This paper offers a review of the following publications from The Citizens’ Basic Income Feasibility Study Steering Group, published June 2020. All are available here: https://www.basicincome.scot/.
Assessing the Feasibility of Citizens’ Basic Income Pilots in Scotland: Final Report [168 pp]
Executive Summary [13 pp]
Appendices [60 pp]
These reports were complemented by the work of a Research Group from the Fraser of Allander Institute (FAI) (University of Strathclyde), IPPR Scotland, and Manchester Metropolitan University (May 2020):
Modelling the Economic Impact of a Citizen’s Basic Income in Scotland [156 pp]
Modelling the Economic Impact of a Citizen’s Basic Income in Scotland – a guide to the report released today [9 pp]
The Steering Group’s publication of its Final Report, an Executive Summary and Appendices, together with a report about a simulation analysis, into the study of the feasibility of implementing a citizen’s basic income (CBI) pilot experiment in Scotland must be heartily welcomed. The two-year study was the initiative of four local authorities, (LAs), Glasgow City Council, City of Edinburgh Council, and Fife (the three wealthiest LAs and largest by population size in Scotland), together with North Ayrshire, supported by seed corn finance from the Scottish Government.
This publication provides world-leading research into the feasibility of a CBI experiment which would be relevant for any jurisdiction in the world, and be the template for all future such explorations, providing much of the necessary background information, which will only need updating over time and for each jurisdiction.
It is an extremely comprehensive investigation, its scope is impressive, exploring a wide variety of aspects:
- examining various CBI schemes put forward for the UK or Scotland in recent years (Report, pp 47-48);
- reporting recent CBI or similar projects being planned or conducted around the world (Report, pp 34-39; Appendix 1, pp 1-17)); and
- meeting with some of the people involved in the design and analysis of the experiments (Report, pp 33-34).
The Steering Group commissioned three supporting pieces of work:
- a scoping paper reviewing the evidence from earlier completed CBI or similar projects of the impacts of unconditional financial interventions on the labour market, education and health service usage (Report, pp 28-32)
- a paper examining the potential interaction between a CBI system and the current UK social security system (Report, pp 43, 123-28; Appendix 6, pp 51-60);
- an analysis of the effects of a CBI scheme on labour supply and on the Scottish micro- and macro-economies, using computer-based simulation tax-benefit models (TBMs). (Report, pp. 44, 136-148; FAI report).
A basic income is a periodic, uniform (except by age), cash payment unconditionally granted to all, without means-test or behavioural requirement. A CBI could lead to direct change in five broad areas:
- more choice and financial autonomy leading to emancipation;
- wellbeing including the prevention of poverty (in terms of material deprivation, stigma, insecurity and exclusion), together with health and educational opportunities;
- a just, united and inclusive society, based on reduced income inequality;
- labour market flexibility and productivity; and
- administrative efficiency, leading eventually to transparency and accountability.
The more generous the CBI, the more that this is so. The ‘pilot will aim to understand the impact of CBI on poverty, child poverty and unemployment, as well as health and financial wellbeing, and experience of the social security system’.
The report recommends a pilot experiment in Scotland, of three years duration together with a preparatory year. It recommends two levels of payment, the higher level estimated by focus groups for the Minimum Income Standard of the Joseph Rowntree Foundation, and the lower one based on the then current main social security benefits in 2019-20. The experiment would be based on two saturation sites with ‘stratified random samples’ for the control groups. It is estimated that the gross cost of the CBI payments alone would come to approximately £186 million over the three years, for a sample size of 800 participants for the high-level CBI site and of 14,600 for the lower level one.
One of the few disappointments of the study is that only two levels of CBI are recommended. The low CBI can be justified on the grounds of testing whether the sample subjects experience greater satisfaction from the replacement of the means-tested benefits (MTBs) by the CBIs, and it is likely to be the first level to be actually implemented by a jurisdiction. So, it is useful to know what its effects will be. If an intermediate CBI could not be added to the experiment, then a version based on the OECD/EU poverty benchmark (After Housing Costs have been deducted) would have been more useful (and cheaper) than the high-level CBIs. The high BIs are far less likely to be implemented all at once, but could eventually occur organically as the result of a gradual (as usually recommended), implementation of a CBI scheme, after it had already been perceived as a success.
