The Citizen’s Basic Income Trust’s review of the Green Party manifesto’s section on Universal Basic Income
The Green Party’s manifesto for the 2019 General Election proposes a Universal Basic Income (UBI), because it believes that ‘financial security is a key building block of a good society. No one currently in receipt of benefits will be worse off under UBI – and many will be much better off’ (p. 26).
The manifesto states that the adult rate of UBI will be £89 per week, and that ‘someone earning the minimum wage and working 37.5 hours a week would see their income increase by 10 to 15% through UBI’. The UBI would be phased in; it would be ‘sufficient to cover an adult’s basic needs’ (p. 26); and it would replace most existing social security benefits.
The pensioner rate would be £178 per week. Disabled people would receive a ‘supplement to the UBI, as will lone parents and lone pensioners … Families with an income of under £50,000 per year will receive an additional supplement of £70 per week for each of their first two children and a further £50 per week for each additional child. Families with an income of over £50,000 per year will receive smaller additional supplements per child, with the amount decreasing further the more a family earns’ (p. 27). Housing Benefit will continue for those already on it.
The funding would be provided by the Green Party’s proposed carbon tax (p. 27) and by removing the Income Tax Personal Allowance (p. 73).
The Citizen’s Basic Income Trust recognises the Green Party’s proposal as a significant contribution to the Citizen’s Basic Income debate. The plan, once phased in, would fulfil the main aim of the proposal: to provide a secure layer of income on which individuals and families could build. The plan would offer better employment incentives for people currently on means-tested benefits, because the UBI would not be reduced as earnings rose; and the fact that everyone would receive a UBI would contribute to social cohesion.
Manifestos are inevitably condensed summaries of often complex proposals, and there are issues on which further detail would be welcome:
A Universal Basic Income is an income of the same amount for everyone of the same age: so, paying more to pensioners than to working age adults is entirely legitimate, but any other differentiation would not be. If a genuine UBI is to be paid, then the additions for people with disabilities, for lone parents, and for lone pensioners, will have to be separate benefits, separately administered and delivered.
The child supplements are income-tested, and so cannot be called UBIs. It would be preferable to pay entirely unconditional child supplements – for after all, the wealthier families to whom the proposed taper would apply would be paying more tax than they would be receiving in child supplements. If for some reason this route cannot be taken, then the child supplements should become entirely separate benefits, and not attached to the UBI.
The manifesto claims that £89 per week would be sufficient to cover an adult’s basic needs (p. 26), but £89 per week is far less than the EU’s poverty benchmark of £148 per week for 2019-20.
The manifesto suggests that the system proposed would be simpler than the current system. The UBI will be simple to understand and to administer if the additions become separate benefits, but if they do not then it will not be. And similarly, only if the child supplements are not reduced as household income rises can the proposal be simple to administer. The virtue of a genuine Universal Basic Income is that it needs no active administration. This aim will be met the various additions are separate benefits and the child supplements are the same for all children.
It is not clear to what extent the proposal has been tested for financial feasibility, nor have we been shown the evidence for the claim that no-one currently in receipt of benefits will be worse off. They might be. They will no longer be receiving an Income Tax Personal Allowance if they are employed, so they will be paying more Income Tax; they will no longer be receiving Working Tax Credits, Child Tax Credits, or Universal Credit; and their fuel bills will be higher because of the new Carbon Tax. It is possible that nobody currently receiving benefits would be worse off: but it is also possible that the scheme as a whole could prove to be regressive. Only microsimulation testing would be able to tell us whether there would be losers in the original lower gross income deciles, and how large any losses might be. Such testing would be complicated because the requirement to add a supplement or new benefit for lone parents and pensioners would be difficult to operationalise (which of course suggests that it would be intrusive and onerous to administer): but the attempt should be made. The absence of even a small Income Tax Personal Allowance means that the first £1 of income received by each person will be subject to income tax, leading to extra burdens on both taxpayer and the HMRC.
The verdict: It would take only a few changes to turn the Green Party’s proposal into a genuine Universal Basic Income; and if microsimulation testing were to show that the amended scheme would not impose significant numbers of significant losses on low income households, then the amended manifesto proposal would be an important addition to the set of feasible illustrative Universal Basic Income schemes.
The Citizen’s Basic Income Trust is a Charitable Incorporated Organisation, registered charity number 1171533. Its object is ‘to advance public education about the economic and social advantages and feasibilities of a Citizen’s Basic Income: that is, an unconditional, automatic and nonwithdrawable income paid to every individual as a right of citizenship’. The Trust is not aligned to any political parties, and it neither endorses nor declines to endorse any particular Citizen’s Basic Income proposals published by political parties. Its publication of reviews of Citizen’s Basic Income proposals published in political party manifestos is in fulfilment of its educational charitable object.
Anne Miller, Chair; Dr. Malcolm Torry, Director
To read the Green Party’s manifesto, click here.
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1 To start with a small but universal UBI and slowly increase it is the most workable way.
2 It would be a shame if Child Benefit, the nearest thing we now have to a UBI and easily made into one by making it free from income testing and equal for all children (while recognising that adjusted taxes will pay for this) is made into an issue when more difficult matters are happily accepted. KISS.
3 All accept that Housing Benefit must be separately administered. (Beveridge couldn’t find an answer to this and nor has anybody else.) But an extension of the system needed for HB should deal with the separate other various benefits without too much extension of the bureaucratic process.
4 The loss of personal allowances (on NICs as well as income tax) is always brought up as a complicating factor. This wouldn’t apply if the idea(s) in the essay below were implemented. (It’s too late for the current election of course but there will be others – and read UBI for CBI.)
