During a speech in September 2012, Ed Miliband suggested that to tackle poverty the UK needs better ‘predistribution’, [1] and not just ‘redistribution’: that is, we need people’s pretax incomes to be larger than they are now so that not as much redistribution is required to lift people out of poverty. In his speech to the 2014 Labour Party Conference, Miliband promised an increase in the National Minimum Wage to £8 per hour by 2020. This would represent improved predistribution for the low paid.
It is an interesting question as to whether a Citizen’s Income should count as redistribution or as predistribution. Everyone legally resident in the UK would receive a tax-exempt Citizen’s Income, and to it they would add earnings. This suggests that a Citizen’s Income should be counted as predistribution rather than as redistribution.
Another reason for linking a Citizen’s Income to the predistribution debate is the effect that a Citizen’s Income would have on the incomes of people on low earnings. [note]Richard Wilkinson and Kate Pickett, A Convenient Truth: A better society for us and the planet, Fabian Society, 2014, p. 33-4; Picketty, T., Saez, E., Stantcheva, S., Optimal taxation of top labor incomes: A tale of three elasticities, National Bureau of Economic Research, 2011[/note] As Wilkinson and Pickett point out in a recent Fabian Society essay, when tax rates are reduced we would expect the drive to earn more to moderate because with the same earned income disposable income rises; but the evidence is that the opposite occurs: because additions to earned income become more valuable when tax rates are reduced, lower tax rates result in higher earnings. If someone on means-tested benefits earns more, their benefits are reduced. Withdrawal rates therefore function as a tax on earnings. If the withdrawal rate is reduced, then the effective tax rate is reduced, earned income becomes more valuable, so more income is earned. Again, predistribution.
It would assist the debate on the desirability of a Citizen’s Income if we ceased to think of it as redistribution and instead regarded it as what it is: it is itself predistribution, and at the same time it is a stimulus to further predistribution.