Free basic services are no substitute for a condition-free income floor

A decent future for all depends on building a more secure income base and rebuilding our badly depleted public services.

Stewart Lansley
13 June 2019, 10.53am
Image: HM Treasury, CC BY-NC-ND 2.0

Britain’s social security system is broken. Poverty levels and rates of insecurity are rising. Two quite distinct ideas are being promoted to help tackle these deep-rooted problems. The first is to implement a ‘basic income for all’ (BI). A modest basic income – one that paid around £10,000 a year to a family of four, no questions asked – would be feasible and affordable. It would cut poverty and inequality and reduce dependence on means –testing.

Crucially, a BI would, for the first time, introduce a guaranteed and unconditional income floor, below which no-one would fall. This would not just provide an enhanced level of income security but also promote greater freedom of choice and empowerment across society.

Despite these strengths, basic income has proved a controversial idea amongst progressives. Critics of BI are promoting a second idea, the extension of free universal basic services (UBS) aimed at raising the level of the social wage. This idea is being pitched not to go hand in hand with a much needed reform of today’s fragile social security system but as an alternative to BI.

Promoting the idea of UBS as a competitor to BI would leave the present system of social security, with its multiple faults and limitations, intact. It also risks reinforcing Ian Duncan Smith’s dismissal of decent benefits as ‘poverty plus a pound`.

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Cash support and public services meet different goals, and are not substitutes for each other. The post-war reforms constructed by Beveridge and Attlee included a radical improvement in income support – and the introduction of free health care at the point of use. Subsequent developments in anti-poverty policy involved improvements in cash benefits (such as the introduction of child benefit in the 1970s – one of the most effective of anti-poverty instruments) together with boosts to the social wage and effective preventative measures such as ‘Sure Start` aimed at improving wider life chances.

Tackling Britain’s high level of poverty requires a multi-pronged set of measures including changes that deliver a higher pre-tax share to the poorest third. One of these measures must be a reform of income support. Across rich nations, Britain has at best a middling (and highly punitive) social security system, one further weakened by a decade of austerity that has left large numbers with no or minimal income to live on, sometimes for prolonged periods. Building a firm condition-free income floor through the introduction of a modest BI would transform the nature of social protection and greatly strengthen the anti-poverty power of the social security system.

The Beveridge plan was always built around the idea of a universal floor created through the combination of national insurance, family allowances and full employment. In the event, the plan was never fully implemented, while the principle of universalism has been greatly weakened over time by increasing reliance on means-testing – the flawed and underfunded Universal Credit is essentially a giant means test.

That the way forward must be grounded in the reform of the existing cash benefit system is already being recognised even in pro-UBS organisations like the New Economics Foundation. A recent article from NEF argues that a new social contract needs to embrace both ideas. Another calls for two important tax/benefit reforms – the conversion of the personal tax allowance into a cash payment and an increase in child benefit. Yet both these reforms would be integral first steps in the move towards a more comprehensive unconditional income floor and overlap significantly with detailed BI proposals from groups such as Compass.

The debate about the merits of BI and UBS raises a number of wider issues. How far should social priorities be determined by a centralised state – through the provisions of free services – rather than individuals, through guaranteeing a basic income and the autonomy it offers? Then there is the question of the distributional consequences of different reforms. Models of basic income have been designed so that the gains are concentrated amongst the poorest and losers at the top. The distributional impact of making public services free would vary by service but are likely to be less progressive. Overall the present system of cash benefits reduces inequality by more than the system of in-kind benefits such as spending on health and education.

There is also the question of resources and the balance between taxes and public spending. It is possible to design a partial and progressive model of BI with modest initial payments that is close to being revenue neutral. More radical changes – through a higher level of payment along with improvements in public services – would require additional resources and hence higher taxes. These must come from new sources, from the largely untapped and ever-rising pool of personal wealth and reform of the ‘shadow welfare state of tax allowances’ to new eco-taxes.

Private wealth holdings – much of them unearned – have been rising at twice the rate of the economy since the 1970s, yet are much more lightly taxed than income. Even modest increases in taxes on the £12 trillion private wealth pool could deliver significant new revenue that could fund ongoing progressive reform. There is a strong case for ensuring that part of the cost of a BI is linked to the gradual socialisation of part of the national wealth base, preferably through an independent, citizens-owned capital fund. In this way part of the BI payment would take the form of a citizens’ dividend from returns to the fund, giving all citizens an equal stake.

There is much common ground between the advocates of BI and UBS. A decent future for all depends on building a more secure income base and rebuilding our badly depleted public services.

Stewart Lansley is the co-author (with Howard Reed) of the Compass report, Basic Income for All, From Desirability to Feasibility, 2019, and co-author (with Joanna Mack) of Breadline Britain: the rise of mass poverty, Oneworld, 2015.

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