Citizens Income (or, Lib Dems and the truth #1)

ADDENDUM: Please treat the first bits of this post (before the links and primer) as a polemic. Fellow bloggers have pointed out that I made the mistake of accepting some of the Lib Dem assumptions on the cost of Citizens Income, whereas their figures are actually way out in both directions! The policy links and CI primer are still entirely accurate. The original Lib Dem extract that prompted this post was: "the Green Party are calling for central government payments to everyone - including millionaires - at a cost to the taxpayer of a whopping £188 billion a year."

Anyone who has been involved in UK politics for any length of time knows that the Liberal Democrats have a reputation for - how shall I put this - bending the truth. They rarely lie outright (well, only when they get desperate) - but instead rely on a subtle blend of insinuation and omission of salient facts to do the job. For example, the Lib Dem leaflet I experienced while a councillor in Oxford, which claimed that I 'VOTED AGAINST RENEWABLE ENERGY'. Yes, I did. I voted against a small amount of money for renewable energy which was in the Lib Dem budget, and for a very large amount of money for renewable energy which was in the Green budget...

So, imagine my lack of surprise when the Lib Dem pseudo-newspaper 'Hackney News' dropped through my letterbox today, complete with misleading attacks about Green Party policy (as well as the obligatory Lib Dem graph, which I will deal with in a later post, for those electoral geeks amongst you, dear readers). Apparently, we want to spend £188 billion on central government payouts to benefit millionaires.

Lets unpackage that for a moment, shall we?

The policy being referred to is the Citizens Income (which, by the by, was Lib Dem policy until their shift to the right in the mid 90s). This would guarantee every UK citizen a basic income, as of right - currently pegged at around £60 per week, to match Job Seeker's Allowance, with more for the elderly, those with special needs, lone parents, and so on. It would replace our current, insanely complex and confusing benefits system, and ensure a safety net for every member of our society.

It would indeed cost around £188 billion. Our current benefits system, which would be replaced, costs £186 billion. I am tempted to write a leaflet with the headline:

"LIB DEMS ADVOCATE COMPLEX BENEFITS SYSTEM WHICH WOULD COST THE UK £186 BILLION EVERY YEAR!"

But that would be dishonest confusion-mongering of the worst sort, obviously.

And yes, the Citizens Income would be universal - that's the point. So, like current child benefit, some money would go to those in high tax brackets. But since the Green Party would at the same time be raising the highest tax brackets (particularly for those earning over £100,000 a year), the incomes of the rich would go down. And the incomes of the poor would go up. Voila, a sensible, radical and easily understandable policy.

Keith Angus, the Liberal Democrat candidate for Hackney North & Stoke Newington, doesn't agree with a Citizens Income. That is totally fine. I'd love to have a debate with him about it, which is what a General Election campaign is all about. But please, please, please....lets not get into the game of misrepresenting each others positions. Lets try to talk like adults, and treat the voters like adults too? After all, its the only way a democracy can really work.

For those who are interested, here is the Green Party's Policy Pointer on a Citizens Income, as well as two pamphlets from the Citizens Income Trust. Alternatively, you could read the primer below...

PRIMER ON CITIZEN'S INCOME

What is Citizens’ Income?

Citizens’ Income (CI), also known as Basic Income, forms the main plank of the Green Party’s social security policy. Under this system, all UK citizens would receive a Citizens’ Income of around £60 a week, which would replace most existing benefits. CI would be a universal benefit, paid to everyone regardless of their income, or whether they are actively seeking work, or whether they live with a partner. It would work in the same way as child benefit, which is currently paid in respect of all children, not just those in needy families.

What’s wrong with the current system?

The current social security system is incredibly complicated, consisting of a huge raft of benefits (Jobseekers Allowance, Income Support, Child Tax Credit, Working Tax Credit, Incapacity Benefit, Attendance Allowance, Disability Living Allowance, State Pension, Pension Credit, Housing Benefit, Council Tax Benefit, Child Benefit, to name but a few).

Each of these benefits has its own eligibility rules. Depending on which benefit you claim, you might have to show that you are unemployed but actively looking for work, or working more (or less) than a certain number of hours, or unable to work; or that you are above (or below) a certain age, or single, or a lone parent, or have income below a certain threshold, or savings below a certain threshold, or that you pay a certain amount for childcare.

