The necessity and the feasibility of a Citizen’s Income

In the context of a discussion of the Labour Party’s intention to increase the National Minimum Wage if it wins the next General Election, the General Secretary of the Fabian Society asks:

But what about social security? A sudden increase in spending may seem impossible given the state of the public finances and public attitudes. But social security will otherwise wither away, with spending on pre-retirement age groups projected to fall sharply as a share of GDP over the next 15 years (from 5.5 per cent today to 3.9 per cent in the early 2030s according to the Office for Budget Responsibility). The Fabian modelling indicates that this will lead to low and middle income working-age households falling far behind everyone else. A long-term plan for social security is therefore essential. Labour should introduce reforms to widen popular support for social security, by seeking affordable ways to expand universal or contributory entitlements which reward effort and give everyone a stake …. [note]Andrew Harrop, ‘The Future of Government’, Fabian Review, vol.126, no.3, p.10[/note]

Readers of this Newsletter are likely to be well aware of the advantages that a universal Citizen’s Income would offer to our society and to our economy. Not only would its universality generate widespread support for the policy, but (to quote from our introductory booklet) a Citizen’s Income would also

  • ‘end the poverty and unemployment traps, hence boosting paid employment
  • provide a safety net from which no citizen would be excluded
  • create a platform on which all citizens are free to build

A Citizen’s Income scheme would encourage individual freedom and responsibility and help to

  • bring about social cohesion. Everybody is entitled to a Citizen’s Income and everybody pays tax on all other income
  • end perverse incentives that discourage work and savings.

A Citizen’s Income would be simple and efficient and would be:

  • affordable within current revenue and expenditure constraints
  • easy to understand. It would be a universal entitlement based on citizenship that is non-contributory, non-means-tested and non-taxable
  • cheap to administer and to automate.’

The question that we have not been so good at answering so far is this: Is it possible to implement a Citizen’s Income scheme that is at, or close to, revenue neutrality and that does not impose unacceptable losses on some households at the point of implementation? And, in particular: is it possible to implement a Citizen’s Income scheme that is at or close to revenue neutrality and that does not impose unacceptable losses on some of the poorest households at the point of implementation? A previous standard answer to this question has been: even if a household were to suffer a loss of disposable income at the point of implementation, it would be easy for that household to make up the loss by earning additional income, because with a Citizen’s Income the value of additional earned income would not be reduced by the withdrawal of means-tested benefits. However, this response would be little comfort to households at the point of implementation, and the existence of such losses would be likely to make the proposed scheme politically unacceptable.

The root of the problem is, of course, the way in which the current system provides both a Personal Income Tax Allowance and Working Tax Credits to low-earning households, and that a Citizen’s Income would match the Personal Income Tax Allowance in value but not the Working Tax Credits. An article in this edition of the Newsletter offers a solution to this problem. If instead of abolishing in-work and out-of-work means-tested benefits we leave them all in place and take into account the value of the Citizen’s Income when we calculate a household’s entitlement to them, then we find that the number of households with low disposable incomes suffering losses at the point of implementation is negligible, and that the number of losses suffered by households in general is manageable and, with some schemes, negligible.

Because large numbers of households would find themselves no longer entitled to means-tested benefits, and because large numbers of households would be entitled to smaller amounts of them and could therefore decide to do without them and seek additional earned income, the means-tested system would become the safety net that Beveridge originally intended it to be. So whilst some might regret that this way of implementing a Citizen’s Income would not immediately abolish means-tested benefits, for many households the result will be the same.

In the current context, a Citizen’s Income implemented in this way would offer everything that Universal Credit is attempting to achieve and more besides, and the Government that emerges following the General Election next year could well decide that such an easy reform would be a useful replacement for it. Because a Citizen’s Income implemented in this way would be genuinely universal, we would have no objection to it being labelled ‘Universal Credit Mark II’.

Given this possibility, we would be pleased to see further research on this option for implementing a Citizen’s Income, widespread debate on its advantages and disadvantages, and serious political engagement with the possibility.