Review: ‘Radical proposal’ provides basic income details

Review: ‘Radical proposal’ provides basic income details

Philippe Van Parijs and Yannick Vanderborght, Basic Income: A radical proposal for a free society and a sane economy, Harvard University Press, 2017, 384 pp, 0 6740 5228 4, hbk, $29.95

This book revolves around two focal points: freedom, and Basic Income; and it might best be understood as a meditation on the relationship between them.

The introductory first chapter outlines what a Basic Income is and how it would tackle poverty, unemployment, and the quality of employment, and how it would enhance an individual’s freedom: freedom within the household, freedom in the employment market, freedom from bureaucratic intrusion… The relationship between ‘universal’ and ‘unconditional’ needs more work, and a Basic Income that varied across a country would not achieve the kind of redistribution that the authors would like to see achieved across Europe in chapter 8, as it would be conditional and therefore not a Basic Income, and would pose considerable practical difficulties: but otherwise this chapter offers a reliable discussion. Persistence with the significant amount of detail will reward the reader.

Chapter 2 discusses such alternatives as Negative Income Tax, Earned Income Tax Credits, and wage subsidies, all of which fare badly in a variety of respects when compared to Basic Income. Basic Income is preferred to a Basic Endowment because it protects our lifelong freedom against freedom badly exercised in our youth; and a reduced working week is criticised on the grounds that it would control the number of hours of paid employment that we were permitted to work, whereas a Basic Income would enhance our freedom at the same time as offering the possibility of a shorter working week. A Participation Income ought to have been tackled here as an undesirable alternative to Basic Income rather than later in the book as a feasible step on the way to Basic Income.

The following two chapters contain some of the relevant history: chapter 3 the history of social insurance and means-tested benefits, and chapter 4 the history of the Basic Income debate. Then chapter 5 argues that a Basic Income would be both ethical and just, with both of those criteria focused on the notion of individual freedom, and in particular on the freedom not to seek paid employment. Among the dialogue partners are John Rawls, Ronald Dworkin, Amartya Sen, Brian Barry, and Karl Marx. This is a chapter that the ‘philosophically inclined’ (p.113) reader will greatly enjoy, although whether the unphilosphically inclined will find that it satisfactorily answers the objections to Basic Income listed at the beginning of the chapter is an interesting question. Rather more likely to do that would be the fact that the lower marginal deduction rates that a Basic Income would deliver would make it more likely that someone would seek paid employment, not less. More practical considerations are permitted to intrude when a land value tax is found to be impractical; and the reader is plausibly counselled to seek a more just society rather than a happier one.

In chapter 6, on funding, experiments, and transitions, there is a usefully detailed discussion of the different marginal deduction rates that would be experienced by individuals at different points on the earnings spectrum if income tax rates were raised to pay for a Basic Income. The discussion suggests that such increases need to be kept to a minimum. A variety of natural and constructed experiments are discussed, and the difficulty of employing their results in debate on Basic Income is well argued. There is an equally useful discussion on the difficulty of transferring labour market models and empirical results from contexts within current tax and benefits systems to the context of the Basic Income debate. A number of taxation options are discussed: taxes on capital, on land, on other natural resources, on financial transactions, and on consumption. When the authors turn to implementation options, they correctly recognise that a ‘partial Basic Income’ (which ought in relation to their original definition of Basic Income to have been called a ‘small Basic Income’) would need to be the first step. They then consider options for how such a Basic Income might be implemented, and suggest that implementing it first for a single age cohort would create unfairness between cohorts (p.160). However, if the Basic Income replaced income tax personal allowances and other benefits then members of the relevant cohort would not necessarily receive any immediate financial advantage, and any perceived unfairness relating to a Basic Income’s various advantages over existing benefits systems would result in pressure to extend the Basic Income to neighbouring cohorts. This implementation method has more to be said for it than the authors realise.

Chapter 7 tackles political achievability. A survey of opinion poll results finds the public broadly in favour, except for Swiss, most of whom voted against the referendum resolution on Basic Income because they were not convinced that it would be possible to pay for the high Basic Income recommended by the campaigners. The chapter goes on to find growing understanding of the advantages of Basic Income among trades unionists ( – the UK’s Unite receives an honourable mention). The complexity of feminist, socialist and Green Basic Income debates is well understood. Somewhat incongruously the UK’s Liberal Democrats and Charles Murray are located together in a section titled ‘Liberals’. Separate sections on ‘Liberals’ and ‘Neoliberals’ would have made more sense. Similarly, the section entitled ‘Christians’ should have been two sections: ‘Christian Democrats’ and ‘Christians’. Social movements such as Occupy and the movement that promoted the European Citizens’ Initiative on Basic Income are correctly seen as significant locations for future debate on Basic Income.