A far more serious problem has arisen as a result of the choice of funding used to explore the simulations. No CBI scheme is complete without its recommended sources of finance also being specified. It would have aided the subsequent micro- and macro-simulations, if the Steering Group had provided more guidance to the Fraser of Allander Institute (FAI) group. Its remit was to look at the distributional and fiscal impacts on both micro- and macro-economies, of implementing two versions of a CBI in Scotland, using fiscally neutral modelling, (which implies the use of taxes on income).
The UK has two parallel systems of taxes on incomes – income tax and National Insurance Contributions (NICs). Both have tax reliefs and structural allowances (the Personal Income Tax Allowance (PITA) and the Primary Threshold (PT)), that together provide a system of ‘tax welfare’ for tax payers often in proportion to their incomes – having more in common with a leaky bucket than a water-tight container. The effect of the UK’s tax welfare system is that it reduces its potential gross income tax base by about one sixth, thus increasing the rates of taxes on incomes for the rest of the taxpaying population.
The research team’s particular choice of funding scheme was ill-advised, leading to avoidably high tax rates. They abolished the PITA, saving £9 bn for Scotland, but not the PT nor the tax relief system, which together could have saved a further £12.1 bn, and helped to reduce inequality of income, one of the stated objectives of a CBI system. This recommendation could have more than covered the gross outlay on the low CBI scheme and left enough over to introduce a small combined PITA+PT, (so that tax returns merely for reporting casual earnings would not have to be submitted), without having to change the current rates of income tax so drastically. It would also have had a higher breakeven point, which would have made it more politically feasible.
This error was further compounded by retaining a progressive system of taxes on income, whereas CBI schemes are better financed by a flat tax – apart from an initial small tax-free allowance, and the possibility of a higher rate on higher income groups in order to create a breakeven point between the old and new systems. A mainly flat tax can bring about a more inclusive society and avoids the excessively high rates of taxes on income that otherwise occur and again this can make it more politically feasible. Not only can a relatively high tax for low-income people be acceptable when accompanied by an increase in income, but for those claiming either out-of-work or in-work benefits, it can still represent a decrease compared with the high marginal deduction rates on means-tested benefits (MTBs).
These assumptions also apply to the results for the high CBI system. In other words, the excessively-high rates of income tax assumed for the simulations were entirely avoidable and thus highly misleading about the affordability of the schemes.
These assumptions have led to a third problem. Given the sophisticated analysis of the effects of CBI on labour supply, it was disappointing that it was based on the new unnecessarily-high rates of taxes on income. As economists will recognise, the ‘price effect’ on the number of hours offered for paid work, of a change in the net wage rate facing a worker, caused by a change in the rates of taxes on income, can be divided into a substitution and an income effect. For high-income people, with inelastic labour supply, the price effect is likely to be relatively small. Looking at a worst-case scenario, the FAI team have concentrated on the likelihood of wealthier groups making large lifestyle changes, such as relocating, in order to compensate for the anticipated large increases in income tax. By the same token, the new Scotland would attract other high-waged earners inwardly. Although Sweden has some very high rates of taxation on income, it remains a favourite destination for international workers from all over the world.
Less concern was expressed at the potential negative unearned ‘income effect’ that the gain of the CBI (slightly offset by the reduction in the value of the initial tax-free allowance) might have on the labour hours offered by wealthier groups – but which, ironically, would provide an incentive to remain in the jurisdiction. However, a reduction in the value of the PT, together with the loss of tax reliefs as a result of closing tax loopholes, could further offset the introduction of the CBI, and the problem of a negative unearned income effect on labour hours might not arise.
Fourthly, the FAI research team presented an increased level of means-tested Universal Credit (UC) as a cheaper way of reducing the poverty that is currently being experienced by 20% of the population in the UK. But this cannot be considered as a long-term solution. While it could provide an immediate improvement in the UK’s wholly inadequate Social Security system, and would be a welcome first step towards a CBI scheme, the whole point of a CBI system is that it leads to five transformative, beneficial, broad outcomes simultaneously. The MTB system leads to the opposite outcomes. The gross outlays of a CBI scheme may be more expensive than MTBs of the same levels, but it is the price of a fairer, more compassionate society. Even if the prevention of poverty has the highest priority among the five broad outcomes, the other potential outcomes should not be ignored.
