Recent articles this week have been detailing the issues in the UK Green Party’s proposal for a citizen’s income, also known as a basic income. According to the Citizen’s Income Trust, their current proposal to implement a revenue-neutral scheme that would give each citizen £72 a week would make 35.15% of households net-losers by losing more current benefits than the citizen’s income would replace. This would especially hurt low-income households currently receiving multiple means-tested benefits. The Citizen’s Income Trust has given advice to the Green party frequently on their citizen’s income policy, but it is their analysis that has uncovered some of the issues in the current plan.
In a Guardian article, Malcolm Torry, Director of the Citizen’s Income Trust, said that this current citizen’s income scheme is impossible to implement with its negative effects on low-income households, but he argues that the scheme would still be worthwhile if a means-tested component were included in the plan. This means-tested benefit would be necessary to maintain the benefit levels of those in low-income households, but the bulk of the benefits system would be the citizen’s income, leading to significantly decreased marginal deduction rates. Torry details what such a plan might look like in the Citizen’s Income Trust’s first newsletter of 2015 in an article titled “A feasible way to implement a Citizen’s Income”.
Most of this negative press about the Green Party’s citizen’s income plan stems from an interview Natalie Bennett, leader of the Greens, had with Andrew Neil in which she stumbled while trying to explain the intricacies of the citizen’s income plan among other Green policies.
UPDATE: The Citizen’s Income Trust have issued a statement regarding this discussion. You can view it here.
SECOND UPDATE: Malcolm Torry has shed further light on this subject, saying, “The Guardian made an assumption that the Green Party scheme was the same as the scheme that the Citizen’s Income Trust published in its introductory booklet 2013. But the Green Party had not published the details of its scheme, so this was not a valid assumption. The CIT scheme does generate losses, although mainly small ones. This is why we did some more research, which was published in an Institute for Economic and Social Research working paper in September 2014. This shows that it is possible to implement a CI of £72 per week which doesn’t generate losses, but only if residual means-tested benefits are retained and a household’s CIs are taken into account when their means-tested benefits are calculated. What the Green Party will put in its manifesto we still don’t know. For the avoidance of doubt: There is no conflict between the Citizen’s Income Trust and the Green Party. Links to the relevant publications can be found at the top of the home page of our website, www.citizensincome.org”
For more information, click on the following links:
Patrick Wintour, “Green party’s flagship economic policy would hit poorest hardest, say experts”, The Guardian, 27 January 2015.
Citizen’s Income Trust, Citizen’s Income Newsletter, Issue 1, 2015.
Sam Bowman, “A British basic income? Green leader Natalie Bennett is a bad advocate of a good improvement to the welfare system” International Business Times, 28 January 2015.
Sebastian Payne, “Watch: Natalie Bennett demonstrates how Green policies don’t add up”, The Spectator, 25 January 2015.
The Citizens’ Income Trust has replied to critics on its website:
“The article that Patrick Wintour wrote in the Guardian on the 27th January was partly based on an Institute for Social and Economic Research research paper, ‘A Feasible Way to Implement a Citizen’s Income’,that we put on our website last October and that we have recently republished in the Citizen’s Income Newsletter. This shows that the Citizen’s Income scheme outlined in our 2013 introductory booklet would generate losses for some households with low disposable incomes ( – most of these losses would be small). Given the markedly reduced marginal deduction rates that these households would then experience, recouping small losses through additional earnings would be much easier than it would be under the current means-tested benefits system.
The paper goes on to show that a Citizen’s Income scheme based on the same level of Citizen’s Income, but which leaves means-tested benefits in place and reduces them by taking into account the household’s Citizen’s Incomes in the same way that other income is taken into account when means-tested benefits are calculated, would eliminate losses for low-income households; and that a slightly smaller Citizen’s Income could eliminate losses for almost all households. (The fact that Income Tax rates would rise is not a problem. The important point is that households would not suffer net losses in disposable income.)
The Green Party has not yet published details of its Citizen’s Income scheme. Our research shows that if a Citizen’s Income of £72 per week for working age adults (more for older people, less for younger people and children) were to be implemented then it would be perfectly possible to do so without imposing losses on low-income households. ”
http://www.citizensincome.org/
CI has one possible major flaw, which I have not heard discussed.
By definition, if CI a) does not make poorer people worse off, and b) is distributed universally, then it will involve a considerable increase in taxation (it cannot simply replace the welfare bill, because large parts of the welfare bill would need to continue alongside CI, such as housing benefit).I’d guess that extra taxation cost of CI at £72 could be in the order of 90 or 100 billion pounds. In other words, around a 15% increase in total taxation, or a 55% increase in income taxation.
I agree that CI could deliver a relatively balanced economic outcome for the majority of people, the middle earners most likely, whereby extra money spent in tax is recouped from the CI. However my point is that the tax still has to substantially increase, and that will have a behavioural impact upon citizens.
In effect, what CI will have done, is reduce the return from labour and capital income net (whether by taxing directly or indirectly), without actually spending more public money where it is needed. This is problematic for two reasons:-
a) Citizens will be less likely to vote for increases in taxes because the tax rate will already be high. Instead, CI will place downward pressure on future taxation policy, and lead towards cuts in more important public spending.
b) The Government will have less maneuverability to further increase taxes on high incomes following CI, without risking the economy and the confidence of the electorate.
As a separate point, one of the main arguments for implementing CI is to remove the ‘benefits trap’, or the ‘high marginal tax rates’, as Beveridge described the problem. It cannot do this if housing benefit is still in place, as housing benefit is paid to most people in the ‘benefits trap’ situation, and it is a larger trap than any of the other benefits (it pays more per individual).
Keir.,
This isn’t a flaw.
UBI more than covers what most people’s increased tax liability would be. People may pay more tax, but most will get more UBI and therefore will be better off, net. It is the net effect people will be concerned with, so I do not accept your argument that there will be negative behavioural changes purely because many will pay more tax. . The vast majority will grasp that there will be more taxes to pay for the basic income, which comes tax free. The rest will simply need it to be reiterated to them.
They will soon see that they have more money and will accept the process.
Tax rates do not necessarily have to change. The existing proposals remove the personal allowances, so your assumption about people being unwilling to vote for increased taxes is wrong because it is a) a false premise and b) any Chancellor worth their salt would never do what George Osborne has done and say that he will not raise income tax – because circumstances may arise in a global economy that makes that necessary.
Furthermore, if the Government raises tax for e.g. 1 penny for education or 2 pennies for education and health, the public are likely to begrudgingly accept that. This generation is being reminded of what an underfunded Government and NHS and public sector looks like, so it will be prepared to accept tax rises.
Also, what parties say they want to do with tax rates is mostly wishful thinking. When in power, they do what they need to do – except of course The Tories, who are quite happy to grind the public sector and its economy into the ground, in order to privatise as much as they can get away with.
Read The Green Party proposals on how they intend to raise the money to pay for having a citizen’s income. It doesn’t work quite as you envision it.
The top level of income tax payers – people on high incomes – is where evasion/avoidance is a pre-existing issue and basically needs a Government that is prepared to tackle it, which neither Labour nor Conservative governments have done in the last 35 years at least.