New Economics Foundation, Nothing Personal: Replacing the Personal Tax Allowance with a Weekly National Allowance

Alfie Stirling and Sarah Arnold, Nothing Personal: Replacing the Personal Tax Allowance with a Weekly National Allowance: How we can change the tax system to be more progressive while increasing the breadth, depth and generosity of the UK’s income safety net? New Economics Foundation, 2019. Free to download

It is a pleasure to see the New Economics Foundation engage so constructively in the Citizen’s Basic Income debate. Its report, Nothing Personal, is an important contribution to the debate, and a useful lesson in the contribution that framing the Citizen’s Basic Income idea in new ways can make.

The report sets out from the UK Government’s policy of constantly raising the Income Tax Personal Allowance. This policy gives more to those with higher incomes than to those with lower incomes, and nothing to those who already earn below the tax threshold. The authors’ proposal is to turn the Income Tax Personal Allowance into an equal cash payment to every individual adult over the age of 18 and earning below £125,000 per annum. (The weekly sum would be £48.08 for most of the UK for 2019/20, but £45.68 in Scotland due to its lower initial tax rate.) The authors also suggest that Child Benefit should be restored to its real terms 2010/11 value. Their research shows that the combination of these two policies would be highly redistributive, and fiscally neutral (because the Weekly National Allowance would be treated as income for the purposes of calculating means-tested benefits), and that the increase in incomes for individuals who are unemployed that the Weekly National Allowance would represent would provide better stabilisation during recessions than the current system, with its weakened protection for households on low incomes.

It is unfortunate that this generally excellent report is marred by ill-informed comment on current research on Citizen’s Basic Income. Much of this research is not about ‘a UBI that could effectively replace existing welfare’ (p. 9). It is about doing precisely what the New Economics Foundation is trying to do: add a layer of unconditional and therefore secure income to the existing system. A typical example of this research, which they seem to have missed, is published by the Institute for Social and Economic Research: but much of the work published by Compass and the Institute for Policy Research is along the same lines. A Citizen’s Basic Income, or a Universal Basic Income, is an unconditional income for every individual: which is precisely what these authors are proposing. The definition makes no mention of replacing current means-tested benefits. It would be enormously helpful if think tanks did not divide themselves into camps, for and against Citizen’s Basic Income. What is required is a combined research effort based on the proven usefulness of unconditional cash transfers and an understanding of what would be feasible in the current UK context.

In this context it might be of interest that the New Economics Foundation has chosen a name for their proposal – Weekly National Allowance – that is very similar to that proposed by a Citizen’s Basic Income Trust working group on illustrative draft legislation: Fair Allowance. This is no surprise. The authors clearly feel that ‘Basic Income’ terminology is tainted. This is because they have assumed that the term means a high unconditional payment that would replace the current benefits system. As we have seen, that is not true: but the perception of taint is clearly a common one. Hence the Citizen’s Basic Income Trust’s choice of a different term for its illustrative draft legislation. Given that a lot of people and institutions are clearly intent on misunderstanding the definition of Citizen’s or Universal Basic Income, we might all have to employ a new term for a Citizen’s Basic Income paid at a feasible level and not intended to replace the current social security system.

But the authors’ misunderstanding of the term Universal Basic Income is the only ill-informed argument in this report. There is much that is well informed. A particularly useful section is on the complex effects that a Weekly National Allowance (and therefore a Citizen’s Basic Income) would have on employment incentives. This could usefully be expanded through further research.

The authors employ the IPPR’s tax and benefit model and Family Resources Survey data to evaluate their proposal. This is similar to the model employed by the Citizen’s Basic Income Trust and the Institute for Policy Research, both of which use EUROMOD; and to the model used by Compass: the model run by Landman Economics, which shares an ancestry with the IPPR model. Appendices to the report contain the results on the basis of which the authors can say that their proposal would be progressive and would reduce both poverty and inequality. As research published by Compass and the Institute for Social and Economic Research has also found, the authors find that their proposed increase in Child Benefit mitigates some of the household losses that might otherwise have resulted from their proposal,

The report contains some useful case studies of particular households, and some proposals for further research. What would have been useful would have been a close study of the levels of gains and losses for households. There is no such thing as a fiscally neutral policy change that does not generate gains and losses, and it is particularly important to where these occur so that net losses can be avoided for low income households. Simply stating mean increases for each income decile or percentile is not sufficient, as those can mask substantial numbers of household losses. Similarly, the ‘typical family’ calculations in the report are of interest, but they tell us nothing about where net household income losses might occur. The Institute for Social and Economic Research working papers offer a useful model for undertaking and reporting the necessary research.

We look forward to further research on Citizen’s Basic Income from the New Economics Foundation.