Poverty is not just about material deprivation, but it also includes the external and internalised stigma, the persistent financial insecurity and feelings of exclusion and rejection by their peers, which those in poverty claim is even more painful than trying to survive on below-subsistence benefits. An increase in UCs could reduce material deprivation, but it would not change the other harmful aspects of poverty. Nor would it address the other damaging structural flaws in the current UK Social Security system, which was designed to solve the problems of the twentieth century.
The feasibility study report identifies four challenges inherent in a Scottish CBI pilot experiment:
- an institutional block on account of the lack of co-operation with the Steering Group from the Westminster Government, the Treasury, DWP and HMRC;
- the potential interaction of the CBI system with the current complex UK Social Security system – which would be less of a problem for full implementation than for an experiment;
- the funding of a CBI scheme via taxation. Scotland’s current devolved taxation powers are minimal, although local authorities are entitled to raise new taxes to increase the wellbeing of their constituents;
- the unpredictable work incentive effects of a CBI in the labour market.
The automation and artificial intelligence revolutions have already encroached on many medium-wage jobs, and forced a much larger proportion of unskilled workers to rely on low-waged, part-time insecure jobs in the gig economy than before. It will have a far greater impact on the labour market than a CBI system. All the evidence indicates that people want to work-for-pay, for the health and other social advantages that it brings, not just for the earnings. The future problem is more likely to be lack of jobs rather than people wanting to leave the labour market. Although it is predicted that technical change will bring new jobs, it cannot be predicted when this will happen, nor for what quality of jobs, nor for how many people. Education and life-long skills training opportunities are the best strategies for preparing for this. A CBI system is a far more appropriate and fairer method of providing a secure survival income for everyone during this post-industrial era, than the outdated and damaging UK national insurance and social assistance systems designed for labour market requirements in the last century.
But, it is too late for a pilot experiment. The coronavirus pandemic has exposed the enormous holes in the current UK social security ‘safety net’. The time for an experiment has passed. Scotland cannot wait another six or seven years for its results. Fortunately, this feasibility study is not just about a CBI pilot experiment. It is also de facto the study of the feasibility of implementing a CBI system in either a fully-fiscally-devolved Scotland or across the UK as a whole. Full-fiscal-devolution for Scotland would remove the first challenge, and significantly reduce the second and third.
The best ‘experiment’ would be the nation-wide implementation of the low-CBI, together with a carefully-constructed design of fiscally-neutral taxation to finance it. The CBI system could be introduced alongside the current MTB system, and the CBI payment would be taken into account for entitlement to the current legacy benefits or Universal Credit. Arrangements would have to be in place, such that claimants would still be entitled to pass-ported benefits such as Housing Benefit and Council Tax Support, Disability Benefits, childcare support and support for those with limited capacity to work. If the CBI levels were gradually increased, the system would bed down, problems being ironed out as they arose. It would give plenty of warning of, and the opportunity to respond to, any major negative effects on the economy, should they occur. It would also give high-earners the opportunity to adjust to any losses slowly, and thus with less grief. As the CBI levels were gradually increased, more people would be floated off the MTBs, until it withered away leaving only a system of residual benefits for which the CBI is not a good substitute.
The scope of the whole feasibility study is comprehensive and impressive, with much to recommend it. The perceived flaws in the design of the CBI system and its source of finance can easily be rectified. This excellent report should be compulsory reading for all opinion-formers and policy-makers, think-tanks, academics and researchers, activists, journalists, trades unions and NGOs in both Scotland and the rest of the UK. It should be included on social policy, economic, sociology, and political science courses in schools, colleges and universities. It is far too important to be side-lined, accumulating dust on some forgotten shelf. There is far more in this set of reports than can be covered in a single review article. It will reward careful reading by all serious CBI advocates, both here and abroad.
Annie Miller
Chair
Citizen’s Basic Income Trust
Further reading:
Gibson, M., Hearty, W. and Craig, P. (Sept 2018). Universal Basic Income: A scoping review of evidence on impacts and study characteristics.
Miller, A. (2020) Essentials of Basic Income, £4.99; ISBN: 978-1-913025-58-8, Luath Press, Edinburgh.
Miller, A. (2020) A Basic Income Pocketbook, £9.99; ISBN: 978-1-912147-62-5, Luath Press, Edinburgh; updated with figures for fiscal year 2020-21.
Both available as printed copies and e-versions from www.WHSmith.co.uk.