The latter half of chapter 7 evaluates social policies that the authors believe would be useful steps on the way to a Basic Income. They recognise that a Participation Income (an income conditional on the recipient’s ‘participation’ in society) would face administrative challenges, and believe that these would result in the participation condition being phased out. They would not. The participation-testing of the entire population would be so unpopular that the Participation Income would soon be abolished along with any thought of it becoming a Basic Income. A Negative Income Tax, which the authors also believe could be a step towards a Basic Income, could suffer the same fate. As the authors recognise at the end of the chapter, the only viable first step on the way to a Basic Income would be a Basic Income paid at an easily fundable level to a single or multiple cohorts. Unfortunately, the last line returns to the possibility of ‘participation’ conditions. The temptation to suggest this should be resisted.

Both chapters 6 and 7 contain material on implementation routes. To have brought this material together into a single chapter titled ‘roads to Basic Income’ would have been helpful. As it is, issues relating to implementation look as if they are of secondary significance. They are not. They are where the debate is now going.

Chapter 8 ponders the difficulties that globalisation, immigration and emigration could pose for a Basic Income in a single country, and the authors speculate about the possibility of a global Basic Income. They suggest that a Europe-wide Basic Income funded by a financial transactions tax or a carbon tax would reduce the economic pressures that give rise to migration within Europe, and would therefore reduce levels of migration, and make it more likely that freedom of movement would survive. Such a Basic Income would also help to preserve the Euro’s viability.

This book is a triumph, and will remain the definitive liberal argument for a Basic Income for many years. At its heart is a utopia in which every individual experiences the maximum possible freedom, and Basic Income as a means to that end. ‘Equality’, ‘inequality’ and ‘social cohesion’ are missing from the index, and Basic Income’s promise of a more equal and more cohesive society might have been given a little more attention alongside the ubiquitous emphasis on individual freedom: but readers from a wide variety of ideological commitments will still find this book useful. It is well written, well referenced, and generally well organised, and it tackles many of the issues central to the current debate.

There will be a lot more books on Basic Income, as there should be given the increasingly diverse and widespread debate. Some of those books will be from the same standpoint as this one, others will be from a different ideological standpoint, and some will be from a more pragmatic point of view. Whatever standpoint they come from, they will find it difficult to exceed the intellectual quality of Basic Income: A radical proposal for a free society and a sane economy.

Referendum and basic income: Parallels with Brexit

Referendum and basic income: Parallels with Brexit

There was an uncanny similarity between two referenda held in June: the UK’s referendum on whether to remain in the European Union, and the Swiss referendum on a Citizen’s Income. In each case, the ballot paper asked a simple question: whether to remain or leave, and whether to establish a Citizen’s or Basic Income – an unconditional income for every Swiss citizen. In the latter case, the wording was explicit that the Swiss federal government was to decide on the level of the Basic Income and on the means of funding it.

And then in both cases the campaigns leading up to the referenda were less about the referenda questions than about very different issues.

In the Swiss case this was largely the fault of the proposers of the referendum question. The wording having carefully left the decision as to the level of the Citizen’s Income to the Swiss government, the campaigners then suggested a level of 2,500 Swiss francs per month – about £400 per week. It was largely this that led to so many members of the Swiss parliament asking people to vote against the proposal; it was the proposed figure that dominated the campaign; and it was the fear of the massive tax increase that would have been needed to fund such a large Citizen’s Income that led to so many people voting against the proposal. All of this could have been avoided quite easily. If the campaigners had wanted to inform the debate about potential levels of Citizen’s Income and possible funding methods then they could have undertaken the kind of careful costing work that we and others have undertaken in the UK. If that had happened, then the government could have made clear the level of Citizen’s Income that they would be likely to agree on if the referendum were to pass, and the debate and the decision might have been rather more rational.

Having said that, the referendum was in many ways a success. The referendum was held; it contributed significantly to media and public interest in Citizen’s Income, both in Switzerland and around the world; and 23% of the Swiss population approved of the idea. The referendum will be seen as an important stage in the Swiss and global Citizen’s Income debates.

In the British case there was always going to be a problem. Public understanding of the European Union is almost non-existent, so the only information that most people had available to them were the halftruths that campaigners on both sides and the press chose to feed to them. Members of the public were told that we could avoid EU workers having the right to live and work in the UK and trade within the single market, even though the European Commission had made it clear that remaining within the single market was conditional upon allowing EU workers to live and work in the UK. Throughout the campaign, leaving the EU was touted as a way of preventing immigration, whereas most immigration is from outside the EU and was therefore nothing to do with the question on the ballot paper.

