Tag Archives: welfare reform

Why I’m sceptical about the Citizen’s Income idea

There is growing interest in the idea of a Universal Basic Income (UBI), also called Citizen’s Income, to replace means-tested benefits. This was given a lift last week by the think tank RSA. The Lib Dems are also reported to be looking at it as part their review of welfare. The idea already has some totemic value on the left – it is part of the Green Party policy pitch. It is an interesting idea, but my scepticism is growing. But it has along pedigree: I first remember it being advocated by Paddy Ashdown in the 1990s.

Why the interest? Well the benefit system has become fiendishly complex, with entitlement hedged around by all kinds of rules. Applying for benefits is often demeaning, and the bureaucracy involved is arbitrary. Although the government is trying to reduce the complexity of benefits with the introduction of Universal Credit (UC), which is phased out as income rises, this brings its own nightmare. To work, it needs up to date information on what people are earning. The systems difficulties associated with this have led to repeated delays in its introduction. Some of these problems may in the end prove insoluble; the project has borne many of the hallmarks of over-ambitious failed technology projects, though the bad press has eased over the last year.

A UBI would replace these benefits, including the old age pension, child benefit, unemployment pay and the tax free allowance on income, with a single system of payments to everybody. This would doubtless have to be age-related. The RSA version suggests a low rate for children (payable to parents), and a high one for the elderly. Extra allowances would need to be made for those with certain types of disability. This cuts through the current complexity.

Of course the first big design issue is affordability. How high would taxes have be to pay for it? Consider the basic maths. If the allowance was set at the mean level of earned income (spreading the income from those that work across those that don’t) across the economy, then tax on income would have to be 100%. On top of that you would have to pay for the NHS, defence, schools, the police, and so on.  If it was set at 50% of average income, tax would have to be 50% just to pay for it, and so on. So any design has to push the boundaries of how low can you get away with. But how low can the entitlement be and still be able to realistically provide a sole income for the unlucky? The RSA version can only get through this conundrum by sidestepping the rather central question of housing costs.

After you have navigated that rather central problem of scale, more problems await:

  • Incentives to work. If the income is going to be sufficient to sustain people through unemployment, might it not encourage a frugal lifestyle of people who never work (legally, anyway), reducing the tax base? This would be parasitic, and surely seen as such. Which then leads to the toxic politics of people who suspect that this is the case of their neighbours, minorities, and the like. The experience of places where something like the UBI currently works (Native American reservations with gambling or natural resources income, for example) is not particularly encouraging: too many people can lapse into a hopeless, dependent lifestyle.
  • Housing is a harder problem than just affordability, as it varies so much from place to place. But, to be fair, this is a problem with the current system too. A whole new approach is needed to housing policy, and that would need to work alongside this reform. This encompasses such issues as the availability of social housing, regulated the private rental sector, and the access to housing finance which seems to be too easy, so pushing up prices needlessly). This, for my money, is a more urgent problem.
  • Who is an isn’t entitled? At what point do people coming to live in the country become entitled? At want point do people choosing to move overseas lose entitlement? This is one area where being in the EU, with its multiplicity of benefits systems and no-discrimination rules, makes things harder.
  • Enforcement. There is an invitation to fraud here, as people will be tempted to create claims for fictitious people, or the deceased, etc.,and that points to the use of some kind of central registration. The RSA suggests linking to the electoral register. This sits uneasily with British traditions of keeping the state at arms length.
  • Taxes. There is a need to roll in personal tax free Income Tax and National Insurance allowances to make it pay. That means all income is taxable. This could involve quite a lot of extra administration as more people are brought into the scope of taxation.

There are no doubt many more design issues. The problem is not so much that these difficulties are insuperable, but that the idea is revolutionary. And revolutions usually fail, because it is impossible to foresee consequences. All the modelling is based on the idea that behaviours will not change very much – when they are bound to. If possible change should be in smaller, evolutionary steps.

But I have a deeper, philosophical problem. This all reeks of a Big Idea to be dropped from a great height on people by central government. Liberals are rather prone to this. They love the idea of universal righst and entitlements, because they think they are empowering. But the alternative view is that such grand, centrally designed systems are dehumanising and create dependency.

My view is that instead of such systems of legal rights and entitlements, we need to give the state a human face. That means that individuals in difficulty have access to intermediated services and support which tie together, physical health, mental health, social support, housing and so on. These would in packages that are designed to move people onto a sustainable path, and also conditional on to some extent on how the individual engages. Universal income is based on a heartless idea of “Take the money and you’re on your own.” Of course intermediated services might be considered illiberal, because they place considerable discretionary power in the hands of agents of the state.  I think that can be managed through stronger local accountability. And I think that current British society has the civic strengths to pull it off. Though even here, I must beware of my own Big Idea to be dumped on an unknowing public.

But Citizen’s Income is supported by a lot people I respect. No doubt the idea is worth exploring further. But I will take a lot of convincing that this is the best way forward for welfare reform.

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Will Labour let the Tories win the 2015 election?

Margaret Thatcher’s death on Monday has distracted attention at rather an interesting moment in British politics. There is a vigorous debate about how Labour should fight the next General Election, which should be in 2015 (one of the very few Lib Dem inspired constitutional changes to get through was one on fixed term parliaments). I have picked this up from two articles. First was an article by Guardian journalist Jonathan Freedland last Saturday: Labour must draw the sting from welfare, or lose in 2015. Mr Freedland is nominally an independent journalist, but this article seemed to be very well coordinated with material coming out from the Labour leadership, including a TV interview with deputy leader Harriet Harman. It sounds their leader’s, Ed Miliband’s, party line. Then came former leader and prime minister Tony Blair in a widely reported article in New Statesman: Labour must search for answers and not merely aspire to be a repository for people’s anger. The link is to a summary, which is all I have read; the full article is in a special Centenary print issue. I don’t think either have identified the right strategy for 2015, though Mr Blair is closer.

