The idea of a ‘citizen’s income’ has made a real splash on the UK political agenda. The new year started with the Green party announcing a universal, non-means tested weekly payment of £72 to every British adult as its flagship economic policy, only to drop it this week from the party election manifesto after the programme’s costing failed to withstand rigorous scrutiny. Despite this step back, the citizen’s income idea may still feature in the election debate, given calls late last year by key Liberal Democrats for a universal basic income to become official party policy. And while the Greens have distanced themselves from the policy for the duration of the election, Green MP Caroline Lucas has identified the scheme as a long-term aspiration of the increasingly popular party.
And even if it does not feature in the British election debate, the idea of replacing means-tested cash benefits with an unconditional, universal weekly payment to every adult citizen as a right of citizenship will soon be tested at the Swiss ballot box, with a referendum on basic income in Switzerland due sometime this year.
The growing British interest in a citizen’s income scheme coincides with an announcement last month that two major UK public pension funds – the Greater Manchester Pension Fund (GMPF) and London Pensions Fund Authority (LPFA) – will form a joint infrastructure investment venture worth $500 million. In doing so, they are heeding Boris Johnson’s calls for a ‘citizen’s wealth fund’: last October, London’s mayor proposed pooling some of the UK’s 39,000 public pension funds into a single investment fund large enough to reduce the country’s dependence on foreign investment and close its infrastructure financing deficit. Of course, this modest joint fund proposal, at just half a billion pounds, hardly competes with the holdings of the world’s largest public pension funds, such as the Netherlands’ ABP ($375 billion), Canada’s Public Pension Plan Investment Board (CPPIB) and Australia’s Future Fund ($92 billion). Nevertheless, the announcement represents a step towards the creation of a British nation-building fund.
Thus far, these separate proposals for a UK citizen’s income and citizens’ wealth fund have not been linked in the public debate. However, a working model for how these policies might be connected together and how they can support one another does exist. Alaska is the only state in the world to pay its individual citizens an annual, equal income, known as the permanent fund dividend (PFD), and this ‘basic income’ is financed by the investment returns of its sovereign wealth fund, the Alaska Permanent Fund (APF). While it remains an isolated example, the Alaskan model offers insights for Britain as it considers the appropriateness of a citizen’s income and wealth fund.
Creating the Alaska Permanent Fund and dividend
Unlike Johnson’s proposal to create a community wealth fund from public pension assets, Alaska built up the APF, worth around $51 billion, with resource windfalls. Since 1977, the state has quarantined 25 per cent of its natural resource revenues in the APF, owned and managed by the government of Alaska on behalf of the state’s citizens. The motivation for the fund was twofold: to convert the state’s finite resources into permanent financial assets and to protect these temporary revenues from political misuse. In the decade prior to the APF’s creation, the initial $900 million windfall from oil exploration licences – equivalent to more than five times the entire Alaskan budget at the time – had flowed into and out of state coffers. Wishing to more successfully preserve future revenues, Alaska amended its constitution to require a portion of the oil revenues be set aside in a savings fund for future generations.
It was another four years until the Alaskan legislature decided how to manage the APF’s earnings. The case for distributing a portion of the fund’s returns directly to citizens had several bases of support. Some favoured direct distribution of a portion of Alaska’s new oil revenues as a check on government growth and ‘state greed’. Others saw it as protection against savings raids on the APF, on the basis that it would give citizens greater interest in the underlying source of their payment. Some supported the proposal on equity and fairness grounds, since elites were already perceived to benefit disproportionately from the state’s resources, through special-interest appropriations of oil wealth, and because it would bring a huge benefit to low-income Alaskans and those living at a subsistence level. Others preferred cash dividends on efficiency grounds, believing that individuals would be better able to make good use of oil revenues than government.
For the main instigator of the dividend concept, then-governor Jay Hammond, these arguments boosted the case for dividends, but they were not the driving force. According to former advisors to the governor Cliff Coh and Gregg Erickson:
‘For Hammond [and staff] … the shared core idea was neither charity, nor leveling, nor an attempt to build an income floor. [The] shared commitment was to the notion of collective ownership and the fundamental fairness of sharing the returns in equal proportion to their equal ownership.’
While there were also strategic motivations for the dividend – it was a defensive posture to help keep the APF alive – Hammond’s fundamental belief was that a dividend would give each citizen an individual stake in Alaska’s collectively owned state wealth.
How Alaska’s dividend works
The successful passage of the PFD legislation has meant that, since 1982, every Alaskan citizen has received an equal annual dividend from the APF’s income. The PFD is universal, with no age-limit, means-testing or restrictions on how it is used. The only significant eligibility requirement is that the recipient must have been resident in Alaska for a full calendar year before they are entitled to receive the dividend. It is paid by direct deposit into individual residents’ bank accounts on the same day each year.
The payment fluctuates in size depending on the APF’s investment returns in a given period. From a low point of $300–$400 when it first commenced, the dividend peaked at just over $2,000 in 2008. Since the principal of the APF is legislatively protected as ‘non-spendable’, the dividends must be funded entirely from returns. While these returns vary, the dividend is calculated based on a five-year average in order to smooth out the short-term effects of market fluctuations. Finally, the dividend is paid irrespective of whether the state of Alaska is in surplus or deficit.
Insights for the UK
In form and effect, the Alaskan PFD closely resembles a basic income. Its supporters claim that it has helped to make Alaska the most equal state in the US, provides a safety net for all citizens, helps to reduce poverty and ease unemployment traps, and promotes worker freedom. On one measure, Alaska has the most equally distributed income among all US states, as well as the fewest households with incomes under $10,000. Although these outcomes cannot be entirely attributed to the dividend, studies have shown that Alaska’s equality of income distribution and poverty alleviation improved dramatically since the dividend’s introduction.
While the UK has arguably missed its chance to establish a resource-based citizen’s fund – as might have been built up from North Sea oil and gas revenues – there is still much the UK can learn from Alaska’s hybrid fund-and-dividend approach. The Alaskan experience suggests that considering the two policies together promotes a more viable version of both initiatives. Survey research of Alaskans has revealed that the dividend helps to protect the underlying wealth fund, insofar as Alaskans reject the idea of cashing it out and dividing it up. Instead, they prefer to maintain a community savings fund for future generations, which can also provide current citizens with an annual dividend.
If the UK wants to establish a citizen’s, as opposed to a sovereign wealth fund, then the lesson is that citizens are more likely to monitor and care about the performance of that fund if they are individual, direct beneficiaries of its performance. Equally, a basic income attached to individuals as a right of citizenship is more likely to be realised and entrenched if it is bundled up with a permanent funding source, and so is quarantined from the vicissitudes of annual budget rounds and spending decisions.
Crossposted from IPPR's Juncture blog.
1. Goldsmith S (2012) ‘The Economic and Social Impacts of the Permanent Fund Dividend on Alaska’ in Widerquist K and Howard MW (eds) Alaska’s Permanent Fund Dividend: Examining its Suitability as a Model (Palgrave Macmillan)