There are two lessons to draw from these two referenda. One is that referenda are a bad idea in the context of an ill-informed public and a biassed media. The question on the ballot paper might be a simple one, but if it is about a complex reality then even generally well-informed members of the public might have little understanding of the possible consequences of a referendum result – whatever that result might be. In relation to complex issues about which members of the public understand little, representative democracy is the least bad system of government, and it is safer than referenda. It enables proposals informed by a civil service to be debated in a parliament and in committee, to be amended, to be tested in another parliament, and then amended again. Such a method has to be preferable to a one-shot referendum ill-informed by emotive campaigns. This is not to suggest that referenda are never appropriate. If the public is well informed about the issue on the ballot paper, if campaigns are based on evidence, if experts are heard, and if the print and other media see it as their role to educate rather than to persuade, then a referendum has some chance of assessing an informed population’s view on the question on the ballot paper. The 2014 referendum on Scottish independence came closer to this ideal referendum than either the Swiss Basic Income referendum or the recent British referendum on EU membership; and the Swiss Basic Income referendum came closer to it than the British referendum on EU membership. It would take a massive educational effort to enable the UK’s population to gain a sufficient understanding of the desirability and feasibility of a Citizen’s Income to enable it to compare a benefits system based on a Citizen’s Income with the current system. Whether such an educational effort is possible, or such an outcome feasible, must be in doubt: in which case the safer method will be for the institutions of representative democracy – Parliament and the Government – to evaluate the arguments for a Citizen’s Income and to decide in accordance with their findings.

The second lesson to draw is that careful research is essential if any future debate about Citizen’s Income is to be sufficiently well informed. It has been a pleasure to see recent well researched reports from the Royal Society of Arts, the Adam Smith Institute, and Compass, and up to date costings and other statistics relating to a particular illustrative Citizen’s Income scheme have recently been published by the Institute of Social and Economic Research at the University of Essex. We hope soon to be able to publish costings and other information relating to a couple more illustrative schemes, and we also hope to have available soon some information on how a range of typical households’ net incomes would be affected by some illustrative schemes. We would like to see even more research organisations involved in the rigorous testing of the financial feasibilities and consequences of illustrative schemes.

There is a connection between the Swiss and British referenda: EUROMOD, the microsimulation programme that we use to evaluate illustrative Citizen’s Income schemes. The programme’s development is funded by the European Union. We are very much hoping that the UK will continue to be involved in the European collaboration that makes such a useful piece of research infrastructure possible.

Another connection is the one between Citizen’s Income and important factors in the British European Union referendum. Widening inequality and deep social divisions appear to have been important motivations for voting to leave the EU, even though leaving the EU is unlikely to remedy the situation and might even make it worse. A Citizen’s Income would help to reduce inequality and to heal social division. It is therefore essential that widespread informed debate on Citizen’s Income should take place, and that the institutions of representative democracy should decide to implement a Citizen’s Income: perhaps informed by an advisory referendum.

If Citizen’s Income is the Answer, What is the Question?

If Citizen’s Income is the Answer, What is the Question?

Author: Frances Hutchinson

The simple question, alluded to in the title of this article, is: ‘How do we end the wages system?’ That raises further questions – ‘Why end the wage system? What is wrong with it?’ or the fundamental question: ‘What is the wages system?’ It is my contention that all social and environmental reforms which ignore the role of money in directing human activity are doomed at best to be palliative, addressing individual causes for concern whilst ignoring the root causes from which the individual problems stem. As Marx and Veblen were well aware, the wages system lies at the heart of social injustice and ecological unsustainability. So long as absentee owners direct the work of waged or salaried employees (whether in private or state corporations), the motivation for reform will be constantly frustrated. Where money is the master motivation, all other values fade into subsidiary considerations. The major debates currently raging about war, famine, agribusiness, debt, environmental/ecological degradation, GM, world trade and poverty all stem from one central cause. People are held into doing what they are doing because they seek to profit financially from their cooperation with others. Whether the ‘profit’ is from speculative sale or sale of labour time becomes immaterial. Both are beholden to the same phenomenon: money is the first consideration in determining a course of action. The money economy is dividing people not only from their work and its product, but also from the land that ultimately sustains all forms of human society. If one cannot live on bread alone, one certainly cannot live on money at all. It is absolutely essential that material goods and services exist, and that the resources necessary for the production of those resources are cultivated and conserved. The money economy has come to obscure the practicalities of everyday life.

The money economy

With industrialisation, we were liberated economically from traditional social ties, only to become enslaved by a money system operating beyond everyday comprehension. Rights and responsibilities associated with respect for the ‘commons’ and social justice are swept aside in favour of economic pressures. Money is enthroned in place of identifiable individuals whose ability to hold sway over others could be monitored by a system of checks and balances which, however imperfect, nevertheless made the oppressor ultimately accountable. The present system of income distribution has come to seem as natural – even if as unpredictable – as the weather. Incomes are the reward for participating in the formal economy, regardless of whether the work is constructive or destructive of welfare.

As we have observed (Hutchinson et al., 2002, pp.42- 43), oikonomia, the material economy where tangible and useful wealth is created, is now dominated by chrematistics, the money economy that is parasitical upon oikonomia. The ‘real’ economy is the one that ‘earth has given and human hands have made’. The money economy takes from the God-given earth, and from human society, destroying and not replenishing. In short, we have an insane system of economics that counts waste, devastation, pollution, war and social devastation as ‘wealth’.