Because the system is so complicated, it’s very expensive to administer. There are substantial costs associated with processing application forms, working out the correct benefit rates to pay, and snooping on claimants to check that they have told the truth on their forms. CPAG estimates the administration costs of child benefit as around 1% of total costs, compared with 3% for means-tested tax creditsi. Earlier estimates put the cost of Income Support as high as 11.8%.

Because it’s so complicated, most people don’t understand the system properly, and because the forms are so daunting, many people don’t claim the benefits to which they are entitled. The government’s own figures put the uptake of council tax benefit at under 70%, and the uptake of jobseekers allowance at under 60%.

Again because the system is so complicated, mistakes are often made in assessing people’s benefit entitlement. Not only do these errors cost money (at least £2 billion in the case of tax credits), they can also have catastrophic effects on people’s lives.

Because so many benefits are means-tested or work-tested, the current system reduces people’s incentives to work. Unemployment benefits which are withdrawn if people start working mean that people’s incentives to get a job are reduced (the unemployment trap); income-support benefits which are tapered off as earnings rise mean that people have less incentive to increase their earnings (the poverty trap). Tax credits, which are in-work benefits with generous tapers, have reduced the scale of both these problems – but not completely, and at great expense and with massive complexity.

What’s good about Citizens Income?

CI is simple. It’s cheap to administer. It ensures an almost universal uptake – everyone will get the benefits they’re entitled to. It completely eliminates the poverty and unemployment traps and improves people’s incentives to work, particularly the incentives of people on low incomes. Because it’s payable to everyone, it’s almost fraud-proof, and it encourages people to tell the truth about their circumstances. And it gives people the security of knowing that their basic needs will be provided for, even if they fall on hard times.

CI will replace most, but not all benefits. Which other benefits will remain?

Housing Benefit will remain. Some form of disability benefit will be retained indefinitely, to compensate disabled people for the extra costs they face. And a supplement will be paid to lone parents.

How much would we pay?
About £60 a week for adults, and £130 a week for pensioners (these rates are about the same as current rates of Income Support). £25 a week would be paid in respect of children.

Wouldn’t everyone just stop working, and the country grind to a halt?

A few people might possibly give up their jobs in return for £60 a week, but there are good reasons to believe there will not be a mass exodus from work. In the UK in 2008, average weekly earnings for full-time workers were £479. Even people on minimum wages earn about £240 for a 40-hour week. It’s inconceivable that most of these people would opt for a massive drop in their incomes just because they could get £60 a week for doing nothing.

Remember, too, that it already is possible to get about £60 a week for doing nothing. The current system requires claimants to be actively seeking work, but if a person is determined not to work, the system will usually (and quite rightly) continue paying some benefits rather than allowing people to starve. The fact that we don’t currently see many people doing this means it’s unlikely that many people will make this choice under CI.

Even if only a few people decide not to work, is that fair? Isn’t CI a scroungers’ charter?

We have a choice. We can either pretend (as the current government does) that if people don’t want a job we will let them die of starvation. And we can spend millions of pounds of taxpayers’ money snooping on claimants to try and catch out the few people who try and defraud the system.

Alternatively, we can acknowledge that the hallmark of a civilised society is that we do not allow our citizens to starve. We can introduce a cost-effective, fraud-proof system which guarantees a very basic livelihood to everyone, unconditionally – and which provides proper incentives to work for the vast majority of people who do want to.

How can it be right to pay a benefit to everyone, even people who don’t need it?

Restricting a benefit to poor people creates more problems than it solves. It creates a system where benefits are stigmatised, where the poverty and unemployment traps are inevitable, and where the government has to spend money to check that people aren’t defrauding the system. The rich will be paying much more under our progressive taxation system anyway - £60 a week will not offset their additional contribution to society.

How would we pay for CI?

We would abolish the tax-free income tax band: people would pay tax on all their earnings, not just earnings above a certain amount. We would also increase rates of income tax rates – modest increases for most people, and more substantial increases for those earning over £150,000.

Who will lose and who will gain?

People with no income from employment will be about as well off as they are now (but they will be able to work without losing any benefits, so can easily become better off). People with modest earnings will be better off, people on average incomes will be about as well off as they are now, and people on the highest incomes will be worse off. Couples (particularly couples where one partner does not have a job) will gain more under these reforms than single people.