Both writers attack a complacent view which seems quite popular in Labour circles, and which is often associated with another Guardian writer, Polly Toynbee (though not by either author, and possibly not fairly). This is that the Conservative led coalition is in a mess, having picked the wrong economic strategy, and heartlessly cut important parts of the British system, such as working age welfare. The Conservatives are very unpopular; public anger is raging. They even face a challenge from the far right, Ukip, which is causing panic and leading them to revive their reputation for being the nasty party. Meanwhile Labour have already dealt a mortal blow to their coalition partners the Liberal Democrats, who face a private battle with oblivion in a few dozen constituencies across the country, and are reduced to irrelevance everywhere else. On this reading, all Labour have to do is to ride the anger and say as little as possible about what they would do in government, beyond the implicit or explicit promise to roll back the Tory cuts. The coalition parties will lose the election without Labour having to try very hard to win it.

But both authors suggest that the middle ground of British politics has shifted, to something much sourer than it was before the crisis. Before Mrs Thatcher’s death, the left had been stoking up the anger over the government’s welfare reforms, and especially some changes on housing benefit that they dubbed “the bedroom tax”. But into this maelstrom stepped the novelist A.N. Wilson and The Daily Mail who suggested that odious killer Mick Philpott was a product of the British benefit system, showing that cuts were needed. And then Chancellor George Osborne joined them, to apoplexy of the left. Labour’s anger is genuine, but it does not seem to be hurting the Conservatives. Opinion polls put Labour on about 40% to the Tories’ 30%. Add in more than 10% for Ukip and the right is level pegging with the left before the fight has really started. Labour are appealing to people who already vote for them, or who live in Northern urban constituencies where their votes are not needed.

The threat to Labour is quite clear, with a parallel in 1992, another election in difficult economic time. The weak economy is causing hardship across the board, and not just amongst those on benefits. If the economy picks up in the next two years, the government will get credit. If, as most people expect, things stay grim, then that sour mood will continue. People don’t buy the argument, popular amongst trade union leaders, that bit of extra government spending will stimulate the economy into a virtuous circle of growth. As in 1992 the Tories will claim that Labour’s plans to restore the cuts will simply make things worse by raising taxes. This will be very hard for Labour to fight if they follow the Polly Toynbee strategy, and they might lose rather than gain seats. A Lib Dem meltdown, predicted gleefully by Labour activists, will simply deliver a full working majority to David Cameron.

What to do? Mr Freedland suggests a programme of radical reforms to welfare, which will inspire the public with fresh thinking against Coalition incompetence. Ideas include moving towards the contributory principle for benefits (linking benefits more tightly to contributions, as many other European countries do), increased support for childcare, guaranteed jobs after a year of unemployment, and so on. These reforms will tackle the crisis of legitimacy that Mr Freedland highlights as the problem with the benefits system. This seemed to chime with what Ms Harman was saying on the television, and which I had read elsewhere from another Shadow Cabinet member.

What Mr Blair is suggesting is not clear, certainly from the article summary. He asks questions rather than provides answers. He does not seem to be going down the radical reform line, though. He suggests things like building more houses (in his case probably by building private sector houses on green belts), more computerisation of government services, and using DNA databases to tackle crime more effectively. Overall this is much closer to what the Coalition is already suggesting. On the economy, he does suggest industrial strategy, but not re-balancing. He even suggests rebuilding the finance sector. But then he does not accept that the British economy was more vulnerable than others to the financial crisis. More pleasing to liberals, he suggests challenging the right on Europe and immigration – though this can be read as justifying his policies when he was last in power.

Mr Freedland’s approach would be a serious mistake. If the Coalition has shown anything, it has shown just how difficult reform is, especially in hard economic times. All reforms create winners and losers. Politically the winners keep quiet, but the losers shout like mad. And reform ideas put together quickly tend to fall apart quickly. Any programe of radical welfare reform would fall apart under the full weight of attack, led by a press pack that still tends to set the political agenda. They will be portrayed as expensive and muddled; and any areas where savings are suggested will be attacked vigorously so that the losers’ voice is heard. It is simply too late to be radical. The country has reform fatigue. Remember the referendum on reforming the electoral system? An idea that seemed quite popular at first fell apart under concerted attack from the right.

Mr Blair is closer to the mark only because he seems to be less radical. But his central idea of trying to restore the reputation of the last Labour government is surely a dead letter. What Labour should be doing is learning from the way he secured a landslide at the 1997 election. He did this by signing up to 95% of the Conservative government’s policies, with a few carefully chosen and well publicised exceptions, while appearing more cohesive and inclusive than his opponents.

Likewise Mr Miliband needs to sign up to the bulk of the welfare reforms, with some token exceptions. Unfortunately reversing the “bedroom tax” would be a poor choice: the change only applies to social housing tenants, so private sector tenants either have to be included at great expense, or else they will protest as to why they are being left out. Personally I would would focus mainly on reducing the costs of childcare at the expense of some pensioner benefits – though the coalition parties might jump on this bandwagon.

But Labour needs to act now if he is to do something like this. The activists will hate it: so they need enough time for the fuss to die down, before they return to their visceral hatred of the Tories for motivation. But I don’t think Mr Miliband will go down that road, though.

David Cameron is not a particularly effective Prime Minister. But he is the most skilled politician amongst the party leaders. He has an excellent instinct for the political middle ground, and he is slowly but surely manoeuvring Labour into a cul-de-sac. Whether he will win a majority in the 2015 election is open to doubt: but I would bet good money on the Tories being the largest party.

 

 

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