Take just a few examples. A car accident or environmental disaster adds to GNP (the over-all measure of total national wealth) because of the increase in economic activity – fire services, car replacement, ambulance, medical, insurance, and so on that it causes. Furthermore, in the formal economy, food is manufactured, not by God, but by the ‘food industry’: in 1971 a food industry study found that total food expenditure in 1971 need only have been £1,800 million to provide a varied and healthy menu. It was actually £6,636 million – i.e. the food industry added four and a half thousand million pounds – in processing, preserving, packaging, and so on, with all the attendant waste and pollution. In chrematistic terms, we were all ‘better off’. Today, international rulings force small farmers in poor countries to abandon sustainable and reliable practices for mono-cultural cash crops for export. Across the world, ‘financial services’ and dealings far outweigh trade in actual goods and services, which form a mere 5 per cent of the total. The money economy continues to sweep across the world, devouring land and cheap labour sources, leaving social and ecological devastation in its wake. In Hong Kong firms no longer manufacture goods: they merely trade in goods produced in the cheap labour factories, spreading across China. Already, a decade ago, 85 per cent of China’s rivers were dead. The key players: corporations, academics, and politicians – are mesmerised by the money system. In purely chrematistic terms, we are all ‘better off’ if we work for money, regardless of the social and ecological impacts of that work.

Citizen’s Income and the National Dividend

Citizen’s Income seeks to alleviate poverty, particularly family poverty, under capitalism. Arguments for it flow from the observed shortcomings of the welfare system instituted by Beveridge in the aftermath of World War II. The arguments are often accepting of the terms and premises of the capitalist financial system, and sometimes – but not always – assume that full employment and a growing economy are needed to provide the means to pay for Citizen’s Incomes.

The Social Credit movement emerged from a very different stable. Just over one hundred years ago, Europe was plunged into a senseless war. In a brief moment of sanity, young soldiers on the front lines joined hands in singing Christmas carols. People then and since have asked why war is necessary. The Social Credit movement became a worldwide political force working to end war, environmental degradation and economic growth based upon war and built-in obsolescence. Its message was plain and clear. There is enough for everyone’s need, though not for everyone’s greed.

Clifford Hugh Douglas, author of the original Social Credit texts (See Hutchinson and Burkitt, 1997) considered the expenditure of human life and resources in the Great War something to be learned from, rather than something to be repeated for the sake of creating a strong, financially sound, economy. Social Credit was part of a much wider social movement in the so-called ‘inter-war years’ of the twentieth century. Progressive thinkers from all classes and all walks of life questioned the wisdom of basing the formal, finance-driven economy on production for war, waste and consumerism.

Douglas brought his shrewd, common-sense, analytical mind to bear upon the practicalities of the workings of the money economy. As the 1914-18 War raged across the world, factories were working at full capacity. Vast quantities of armaments, uniforms, tanks, machinery, ships and other forms of transport were churned out on all sides. Farmers on the land prospered, supplying food to the armies of military and civilian workers. But the apparent prosperity was ephemeral because it was dependent upon the workings of an unsound financial system. As the war ended, Douglas was an obscure engineer accounting the finances at Farnborough aircraft factory. He predicted the inter-war depression and explained how it would happen and why. He detailed how the finance to run the war was conjured up by the Government as debt, when it could just as easily have been created as credit, in which case the prosperity would continue after the War.

In the immediate aftermath of the War (1918-20) Douglas wrote a series of articles on finance and income distribution. These were closely studied amongst trade unionists, politicians, economists (including Keynes), and a wide spectrum of intellectuals. A vast literature on Social Credit, including weekly newspapers, books, pamphlets, and journal articles, circulated throughout the UK, the Commonwealth, the US, Scandinavia, and Tokyo in multiple editions. Douglas’s predictions were correct, and his work has never been faulted. What is physically possible is always financially possible, because finance is a man-made system of accounting, and can be adjusted to meet the will of the people.

At the heart of Social Credit theorising is the justification for paying a National Dividend to all citizens regardless of work status on grounds of the common cultural inheritance. Douglas argued that labour – paid work – does not create wealth: ‘The simple fact is that production is 95 per cent a matter of tools and process, which tools and process form the cultural inheritance of the community as a whole’, being the result of work done over generations by an army of technologists, the vast majority of whom are now dead (Douglas, 1919, p. 95). Thus claims to a share of the common cultural inheritance, which rightly belongs to the community as a whole, can be justified not by work, and not by private ownership of land and property, but by common right of citizenship. Over a period of three decades Douglas argued consistently that finance is purely a matter of accounting: what is practical and desirable on social grounds is financially possible, because finance is a man-made system. The key to economic democracy is the political will to bring about legal change.

Women and Social Credit

Proposals for a non-means-tested National Dividend, payable by right of citizenship, were of particular interest to women. Although Social Credit was not specifically a women’s movement, women who studied the economics of the social credit movement in the interwar years campaigned on the basis of its potential for improving the socio-economic status of women. Their arguments are echoed in current studies of mothering and home-making:

Mothers in the United Kingdom today are in an impossible situation. Our very title has been erased from Government policy on families [Guidance for Government Departments October 2014] and general political discussion in a pernicious Orwellian language trend. Women who are mothers are expected to engage in the workforce in a liberalist and capitalist tradition of individual interest where market forces reign supreme – there is no room for love and care, let alone awareness of interdependency common to all our lives. There seems to be no place for maternal care. No place for improved, supported services investing in family life.

