there must be some higher level of CI that would result in sufficient withdrawal from low paid jobs to induce employers to pay more. Econometric modelling might be able to provide some indication of the ‘turning point’, but as we are talking about a major re-structuring of the whole system of income expectations and incentives to work, any such modelling might not predict the actual effect very well. The level of benefits and wages will continue to be an arena of controversy.

One objection often made to CI is that it might induce a mass withdrawal from the labour market and a shortage of workers to keep the economy running. The best way to think about this is that CI can be considered as a subsidy to unpaid work and short-time (paid) working. If a CI led to a labour shortage at a given legal minimum wage level, either the CI would have to be reduced or the minimum wage would have to be raised.

Different reasons why Citizen’s Income (CI) has been proposed

A CI has been advocated from different parts of the political spectrum for different and sometimes contradictory reasons. For instance:

1) To simplify the benefits system and reduce the cost of administering it. The designers of UC share this goal with advocates of CI. However, UC now confronts a quagmire of wasted IT investment and implementation delays due to at least four factors. First is the insistence on online applications and computerised processing. Neither would be necessary if UC were genuinely very simple, like Child Benefit, which has very low administrative costs. But UC has been made very complex by the other three factors, namely the incorporation of housing benefit, the incorporation of a childcare element, and above all the fierce conditionality.

2) To avoid means-testing of those without insurance-based entitlements (and in practice to avoid means-testing altogether)

3) To eliminate the ‘poverty trap’, allowing people to keep their benefit as they move from unemployment into work, thus encouraging them to take work which would otherwise be unacceptable either because of low hourly pay or too-short hours. Such advocates of CI as Hermione Parker (1989) and Milton Friedman (1962) have seen CI as an alternative to a national minimum wage, a way of making unacceptable pay rates acceptable to jobseekers without employers having to pay more. In the same way, UC is seen by its designers as a means of ‘pricing people into work’ without raising the existing minimum wage. However, Guy Standing (1999) sees CI as an appropriate replacement for social insurance in a world of precarious employment where many part-time, temporary or long-term unemployed people cannot build up an insurance record. Thus it reduces poverty for the precarious, but is not a substitute for labour regulation to reduce precarity, of which Standing is a strong advocate. Robertson (1985) and Clive Lord et al. (2012) advocate CI as a solution to the poverty trap and as an alternative to labour market regulation, whilst appearing unconcerned about the possibility of seeing CI as a gift from taxpayers to employers.

4) To encourage part-time and voluntary work and make ‘work-sharing’ and ‘care sharing’ more acceptable, a point made by (amongst others) the Green Party, by Clive Lord et al (2012), Bill Jordan (1987), and James Robertson (1985). For Andre Gorz (1985), CI represents the form that personal income could take as increasing automation makes human labour power increasingly redundant and a way needs to be found to distribute GDP that does not rely on wages. Gorz proposed that each citizen would need to provide 20,000 hours’ work per lifetime to ensure that necessary work was done. But, writing in an era when trade union strength was far greater than now, and from a country (France) where trade unions had historically had a significant role in the design and administration of social security, he hinted that this work requirement could be implemented through agreements organised by trade unions or at least democratic working class organisations, rather than the state.

5) To break the link between income and work, distributing resources on the basis of ‘to each according to her need’. Gorz’s future world would emphasise ‘use values’ rather than ‘exchange values’, envisaging a contraction of market activity in favour of activities performed for their own sake. In particular, a CI could encourage caring, whether for children, grandchildren, or disabled or older people. For some proponents of CI, including Lord et al (2012), the de-linking of income from employment is also a way of making it more acceptable to abandon economic growth as a key goal, and to stabilise or reduce consumption of natural resources in the interests of ecological balance and halting climate change.

6) As a way of sharing out the stream of revenue from some publicly held capital assets, often mineral resources – for example the ‘social dividend’ paid to everyone in Alaska and locally in some parts of India and Namibia. A land value tax would be a way of re-appropriating urban real estate values for communal use, especially in unusually high-value areas like central London.

