ourEconomy

A basic income is feasible and affordable

New research shows that introducing a guaranteed income floor would cut poverty, narrow inequality and reduce dependency on means testing.

Stewart Lansley
18 March 2019
Petras Gagilas / Flickr. Some rights reserved.

Britain’s social security system badly needs reform. It is too dependent on means testing, is excessively punitive and intrusive, and fails the key test of a robust safety net against poverty.

Yet there is little agreement on the nature of reform. Returning to the pre-2010 position by restoring former benefit levels is not the answer. This approach would merely retain a system still heavily dependent on means testing, still highly conditional and still lacking a guaranteed income floor.

Instead it is time for a radical upgrade of the Beveridge model with a new social contract fit for the 21st century, one founded on four key principles. First, the construction of an initial income floor through the provision of a guaranteed, basic income for all citizens, as of right. Secondly, greater universalism, with a lowering of the role of means testing. Thirdly, an end to today’s ‘hostile environment’ towards the poor. Finally, the income floor should be gradually raised over time by tapping into Britain’s personal wealth mountain.

A new system does not need to be constructed by big bang reform, but could be built in a series of steps. As a first step, the existing personal allowance for income tax should be converted into a tax-free cash payment paid to all individuals. The personal allowance currently costs £101 billion but is of no benefit to those with earnings below the tax threshold and not in work. This move alone would finance a basic payment of over £25 per week for all adults and children and would be highly progressive. It would establish for the first time a firm, if modest, income floor and the principle of a guaranteed minimum income as of right, all at no additional cost to the exchequer. Such a step would on its own cut poverty and inequality, and there is already some support from organisations including the Fabian Society and the New Economics Foundation.

The next stage would be to raise this initial income floor gradually over time by increasing the rates of payment. This could also be done in steps. There is for example, a strong case for launching a young adult benefit ( parallel to child benefit ) from the age of 18-24. This would support an especially disadvantaged group at a key point in their life. Such a step would require more funding, but could be financed by adjustments to the existing tax/benefit system.

Thirdly, to put the system on a robust financial footing, a targeted citizens’ wealth fund should be created aimed at providing long term funding for raising this new income floor. Citizens’ wealth funds are a potentially powerful tool in the progressive policy armoury. They are commonly owned investment funds, transparently managed for the long term, with the returns used to raise the level of payments over time.

With such a fund, all citizens would hold a direct and equal stake in economic success, with the fund automatically capturing a growing part of the gains from economic activity and distributing the gain equally to all and across generations. The fund would take time to build and could be financed through an initial endowment (a mix of long term borrowing and the transfer of some commercial public assets – such as the profitable land registry), and a modest increase in the taxation of corporate and personal wealth. The level of private wealth in the UK stands at over six times the size of the economy, up from three times in the 1960s and 1970s. Yet much of this wealth mountain is unearned and increasingly concentrated in the hands of the few. Unlocking some of this wealth for all would enable the building of a much more robust system of income support.

A new report for Compass, Basic Income for All: From Desirability to Feasibility, shows that this three-pronged approach to reform would be feasible, affordable and highly progressive. It shows that a basic income floor could be introduced at modest rates of £60 for adults (up to 64), £40 for children and £175 for adults over 65 in the life of a single Parliament. This plan would pay £10,400 a year for a family of four, boost the incomes of the poorest households, cut poverty sharply, narrow the inequality gap, strengthen universalism and reduce dependency on means testing.

It would abolish child benefit and the state pension, but retain most of the current benefits system, including means tested benefits. The model could be introduced at one go or phased-in in steps. The illustrative scheme would cost £28 billion net (met in part by some increases in taxation among higher income groups), similar to the aggregate cuts to benefits since 2010. It would take the UK back to the level of social security spending in 2010, but with a much more progressive and watertight system in place.

The proposal would build towards a new vision for social protection in today’s more turbulent world. It would be a new source of personal empowerment, providing all citizens with much more choice over work, education, training, leisure and caring. For the first time, Britain would have a guaranteed – and rising – income floor.

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