So writes Vanessa Olorenshaw in her groundbreaking pamphlet, The Politics of Mothering.

Women activists of the 1930s argued that Social Credit offers every woman and man a birth-right income based on the productive capacity of the community. It would:

… ensure economic independence and freedom, for it will release her from being tied to the home when she wishes to live her own life or bound to some man who ill-treats her. Nor would she be driven to work-wage slavery in competition with men in order to stay alive when she has caring responsibilities within the household. Women would get equal pay for equal work because ‘a Social Credit Government will naturally stand for fair play for all citizens without distinction’. Each individual woman will be able to say ‘If I do this job as well as a man could do it, I shall want the same pay as a man.’ And if the employer says, ‘No’, she will be able to say: ‘Very well, I refuse the job. After all, I can live on my National Dividend.’ This places every woman in a very powerful position. (It will apply equally, of course, to badly-paid male workers.) (Quoted in Hutchinson and Burkitt 1997)

Women were politically active in support of the proposals throughout the UK, Canada, Australia, New Zealand and the United States over the middle decades of the twentieth century.

From master to servant

Central to the Social Credit debate are the core issues of farming, finance, and the household. To date, mainstream economic theory has failed to accommodate itself to the realities of economic life. These include the futility and waste of war, which is officially accounted as a plus, and the need for income security so that good work may be undertaken in the home, in the community, in local businesses, and on the land. Today, concerned individuals and groups are bringing forward the identical issues as those surrounding the massive international debate based upon the writings of C.H. Douglas less than a century ago. Douglas asked the fundamental question – why should it be ‘absolutely necessary’ for the workers to produce weapons of mass destruction in order to put food onto the household table? His question remains as valid today as when he first posed it a hundred years ago.

Frances Hutchinson is the author of Understanding the Financial System: Social Credit Revisited (2010) and of The Economics of Love, forthcoming.

References

Douglas, Clifford Hugh (1919) Economic Democracy

Hutchinson, Frances (2005) If citizen’s income is the answer, what is the question?, European Business Review, Vol. 17, No.2. pp193-200. www.emeraldinsight.com/charter

Hutchinson, Frances and Brian Burkitt (1997) The Political Economy of Social Credit and Guild Socialism, Routledge (Jon Carpenter 2005 reprint).

Hutchinson, Frances, Mary Mellor and Wendy Olsen (2002) The Politics of Money: Towards Sustainability and Economic Democracy, Pluto Press.

Olorenshaw, Vanessa (2015) The Politics of Mothering, available from www.facebook.com/Politics of Mothering.

 

Simplifying childcare benefits

Simplifying childcare benefits

By Mark Wadsworth

The Citizen’s Income Trust has suggested replacing Child Tax Credits and Child Benefit with a higher flat rate Child Benefit and merging the income tax-free personal allowance, the National Insurance-free Lower Earnings Limit and Working Tax Credits into a Citizen’s Income.

These proposals have been criticised on the basis that Working Tax Credits include a Childcare Element to subsidise childcare costs (registered nursery or child minder), which are supposed to be targeted at lower earners.

This article addresses those concerns (the Childcare Element of working tax credits is only four per cent of total Tax Credit payments[1], and only one-quarter of total government subsidies for childcare costs) and looks at how these overlapping subsidies could be merged into a single simplified and harmonised system.

First let us look at the bigger picture.

How many children are affected?

According to the population pyramid, there are nearly 800,000 children in each year cohort 0 up to 5[2].

Table 1: The number of children receiving childcare [3],[4]

Age 3 and 4, registered nursery or child minder 859,000
Age 2, registered nursery or child minder 592,000
Sub-total ‘paid for’ childcare 1,451,000
Age 4, in a reception class at a state primary school 549,000
Total 2,000,000

The cost of children in a reception class forms part of the education budget and is largely outside the scope of this article, which focuses on the 1,451,000 receiving ‘paid for’ childcare.

 Table 2: Average childcare costs before subsidies

Nursery or primary school Child minder
Child aged 0 or 1 £/week £/week
25 hours 115 104
50 hours 212 197
Child aged 2, 3 or 4
25 hours 110 103
50 hours n/a n/a
After school club 15 hours 48
After school pick up 64

The costs in London are 50% higher[5]

Table 3: Total government spending on the various schemes [6]

2014-15 Planned
£m/per year £m/per year
Free Early Education aged 3 and 4 2,400 2,400
Free Early Education aged 2 800 800
Working Tax Credits/Childcare Element 1,200 1,800
Employer Supported Childcare 800 400
Tax free Childcare 0 1,000
Total 5,200 6,400

Table 4: The number of children eligible to claim in each category

2014-15 Planned
Free Early Education aged 3 and 4 859,000 859,000
Free Early Education aged 2 250,000 250,000
Working Tax Credits/Childcare Element 745,000 745,000
Employer Supported Childcare vouchers 860,000 430,000
Tax free Childcare 0 500.000
Total 2,714,000 2,784,000

This compares with 2,000,000 children from Table 1. The bulk of the overlapping claims relate to Free Early Education.