7) To enable people to walk away from jobs where conditions are unacceptable, and to help people to challenge excessive overtime, unsafe practices, sexual harassment, etc.

8) To largely eliminate the crime of benefit fraud, by declaring it legal to work and claim benefit at the same time.

The labour market effects of CI and evidence about benefit systems which share some of its features

There are some important effects of CI that would depend on how recipients responded to a different incentive system. All ‘availability for work’ rules would be removed by a CI. This means that some people with particularly poor work prospects (for example because of poor health, a criminal record, or residence in an area of high unemployment) would probably stop searching for jobs, whilst others who are currently discouraged by the ‘benefits trap’ would accept jobs at a lower wage rate (or higher commuting costs, etc.) than they had formerly thought feasible. Some people who are currently discouraged from working because means-tested benefits would be withdrawn from their partner would also be encouraged to seek employment.

Compared to the JSA/ESA system, CI would make it more attractive to accept ‘mini-jobs’ for a few hours a week, because people could keep all of their earnings (after tax) rather than suffer benefit withdrawal. International research on benefits for lone parents has found that to increase earnings disregards generally does draw more people into paid work (Finn and Casebourne, 2011). If working and claiming was permitted for everyone, ‘mini-jobs’ would probably proliferate, echoing the experience of France, Belgium and Germany in the 1990s. These countries had a system known in French as ‘cumul’ – the permitted ‘cumulation’ of a part-time wage with part-time benefits. Substantial ‘disregards’ of this kind led to a growth of precarious, very part-time and usually temporary job offers which it was argued took the place of full-time, longer-term jobs and undermined trade union negotiated employment conditions (Gray, 2002). As employers increasingly take advantage of the wage subsidies inherent in such systems, those seeking full-time work are increasingly disappointed, and the state must either extend wage subsidies further to boost the demand for labour, or drive people into jobs via versions of workfare (Gray, 2002).

Trade unions and social movements of the unemployed and precarious were very concerned about the proliferation of precarious work, or ‘flexploitation’ as I once called it (Gray, 2004). They sought a solution not so much in changes to the income maintenance system as in re-regulation of the labour market and in mass struggle against casualization, workfare, and exploitative trainee positions: all demands expressed in the ‘Euromarches’ movement (www.euromarches.org).

The Citizen’s Income Trust, in its introductory booklet (www.citizensincome.org/filelibrary/booklet2013.pdf, p.13) argues that ‘labour market flexibility’ is a good thing and would be encouraged by a CI. It supports the idea of a National Minimum Wage but does not consider the possibility of CI depressing wages. But CI might well encourage more employers to hire at the ‘wage floor’ as it became more acceptable to do so, leaving the Exchequer with lower tax receipts and in effect allowing part of the value of CI to go to employers. However CI is presented, and whatever the reasons for demanding it, such a payment is undeniably a wage subsidy. As such, it is open to the criticism that it will encourage employers to pay less than they would otherwise have needed to offer to attract job applicants. This criticism, based on evidence, has been made of Working Families Tax Credit and its UK predecessors (Wilkinson, 2001) as well as of the Speenhamland system of the early nineteenth century (Polanyi, 1957). It can likewise be predicted as an effect of UC, even if (as several commentators suggest) UC actually offers lower payments to many households than the current combination of JSA and WTC.

As Jordan says (Jordan, 1987: 158), if a CI is not high enough to enable workers to live on it alone, ‘this amounts to an artificial encouragement of low wages and a wasteful use of labour, which, in the absence of a full basic income, is really an encouragement of exploitation, since workers cannot rely on their basic incomes for subsistence’. But who is to say at what level of CI people who now seek work would say, ‘that’s enough for me, I don’t want to work, at least not for an employer’? The level would vary with the individual’s circumstances, savings, earnings prospects, outgoings, and degree of liking or dislike for their customary occupation. One could try to determine, through econometric modelling, at what level of CI employers of particular occupational groups or skill levels would offer lower wages than they would without a CI, given the state of the economy and other relevant circumstances: but as recent labour market history is so coloured by JSA conditionality, it would be hard to say what people would choose on the basis of financial rewards alone. What seems obvious is that below a certain level a CI would encourage low pay, and above a certain level it would discourage low pay, without us being able to tell where the turning point would be. Jordan’s approach in a later work where he addresses this issue is effectively ‘suck it and see’. He says:

by offering citizens ‘time out’ of the labour market for cultural or political pursuits, for investment in higher skills or improvements to their homes, or for looking after the next generation or people with special needs, or simply for travel, recreation and personal development, it would maximise chosen participation and minimise constrained activity. If that meant less labour was supplied than the formal economy needed for efficient functioning, the basic income would have to fall to a level that would once more increase formal labour supply. (Jordan, 1998: 176)

None the less, there are two major problems with this solution. Firstly, it would require that the army of lab-our (reserve or otherwise) had much more power than at present to bargain with employers. Secondly, a fall in labour force participation would mean a fall in the tax take, so that public borrowing would be needed, or tax rates would need to rise, to finance the CI until the supply of labour and tax revenues could be restored.

Comparison of Citizen’s Income and Universal Credit

UC appears attractive in so far as it has some similarities with a CI proposal, but there are also some very important differences:

a) UC is assessed on the income of the household ( – different no-deductions levels of income are allowed for single people and couples). CI on the other hand is an income for each individual, so that no reporting or investigation is required of partnership status or changes in it, and each person has an income of their own regardless of any difficulties over distribution of income within the family. This is a very important feature of CI to provide income security for unwaged women, especially in situations of relationship breakdown or domestic violence.

b) UC has a much higher marginal deduction rate for people working more than a few hours a week than recently proposed versions of CI. Earnings additional to a CI would be subject to the standard rate of income tax plus a percentage tax which would replace national insurance contributions – at current rates 32% in total. But under UC, earnings over the ‘work allowance’ (that is, the earnings disregard level, which varies with household type) lose 65%, and beyond the income tax and NI thresholds 76% (until the UC entitlement is all withdrawn).

c) Because of the poor incentive to work resulting from UC’s high deduction rate, Anne Miller comments that ‘it is not surprising that a stiff regime of conditionality and sanctions, and thus of expensive monitoring, has to be in place to enforce this incentive’ (Miller, 2011: 9).

d) UC is for persons currently eligible for any of the benefits it replaces, whereas CI would be for anyone who is legally resident. UC would exclude asylum seekers, people on self-employment work visas (who are often running marginal small start-up businesses or are individual freelancers), migrants from some states that have recently joined the EU, people who are still ‘habitually’ resident in another country even though they may have arrived (or returned) to the UK with the intention of permanent residence, and so on. Current difficulties and debates surrounding the eligibility of migrants for benefits underline the importance of a Europe-wide CI as a necessary counterpart to freedom to work anywhere in the EU.

e) Most important of all, UC is a policy to drive people into low-paid and casual work and is accompanied by job-centre disciplines for all claimants. Those working less than full time will be pressured into increasing their hours or looking to change jobs until they can earn away their UC entitlement. Generally speaking, any ‘availability for work’ conditions or work obligations are contrary to one of the most important arguments for CI, which is to help people resist exploitative work and excessive working time, emancipating non-market forms of work (unpaid caring and voluntary work, and the ‘subsistence economy’ of house repairs and food growing) in a way that JSA or UC conditionalities cannot do. When we consider that around a quarter of all day-care for children in the UK is provided by unpaid grandparents, many of whom are still of working age (Gray 2005), and that voluntary work contributes between £22 billion and £40 billion to the economy annually, [note]The National Council for Voluntary Organisations estimated that the economic contribution of volunteers in 2007/08 was £22.7 billion. (see www.biglotteryfund.org.uk/value_of_volunteering.pdf‎) whilst another estimate including the work of volunteer police and magistrates goes up to £40 billion (see the site of Volunteering England which is part of NCVO). Neither includes unpaid caring work offered to relatives and friends, of which it is said that in London alone the over 50s (the main age group involved) ‘provide £4.7 billion, as a result of caring for other adults and £600 million providing childcare for their grandchildren’ See GLA press release on .[/note] we can see how much may be lost through an ever-more-workfarist benefits system which pressurises part-time workers to work more hours.