A Introduction:
A1 Eliminating personal tax allowances and the equivalent disregards in respect of Employee NICs could yield well over £100 billion p.a. It is now common to look to this to fund the resurrection of the UK’s rundown health and other public services or to start funding a Citizens Basic Income (CBI). But, if a hopeful Chancellor of the Exchequer (COTE) proposed in an election manifesto to do such a thing crudely, the right-wing media would gleefully spin it as meaning that “hard working people” would lose the £2500 p.a. (twice as much and more for the higher paid) their income tax allowances are worth, plus something over £1000 more in respect of NICs, and the idea would go down like a lead balloon along with the electoral fortunes of the proposer’s party.
A2 So, how to eliminate those allowances in a way that would: shrug off any media fulminations; be simple to get across to the electorate; be enthusiastically seized upon by the many?
B What to do:
B1 Gradually, over around six years (seven steps but see D7), starting very soon after the election that mandates it, reduce to zero the rates for Employee NICs (including the rate above the Upper Earnings Level) and the 20% standard rate part of income tax .
B2 Concurrently, gradually raise the rate for Employer NICs as necessary to replace the lost revenue – and to generate whatever additional revenue COTE deems necessary.
B3 Early on, give the job of paying the remaining 20% and 25% tax on wages above the present thresholds for higher wages (or whatever rates and thresholds COTE sets) to those higher wage earners (see D8). Let’s call this Pay It Yourself (PIY).
B4 Concurrently with B1 and B2, gradually eliminate the Secondary Earnings Threshold so that, after the six years, employers will pay a flat-rate tax on all of all wages (and bonuses) (FRTAAW).
B5 So that all employees get a rise in take-home pay (THP) in each of the 6 years, continue with the now usual annual increases in the minimum wage.
C Key outcomes:
C1 Income tax and Employee NICs currently add up to about 20% of the median wage so, combined with the minimum wage increases, the many would be guaranteed 7 increases in THP of around 3% p.a. (about the current average). Some employers might wish to pay more.
C2 Employee NICs will be eliminated for all as will income tax for all but higher earners.
C3 The FRTAAW will produce a payroll administration system of irreducible simplicity whereby a simple app would automatically combine each payment of THP into an employee’s bank account with the simultaneous payment of the FRTAAW to HMRC. This will produce multi-billion savings in payroll tax administration for employers and government along with many other benefits.
C4 Businesses will be weaned off profiting from the tax-payer subsidy of low wages.
C5 Crucially, this policy will tip the balance at an election and could quickly be introduced to give voters what they had just voted for – and leave something for the following election.
D Brief discussion:
D1 The reform is designed to smooth the way towards substantial increases in employment tax revenues (but see D11) so that they can be spent on improving public services – and eventually on a CBI. The overall effect will be redistributive – and unabashedly so. To frame it otherwise would be timorous and dishonest and also would be to miss out on its political appeal (to the many) and risk the charge of taxation by stealth.
D2 If all were done on a revenue neutral basis only employers who would have awarded rises leading to lower rises in THP than this proposal and those who currently pay very low or very high wages would see increased employment costs (many would see lower costs). (But, the aim being to generate extra revenues vital to the betterment of vital public services (D1), it won’t.)
D3 Any extra revenues must come from somewhere. While everybody will benefit from spending more on the UK’s cure-and-care and other public services, the matter of who will end up paying for it all is admittedly fuzzy. Certainly, there will be gradual increases in some prices as businesses pass on their gradually realised higher costs, particularly in the case of goods at present produced in the UK by state-subsidised cheap labour and of public services (public sector employees will get the increases in THP too).
D4 Voters will delight in that refunding their treasured health service can go hand-in-hand with their assured increases in THP and the eventual elimination of their wage taxes.
D5 At present, under PAYE, employers already find and pay the money for all THP and all payroll taxes and the question of from whom the taxes are due is, even now, really only a matter of attribution and perception. Note too that “tax on all of all wages” is already gradually introduced over the wage range of £100000 to £125000 p.a. and, thus, the principle already established.
D6 To be able to keep all of one’s wages, which will be the case for the many, is a great incentive to work. Moreover, paying no tax on one’s wages will rather defuse the resentment expressed by some that the tax/welfare system (or a CBI) takes money out of their pockets to support the idle and inept. (As an aside, a CBI system might allow the deferral of one’s CBI in return for a higher CBI in retirement – a simple and unbeatably financially efficient accompaniment to the orthodox pension system which would both ameliorate the growing pension problem and much reduce the introductory costs of a CBI).
D7 The reform’s gradualism eases the necessary adjustments. The steps need not be annual. Quarterly steps might make for adjustments which are even easier (and less worthwhile to game).
D8 The extra taxes on higher wages need to be paid directly by their earners (PIY) to permit the establishment of the FRTAAW. To the same end, workplace pensions and all employment tax related allowances (the Blind Person’s Allowance and the Employment Allowance for example) need to be managed separately from the payroll tax.
D9 Business people might find any higher payroll costs less objectionable if they reflect on the cost to the state of the regulatory, social, and physical infrastructure without which business would be impossible and the £100000 or so the state has spent on the education and upbringing of each employee – and if they also reflect that they don’t think twice about the principle of paying all their other suppliers for what they get from them..
D10 To eliminate the question of whether benefits (and a CBI) should be seen as taxable income, all benefits and the state pension (and CBI) could simply be paid net of a notional tax paid at source which, because the source is the government, would be self-cancelling.
D11 The conventional-because-convenient raising of large amounts of revenue from the taxation of employment despite its pernicious dead-weight burden, should, one day, be replaced, at least in part, by more imaginative and constructive taxes such as a (negative dead-weight loss) land value tax or more benign dead-weight bearing “green” taxes. Until then, this is the best that can be done.
D12 There’s no surer way to win an election while being honest about increasing employment taxes.
Robin Harrison 7 June 2019