The simple average planned cost/value per child is the total annual cost of £6.4 billion from Table 3 divided by 1,451,000 children in ‘paid for’ childcare from Table 1, which is £85 per child per week.

Eligibility flowchart

As mentioned, there are many children for whom parents claim Free Early Education as well as one of the other subsidies. The three main other subsidies are largely mutually exclusive. This can be represented as a flowchart:

Childcare flowchart

 

Please note: the figure of £15,000 for household earnings is very approximate. The exact cut-off point for any individual household will depend on that household’s composition and parents’ working hours.

The various schemes in more detail and their average costs per child per week

Free Early Education –average cost/value

Each child is nominally entitled to 15 hours per week free care for 38 weeks a year @ £5.49 per hour[7], an average of £60 per child per week.

Free Early Education – children aged 3 and 4

This is a non-means tested, non-contributory, non-taxable and largely non-conditional benefit. It has the largest caseload and the highest cost. It has been criticised for simply pushing up childcare costs because of barriers to entry, meaning that childcare providers simply charge higher fees[8], but this can be said of all such schemes apart from a free place in a reception class at a state primary school.

In practice what happens is that local council pays registered providers a total of £3,129 per child per year, which the provider deducts from their charges. Where the hourly rate is less than £5.49, the provider simply credits the surplus against the charge for hours in excess of 15 per week. Where the hourly rate is more than £5.49, the parent has to pay the difference.

Free Early Education – children aged 2

This is a conditional benefit[9].

A two-year-old will be eligible for the same funding (15 hours @ £5.49 per week for 39 weeks a year) if their parent(s) claims any one of the following:

  • Income Support/Income-based Jobseekers Allowance
  • Income-related Employment and Support Allowance
  • Child Tax Credits or Working Tax Credits and have an annual gross household income of no more than £16,190

Working Tax Credits/Childcare Element

The average cost/value per child per week is £28 as explained below.

This can be claimed by single parents who work at least 16 hours a week or couples who both work at least 16 hours a week and who spend money on registered or approved childcare[10].

The official upper limits of £175 for a household with one child or £300 for two or more children are nigh meaningless. The eligible amount for which a parent can claim is actual nursery costs minus Free Early Education payments minus Employer Supported Childcare vouchers multiplied by 70%. The actual claim is then abated by 41p for every £1 of gross wages over the threshold of £6,420.

Official statistics show that 93% of household claims are for total weekly costs of £160 or less and the official average amount paid out is £29 per child[11].

Table 5: Typical eligible amount: single parent with both children in full time childcare @ £180 per week for 48 weeks a year

£
Actual costs (2 x £180 x 48 weeks) 17,280
Less Early Years Education payments (2 x 15 x £5.49 x 38 weeks) -6,423
Net actual costs 10,857
Multiplied by 70% = eligible amount 7,600

 

Table 6: Typical actual benefit after Working Tax Credits withdrawal

Gross wages Income over threshold Amount withdrawn Net payment per child per week Per child per week
A = gross wages B = A – £6,420 C = B x 41% D = £7,264 minus C E = D¸52¸2
12,000 5,580 2,288 5,312 51
15,000 8,580 3,518 4,082 39
18,000 11,580 4,748 2,852 27
21,000 14,580 5,978 1,622 16
24,000 17,580 7,208 392 4
Simple average 27

 

Please note: this article assumes that Child Tax Credits and Child Benefit are replaced with a much higher Child Benefit of around £56 per child per week and thus that Working Tax Credits withdrawal applies only to the Working Tax Credits/Childcare Element

Employer Supported Childcare vouchers

The average cost/value per child per week is £19.

Under a scheme introduced circa 2003, any employee could receive vouchers with a face value of £55 per week (regardless of the number of children) tax free by waiving £55 taxable salary (a salary sacrifice). The employee’s gross pay goes down by £55 per week, saving £18 per week in PAYE (income tax and Employee’s NIC at 32%).

This benefit is conditional on being in work and since 2011 is quasi-means tested. Parents/employees paying higher or top-rate tax had their allowance adjusted so all taxpayers have roughly the same maximum tax saving. The limits are:

  • Basic-rate (20%) taxpayer: £55/week voucher, max annual tax/NI saving £930.
  • Higher-rate (40%) taxpayer: £28/week voucher, max annual tax/NI saving £630.
  • Top-rate (45%) taxpayer: £25/week voucher, max annual tax/NI saving £590.[12]

In theory, a parent claiming Working Tax Credits/Childcare Element can also receive these vouchers, but it is a very marginal calculation. The PAYE saving is £18 per week but the eligible amount is reduced by £55 x 70% = £38. In turn, the amount of the abatement goes down by 41% x 55 = £23, so the net gain is £18 – £38 + £23 = £3. In some cases, parents claiming both can suffer a small net loss.