Universal Credit as a ‘stepping stone’ to CI? Would claimants gain or lose from the shift to UC from the previous system ?

The government has claimed that UC will give unwaged people more incentive to work, but, as we have seen, the incentives are actually quite poor. According to the Institute for Fiscal Studies, ‘incentives to work will be strengthened for the main earner in a family who works part-time or has low earnings, and will be weakened for those with higher earnings and for second earners in couples’ (Mike Brewer et al, 2012: 69-70). UC will have a higher withdrawal rate than tax credits, because UC will be withdrawn at the rate of 65p for every extra £1 earned, compared to only 41% from tax credits. This change particularly hits people with a working partner. James Browne of the IFS said in a conference presentation (www.ifs.org.uk/conferences/uc2011_browne.pdf ) that 1.8 million claimants will lose £3.8 billion between them from the introduction of UC, whilst 2.9 million (mainly single earner couples with children) will gain £4.9 billion between them and 2.4 million will see no change. A joint report from the Child Poverty Action Group and the TUC has said that over 61% of UC claimants will lose from the introduction of UC combined with other cuts to benefits since 2010. From the switch to UC alone, pensioner couples lose £478 p.a., unwaged couples with no children lose £778 p.a. and some disabled people lose well over £2000 per year (because of the abolition of ‘severe disability premium’ and of the disabled WTC when UC is introduced, each worth over £50 per week). Marginally viable self-employment is also hit, because UC assessment will assume self-employed people make as much as the hourly NMW even where they do not.

Whereas the current system does not means-test tax credits against savings (only against income) UC will withdraw some in-work money from those with savings over £6,000 and withdraw the benefit entirely from those with £16,000 or more. This particularly impacts workers who have recently suffered redundancy or who are saving for retirement or house purchase.

The future value of UC may wither if the allowances are not updated. Already, the potential gains of the gainers from the new system have been substantially reduced by the decision to freeze the ‘work allowances’ for three years.

Universal Credit will not be easily transformable into a true CI because even if all conditionalities were removed, the ‘work allowances’ and maximum UC amounts are per household rather than per person, they are too small, and the marginal deduction rate is still very high. It would be better to start again, whilst recognising that if funds could be found for UC, they could also be found for a CI of similar scale.

The next steps for supporters of Citizen’s Income

Debate needs to focus not on the potential cost of CI, but on its labour market effects. Introducing a CI into the UK’s excessively ‘flexibilised’ labour market with only a low (and poorly enforced) legal minimum wage would probably worsen wages and conditions. Much of a CI’s benefit in the current context would go to employers as a wage subsidy.

The lower a CI, the less likely it is to help people to resist exploitative work and the more likely it is to have a ‘Speenhamland effect’: that is, it would act as a wage subsidy and depress wages. A ‘transitional’ or ‘partial’ CI would be especially likely to turn into hidden wage subsidies or -like the continental experience of ‘cumul’ – lead to excessive splitting of work into dead-end ‘mini-jobs’.

CI could have adverse effects for unwaged and low paid people unless introduced in parallel with supporting measures to re-regulate the labour market and restore the eroded power of trade unions. To quote Clark and Kavanagh (1996: 404):

Whether a Basic Income policy would weaken or strengthen workers’ power in the labor market is a more difficult question to answer. It would depend on the context in which the Basic Income policy was instituted and the support workers already received from the state. The existence of a minimum wage, strong unions, and enforced pro-labor legislation might be essential to preventing the Basic Income from becoming a wage subsidization policy.

