A Citizen’s Income is an unconditional, nonwithdrawable income paid to every individual as a right of citizenship. But how should it be implemented? And what should we do about the current benefits system?
An important motive for advocating a Citizen’s Income is the desire to see means-testing abolished. Because means-testing withdraws benefits as earned income rises, it disincentivises employment and self-employment. Means-testing requires all other income to be declared so that benefits can be correctly calculated, and if earned income fluctuates – as it often does – the frequent reporting of changes, and the consequent frequent recalculation of benefits, can make means-testing a nightmare for both claimants and administrators. And means-tested benefits are generally household-based, which means bureaucrats interfering in claimants’ personal relationships. Universal Credit suffers from all of these problems in the same way as the benefits that it is intended to replace. It is no surprise that Universal Credit’s administration, and the transition to Universal Credit, are proving so problematic.
Advocates for a Citizen’s Income will often suggest that a Citizen’s Income would enable us to abolish means-tested benefits. Take, for instance, the illustrative scheme in the Citizen’s Income Trust’s introductory booklet. The scheme pegs Citizen’s Income rates to Jobseeker’s Allowance rates, and the booklet claims that this would allow means-tested benefits to be abolished – apart from Housing Benefit and Council Tax Benefit, because these vary from place to place and would not be replaced by the household’s Citizen’s Incomes.
However, things are not quite as simple as that description makes it sound. For a household containing low earners, members’ Citizen’s Incomes would replace personal tax allowances and proportions of Working Tax Credits, but they would not replace Working Tax Credits in their entirety. This household would therefore suffer a loss at the point of implementation. Whilst it would not be as difficult to make up that loss as it would be to make up a similar loss under the current benefits system ( – because the Citizen’s Incomes would not be withdrawn, so net income would rise more quickly as earned income rose), such losses would still be unacceptable, and in particular would be politically unacceptable.
So what should we do instead?
A recent working paper published by the Institute for Social and Economic Research at the University of Essex offers an alternative method for implementing a Citizen’s Income. As with the illustrative scheme in the booklet, Personal Tax Allowances would be abolished, but with this scheme the whole of the current benefits system is left in place and a household’s Citizen’s Incomes would be taken into account when any means-tested benefits were calculated in the same way as existing income is taken into account now. The scheme would be paid for mainly by abolishing Tax Allowances and raising Income Tax rates.
The disadvantage of this approach is that means-tested benefits would not be abolished at the point of implementation; but the fact that a household’s means-tested benefits would be reduced by their Citizen’s Incomes would mean that many households would no longer receive means-tested benefits, and that for every household means-tested benefits would be reduced in value – and often to a value low enough for the household to extricate itself from means-testing.
A significant advantage of this new approach to implementation would be that amongst the lowest earnings decile (the ten per cent of the households with the lowest incomes) almost no households would suffer any loss at all (the modelling software suggests that less than 1,000 households would suffer losses), and that amongst households in general only 5% of households would suffer appreciable losses, and those losses would mainly be small and mainly amongst higher earners. A lower Citizen’s Income, with lower tax rates, would deliver even fewer losses at the point of implementation.
A further significant advantage of this new implementation method is that it would be very easy to achieve. A Bill to establish a Citizen’s Income and abolish means-tested benefits would be quite complicated, and the transition would not be easy to manage. A Bill to establish a Citizen’s Income, pay for it by reducing Personal Tax Allowances and raising Income Tax rates, and leave everything else as it is now, would be very simple. Administrators and households would find the transition to a Citizen’s Income really easy – and substantially easier than the current attempt to implement Universal Credit.
If the government that follows the 2015 General Election were to decide on a pause in the implementation of Universal Credit so that a rethink could occur, then a Citizen’s Income that would leave everything else as it is could look really rather attractive. And because a Citizen’s Income would be genuinely universal, perhaps we should call it Real Universal Credit.