The scheme has been modified several times since inception and was closed to new entrants since the introduction of Tax Free Childcare in Autumn 2015.

Tax free childcare

This supersedes Employer Supported Childcare vouchers[13], although existing Employer Supported Childcare voucher recipients will be able to continue to receive them in the run off period.

To qualify, a single parent or both parents in a couple have to be in work, earning just over an average of £100 each a week and not more than £100,000 each per year[14]. Tax Free Childcare cannot be claimed if the household is also claiming Working Tax Credits. Vouchers with a face value of up to £10,000 per child can be acquired for 80% of the face value and used to pay for childcare costs.

The maximum saving per child per week is £38. In most cases this will be a larger saving than the superseded scheme Employer Supported Childcare vouchers, unless only one parent in a couple is in work (saving £930 a year as against nothing) or a couple are both in work, pay basic rate tax and pay less than £194 per week (net of Early Years Funding) for childcare for one child.

Summary

Around two-thirds of 4 year olds are in reception class at a state primary for free. I assume that the other one-third do not attend because there is no reception place available for them or because their working parents require care until later in the afternoon/evening and send them to a nursery or child minder for which they claim the Free Early Education payments.

The value of Free Early Education vouchers is £60 per child per week.

The cost/value of the three mutually exclusive schemes in the bottom row of the flowchart per child per week is as follows:

Working Tax Credits/Childcare Element – maximum £51, average £28.

Tax Free Childcare – maximum £38, average unknown but less than £38.

Employer Supported Childcare – maximum £36, average £19.

So the average total claim per child per week is between £79 and £98.

Proposal

Would it not make sense to harmonise the rates and increase the Free Early Education vouchers to £85 per week x 48 weeks a year for all 2, 3 and 4 years olds?

The total number of children in ‘paid for’ childcare is 1,451,000 (from Table 1). If each receives £85 per week in vouchers for 48 weeks a year, the total cost/value would be £5.9 billion. This represents a saving of £0.5 billion over the £6.4 billion expenditure forecast the House of Lords Select Committee from Table 3.

Winners will not just be those who would receive more per child per week, but all parents whose lives have been made much simpler and can now plan ahead and budget more sensibly.

Clearly, some would receive less in benefits than under the current schemes:

  • Single parents on the minimum wage who would lose up to £26 per child per week in Working Tax Credits/Childcare Element,
  • Parents with children in a reception class who receive claim for after school care,
  • Parents in London, where childcare costs are 50% higher than the rest of the country, and
  • Parents of children aged under 2 who currently claim for childcare costs.

 

I estimate that half a million children would be affected and the average shortfall is £20 per child per week, so the saving of £0.5 billion could be paid out as a transitional benefit of £20 per child per week for existing claimants until their children reach normal school age.

A slightly more radical proposal would be to spend the £6.4 billion on providing nursery classes at state primary schools for children aged 2 to 4. This will take time to implement but simplifies things for parents and does not have the unintended consequence of pushing up childcare costs.

Original article can be found at Citizen’s Income Trust.

[1] Fullfact

[2] Office for National Statistics

[3] House of Lords Select Committee

[4] National Audit Office

[5] Family and Childcare Trust

[6] Total from House of Lords Select Committee, individual items adjusted for other sources to reconcile with their sub-totals.

[7] Surrey County Council

[8] Institute for Economic Affairs

[9] Netmums

[10] HMRC leaflet

[11] HMRC, 2013-14

[12] Money Saving Expert

[13] HM Treasury

[14] Government News

Review of the RSA report on Universal Basic Income

rsareportAnthony Painter and Chris Thoung, Creative Citizen, Creative State – The principled and pragmatic case for a Universal Basic Income. Report published by the Royal Society of Arts (RSA), December 2015.

This report from the RSA is a most welcome addition to the recent flurry of publications and media interest in Citizen’s Income. It outlines a context – technological change – resulting in

underemployment, unemployment or the need to transition careers with some frequency for many. A Basic Income could provide a foundation to smooth working-life transition; (p. 5)

and an ageing population, requiring more people to spend time on caring for others.

The report notes the growing Citizen’s Income movement; studies a variety of other reform proposals (and particularly a Participation Income and an enhanced contributory system); and argues that polling data that shows that the British public regards ‘making work pay’ as far more important than tackling poverty and inequality provides a powerful argument for Citizen’s Income:

It is Basic Income and Basic Income alone that sends out absolutely clear yet non-coercive signals about the incentive to work. … Basic Income is a foundation for contribution. It incentivizes work but supports other forms of contribution too. In this regard, it is the system of income support that best rewards contribution – albeit contribution defined beyond narrow cash terms. (p. 14-15)

The report describes the UK’s current benefits system, notes that the sanctions regime will increasingly attack the self-employed and the employed once Universal Credit is rolled out, shows how Citizen’s Income would offer the ‘power to create’, and then sets four tests for the idea to pass:

  • Does the system accord with a widespread set of moral precepts?
  • Is it broadly fiscally achievable within the parameters of existing taxation and expenditure?
  • Is it distributionally just when compared to the current system?
  • Will greater individual (and civic) freedom and creativity be realized? (p. 18)

The particular scheme that the RSA evaluates in relation to the second and third criteria is based on the scheme published by the Citizen’s Income Trust (CIT) in 2012 but with a few minor variations – you can download the CIT proposal here.