The Socialist Party, in commenting on Clark and Kavanagh’s paper, believes it over-optimistic that a CI would actually help workers, even with such supporting measures:

It is just inconceivable that a state payment to everybody in work would not adversely affect wages and salaries.

This is to misunderstand what a CI attempts to do, which is to raise income for those not in full-time work as well as for those in it. The most appropriate way to increase income for those who are in work is obviously to raise wages, otherwise employers will receive part of the benefit of CI by paying lower wages than they would in its absence.

In order that CI does not have a ‘Speenhamland’ effect, or encourage casualisation, it would be best to regard it as an income maintenance policy to be implemented after measures to protect and improve wages and conditions have been put in place. A CI cannot be expected to become an adequate tool for resisting ‘flexploitation’ by itself. It can address the several objectives listed above only if the third objective – ending the ‘poverty trap’ – is underpinned by improving the quality of jobs on offer. Several of the goals of CI – ending workfare and conditionality, permitting ‘cumul’, reducing poverty, giving more freedom for unpaid work – can better and sooner be addressed directly, separately from introducing CI. This would mean working for five points – less conditionality and no workfare; higher disregards; a higher national minimum wage; equal remuneration for part-time and temporary workers; and an end to zero hours contracts. Legal changes would therefore be needed to restore trade union freedom, protect the right to state income support against erosion over time, and raise a higher proportion of tax revenue from profits, wealth and inheritance.

Dr Anne Gray is a Visiting Research Fellow at London South Bank University and is the author of Unsocial Europe: social protection or flexploitation? (Pluto, 2004)

References

Brewer, Mike, James Browne and Wenchao Jin (2012) ‘Universal Credit: A Preliminary Analysis of its Impact on Incomes and Work Incentives’, Fiscal Studies, vol. 33, no. 1, pp.39-71

Clark, Charles and Catherine Kavanagh (1996) ‘Basic Income, Inequality and Unemployment; Re-thinking the linkage between Work and Welfare’, Journal of Economic Issues, vol. 30, no.2, pp. 399-406

Finn, Dan and Jo Casebourne (2011) Lone parents combining work and welfare; international evidence, London: Centre for Social and Economic Inclusion,

Friedman, Milton (1962) Capitalism and Freedom, Chicago: University of Chicago Press.

Gorz, Andre (1983, English translation 1985) Paths to Paradise, London: Pluto Press

Gray, Anne (2002) ‘European perspectives on welfare reform – a tale of two vicious circles?’ European Societies, vol. 4, no. 4, pp.359-80.

Gray, Anne (2004) Unsocial Europe, London: Pluto Press

Gray, Anne (2005) ‘The Changing Availability of Grandparents as Carers and its Implications for Childcare Policy in the UK’, Journal of Social Policy, vol. 34, no. 4, pp. 557-77

Jordan, Bill (1987) Rethinking Welfare, Oxford: Blackwell

Jordan, Bill (2012) ‘The low road to basic income; tax-benefit integration in the UK’, Journal of Social Policy, vol. 41, no. 1, pp. 1-17

Jordan, Bill (1998) The New Politics of Welfare, London: Sage

Lord, Clive, Miriam Kennett and Judith Felton (2012) Citizen’s Income and Green Economics, Reading: Green Economics Institute

Miller, Anne (2011) ‘Universal Credit: Welfare that Works: a review’, Citizen’s Income Newsletter, Issue 1 for 2011, pp. 4-9, www.citizensincome.org

Parker, Hermione (1989) Instead of the Dole, London: Routledge

Polanyi, K. (1957) The Great Transformation, Boston: Beacon Press

Robertson, James (1985) Future Work, Aldershot, Gower

Standing, Guy (1999) Global Labour Flexibility: Seeking distributive justice, Basingstoke: Macmillan

Wilkinson, F. (2001) ‘The theory and practice of wage subsidisation; some historical reflections’, in Bennett, F. and Hirsh, D., eds, The Employment Tax Credit and Issues For the Future Of In-Work Support, York: Joseph Rowntree Foundation

Footnotes

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