Basic Income - the modern form of income security

Dr Simon Duffy of The Centre for Welfare Reform 

Although the idea of Basic Income has been around for at least two and a half thousand years, it is still unfamiliar to most people in modern Britain. However it is an idea whose time has come. Currently only the Green Party is officially championing it, but it will come to dominate debate about what a fair and sensible system of income security should look like; for it is ideally suited to the modern world and it brings with it significant economic advantages.

 

 

What is Basic Income? It is the simple idea that we give everyone an adequate income - unconditionally. Every child, every adult, every older person would gets a basic income - not because they’re poor, not because they’ve paid into some scheme, not because they’ve got special needs - just because they are human and human beings need an income in order to survive. Basic Income is the best way to meet our basic human right to exist.

Is Basic Income affordable? Well, like most things in life, the answer is - it depends. But the easiest way to see how affordable it could be is to recognise that we already do provide people with such an income - but in a complex and perverse manner:

  • Children get child benefit
  • Older people get pensions
  • Working age adults get a mixture of benefits, tax credits and tax allowances

So, for instance, if you are paying 25% income tax, after a tax allowance of £10,000, then this is financially equivalent to being given £2,500 and then paying tax on every pound of your earnings. Basic Income is best thought of as the integration, and simplification, of all the current systems of income security into one universal system.

It is this universality which makes it such an essential reform. In time we will see Basic Income as equivalent to the NHS or to free education - an essential part of a civilised society. For too long income security has been treated as if it were just some peculiar system that exists only for ‘the poor’. But this is doubly deceitful. We all need income security, we cannot live on air, and it is important that we treat income security as an essential human need. But also, a closer examination of the current system shows that it is incredibly unfair to the very group it is supposed to benefit. In fact the poorest in Britain:

  • Pay the highest average rate of tax on their income - 49%
  • Pay the highest marginal rate of tax (the tax on the next pound earned) - often 100%
  • Face many additional burdens on family formation, savings and risk-taking

We place the biggest burdens on those - supposedly - we are trying to help, while at the same time providing many benefits to those on higher incomes that never filter down to the poorest:

  • Subsidised borrowing for the wealthy - there’s no need for pay day loans if you’ve got a good credit card
  • Inflated house prices and the income that can flow from renting or cashing out your home
  • Multiple tax credits, allowances and flexibilities - most useful to those who can pay for the best advice
  • Better pensions for the better off

Basic Income lets us strip away this middle-class welfare and start building, from the bottom up, a system that treats everyone fairly, giving everyone a fair starting point. There are many advantages of this system - but here I just want to focus only on the economic advantages.

There are five major economic reasons for choosing Basic Income:

First, Basic income radically improves the incentives to earn and save for people on lower incomes, particularly the poorest 20-40% of the population who can be caught up in poverty traps. The Government is currently trying to address this problem by creating its own incredibly complex system of Universal Credit which aims to reduce the marginal tax on the poorest from 100% to 80%. Basic Income truly liberates people from excessive taxation by taking the (real) marginal rate of tax down to the level that most of us pay - about 35%.

Second, Basic Income creates a reasonable degree of income security which means that people don’t have to work if they don’t want to. This means that people are likely to be more careful in finding work that is more rewarding and productive. So, while the poorest now have better incentives, many will find their incentive to perform just any work reduces. This potential reduction or redistribution in the supply of labour will help lift salary levels and reduce exploitation. In the long-run this will improve productivity by helping people find the right work for them, at the right price.

Third, Basic Income rebalances the economy by recognising that many forms of work - particularly bringing up a family and contributing to the community - are just as valuable, if not more valuable, than being an employee. Currently, by fixating on salaries, as the only means to earn a living, we find ourselves in the bizarre situation of preferring parents to be paid to look after other people’s children rather than looking after their own. Similarly we will pay people benefits, but we will punish them for doing voluntary work instead of ‘looking for work’. This is perverse and reduces the quality of community life. An economic system that undermines family and community life in this way is unsustainable.

Fourth, Basic Income can replace the complex web of subsidies to industry and business, that often pervert good business practice. As it stands Government too often tries to meet its social objectives by enmeshing business in systems of ‘workfare’ (forced labour) or in providing incentives to employ people. Basic Income clears away this mess. In a sense any ‘subsidy’ on labour is transferred to the person themselves - who can then enter work on terms agreeable to them and their employer.

Finally Basic Income opens the doors to democratic Keynesianism. Modern governments know that they must maintain the necessary supply of money to sustain economic confidence. After World War II this was achieved through paternalistic Keynesianism - public works and government spending. From the 1980s governments - particularly in the UK and USA - have moved to privatised Keynesianism - letting banks create money instead. Privatised Keynesianism has been electorally beneficial to incumbents, but it has fuelled house price inflation, increased inequality and created the financially fragility that undermined our economy and led to the politics of ‘austerity’. Democratic Keynesianism means - if money needs to be created, for the sake of the economy - we don’t give it to the state, we don’t give it to the banks - we give it to the people.

It may take some time for the idea of Basic Income to catch on. It challenges some of our primitive intuitions about justice, society and economics. But it is an idea that will not go away, and once it begins to win some public attention I strongly suspect many groups - disabled people, families, low income groups, charities and advocates of social justice - will start to see it as a better way forward. Perhaps even businesses will prefer a system that treats employees with respect and encourages justice at work and at home.

Further reading

There is a significant literature on Basic Income. Let’s Scrap the DWP is a more detailed summary of the flaws in our current system and the case for Basic income. [http://www.centreforwelfarereform.org/library/by-date/lets-scrap-the-dwp.html]

Daniel Raventos sets out the philosophical case for Basic Income in Basic Income. [http://www.centreforwelfarereform.org/library/by-az/basic-income.html]

Malcolm Torry’s Money for Everyone is a defining text for what Basic income means in the UK. [http://www.policypress.co.uk/display.asp?K=9781447311256]

The case for what I am calling Democratic Keynesianism is set out by Malcolm Henry. [http://www.centreforwelfarereform.org/library/by-az/how-to-fund-a-universal-basic-income.html]

I have also argued that Basic Income can also be designed to respect the fact that some groups, in particular disabled people, need a higher income in order to be able to live as equal citizens. [http://www.centreforwelfarereform.org/library/by-az/basic-income-plus.html]

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