A non-binding contract to encourage contributions to society will run alongside receipt of Citizen’s Income. The fact that it is non-binding, and the recipient’s failure to adhere to an agreed contract would not compromise their receipt of a Citizen’s Income, retains the scheme’s reciprocity – important for its ability to pass the first test – and retains it as one characterized by an initial act of generosity on the part of the state, rather than as one that expects a claimant to prove a contribution before the state reciprocates. There is, though, a danger with such a contract. It would be easy for a future government to make receipt of a Citizen’s Income dependent on adherence to a contract’s conditions, thus turning the Citizen’s Income into a Participation Income, so that it would no longer be a Citizen’s Income and would be loaded with administrative complexity and bureaucratic intrusion in people’s lives – precisely what is not required.

In relation to the levels of Citizen’s Income, the RSA scheme attempts to reduce the losses that poorer families with children might suffer at the point of implementation (which has been recognized as a problem in relation to the Citizen’s Income Trust 2012/13 scheme) by allocating a higher level of Citizen’s Income to the first child in a family, and possibly lower levels to the third and subsequent children. This compromises the definition of a Citizen’s Income, because that requires that every individual of the same age should receive a Citizen’s Income of the same amount: but this is a compromise in theory, and not a new compromise in practice, and so should not overly concern us. This is because in any Citizen’s Income scheme the children’s Citizen’s Income are paid to the main carer: so although in theory every working age adult (or adult over 25 years old, as in the RSA and CIT 2012/13 schemes) receives the same amount, in practice the main carer of children receives their own adult Citizen’s Income and the Citizen’s Incomes of their children. Because allocating different amounts to different children in a family will adjust a total amount paid to an adult that is already variable in relation to the number of the children in the family, no new compromise has in practice been generated. We might hope that if such a Citizen’s Income scheme were to be implemented, then eventually it might prove possible to reduce the compromise by bringing the Citizen’s Income levels allocated to different children nearer to or identical with equality: but as a transitional measure with some useful effects, the RSA’s approach has much to commend it.

A compromise that has nothing to commend it, though, relates to lone parents:

One group that could lose out in the transition to Basic Income in the RSA model are low income, lone parents with children over the age of five. … there may be scope for a transitionary measure whereby lone parents could continue to claim a Child Benefit top-up … introducing an element of household calculation. (p.31)

A lone parent addition would not satisfy the ‘unconditional’ requirement of a Citizen’s Income, and would result in precisely the kind of bureaucratic intrusion into people’s personal relationships that a Citizen’s Income is trying to get away from. If it is felt that lone parents need an additional payment, then an additional and separately administered payment should be made, so that the Citizen’s Income itself is not compromised. We are used to social policies that we can tinker with without destroying them. A Citizen’s Income is different. If we tinker with it, then we destroy it. This lesson has thankfully been learnt in relation to Child Benefit. In 2010 we were told that it would be means-tested. It has not been. Instead, an additional tax charge is imposed on high earning individuals living in households receiving Child Benefit. This is not sensible, because it has resulted in domestic disharmony and in the withdrawal of Child Benefit claims: but at least it does not destroy Child Benefit as a universal benefit. A similar approach could be employed in relation to lone parents in the context of a Citizen’s Income. The Citizen’s Income must never change; but an additional benefit could be established with its own conditionalities and administration.

When the report discusses some alternative Citizen’s Income schemes – such as scheme B in the recent Institute of Social and Economic Research paper, its use of the word ‘modified’ might be somewhat confusing. Scheme B is not a ‘modified’ Citizen’s Income, or a ‘modified’ Citizen’s Income scheme. The Citizen’s Income is a genuine Citizen’s Income. It is simply that scheme B retains more means-tested benefits than some other schemes – it still takes a lot of households off means-tested benefits, or reduces their claims to such low levels that they are likely to come off them. We ought to avoid the use of the word ‘modified’. Either a proposal is for a Citizen’s Income, or it is not; and if it is, then the whole scheme, including changes to means-tested benefits, tax allowances, etc., is a Citizen’s Income scheme. Some schemes, such as scheme B, would be easier to implement than others, such as the RSA scheme. In many ways, the RSA scheme would be preferable to scheme B. So perhaps we ought to regard scheme B as a useful first step, and the RSA scheme as a useful second step.

The RSA report is a long, detailed, well researched, and most useful document, and no short review can do it justice. The minor caveats that I have listed above are precisely that: minor caveats, and areas for continuing research and debate. The RSA is to be highly congratulated on the research project that has led to the report, and on the report itself. There could be no better place to start the next phase of the Citizen’s Income debate than this report.