A citizen's basic income would increase people's real freedom - their ability to control their own lives
Britain's welfare system is failing those who need it most, argues Chris Dillow
Our welfare state is failing the worst off. The poorest fifth of the population get a lower share of national income today than they did in the mid-1980s. The unemployed and those on incapacity benefits are regularly insulted by politicians and the media.
Tax credit recipients face monstrous bureaucracy and constant uncertainty that their payments will be clawed back. And for many, it’s hard to escape from poverty. Many benefit claimants are scared to take jobs for fear of losing benefits if the job doesn’t work out. And if you’re in work and get a better-paid job, your higher wages are clawed back through lost tax credits; 1.9 million people lose more than 60p for every extra £1 they earn, as their tax credits and benefits are cut and their income tax and national insurance rise.
So, we’re getting a terrible deal for the £155.7 billion a year we spend on social security and tax credits. But is there an alternative?
Yes. It’s an idea that has been on the fringes of politics for decades, but it’s time it moved to the centre.
The idea is a citizen’s basic income. This is a cash grant paid to every adult citizen. For pensioners and the unemployed, it replaces welfare benefits. For workers, it replaces the income tax allowance or tax credits.
In principle, this has many merits. The unemployed can never lose benefits if they take a job, so they have incentives to find work. And because the benefit is not so quickly clawed back if your wages rise, people have more incentive to work harder. For these reasons, a citizen's basic income appeals to many on the right.
It should also appeal to the left. Because it would be paid to everyone, it engenders a sense of social solidarity. The right’s calls for cuts in welfare spending will then have less force, because they would mean cutting a benefit for everyone. Because such a scheme would allow people to take a mid-life break, care for children or sick relatives or retrain, people’s real freedom – their ability to control their own lives and to tell tyrannical employers to stuff their jobs – would increase. And because there’s no means test or stigma attached to the citizen's basic income, claimants would have their dignity restored.
Is this too good to be true?
Not necessarily. Certainly, a modest citizen's basic income is easily affordable. To give every British adult £81 a week – the current incapacity benefit rate – would cost around £190 billion a year. This is a little less than we spend on social security, tax credits and the personal income tax allowance. By closing some tax allowances and reliefs we could easily raise more.
The problem with the citizen's basic income, then, is not its affordability. There are other fears, which I suspect are exaggerated.
One concern is that it’s a handout to the rich as well as poor. Yet this can be solved simply by taxing the rich more.
Another concern for many is that it would give something for nothing to the workshy. But is this a big problem? All serious studies show that people out of work are considerably unhappier than those in work. Work, despite capitalists’ efforts to make it otherwise, is a source of contentment and self-affirmation. Given a choice, most would rather work. The idea that lots of welfare claimants are scroungers is a lie perpetuated by class warriors in the trash press.
A more serious criticism of the citizen's basic income is that it fails to recognise that some – disabled people or those with children or high housing costs for example – have greater needs than others.
But there is a case for not recognising such needs. It’s expensive. If we want to distinguish between, say, the depressed and those who are down in the dumps, we must give money to an 'expert' to make that decision, which could instead be spent upon relieving poverty. And we are retaining an intrusive bureaucracy that harasses the worst off.
What’s more, if you give people more money for having children or high housing costs, you give them an incentive to have more children or live in expensive areas. This cuts the cash available for genuine redistribution and fails to acknowledge that at least some of the duty of relieving child poverty should fall upon parents.
My personal preference is to recognise that government simply cannot have the knowhow to implement perfect justice and therefore should err on the side of simplicity – although there might well be a case for interim child benefit and housing benefit payments to ensure that fewer of the poor lose in the transition to a citizen's basic income.
But my aim is not to give blueprints. Think of the proposal instead as a light by which we should judge our present welfare system; does the light show the strengths of the system or rather – as I suspect – its weaknesses?
There is, though, one overlooked problem with the citizen's basic income. The left would favour a high one with higher tax rates, the right less of both. We therefore bring into the open the question: how much equality do we want? Are we really prepared for the question to be this explicit?
Chris Dillow is the author of New Labour and the End of Politics and economics writer at the Investment Chronicle