by Guest Contributor | May 10, 2016 | Opinion
To tackle spiraling deflationary trends, governments and central banks will soon have no other choice but to resort to printing money and giving it directly to the people.
Article by John Aziz, originally published on azionomics.com under the title “Universal Basic Income Is Inevitable, Unavoidable, and Incoming.”
The last time I saw universal basic income discussed on television, it was laughed away by a Conservative MP as an absurd idea. The government giving away wads of cash responsibility-free to the entire population sounds entirely fantastical in this austerity-bound age, where “we just don’t have the money” is repeated endlessly as a mantra. Money, they say, does not grow on trees. (Only as figures on the screen of a computer).
In this world, universal basic income seems like a rather distant prospect. Yes, there are some proposals, like Finland which is set to start local experiments in 2017 and Switzerland which is holding a referendum on universal basic income next month. I don’t expect the vote to pass. The current political climate is just too patriarchal. We live in a world where free choice is unfashionable. The mass media demonizes the poor as feckless and too lazy and ignorant to make good choices about how to spend their income. Better that the government spend huge chunks of GDP employing bureaucrats to administer tests, to moralize on the virtues of work, and sanction the profligate.
But this world is fast changing, and the more I study the basic facts of economic life in the early 21st century, the more inevitable universal basic income begins to seem.
And no, it’s not because of the robots that are coming to take our jobs, as Erik Brynjolfsson suggests in his excellent The Second Machine Age. While automation is a major economic disruptor that will transform our economy, assuming that robots will dissolve jobs entirely is just buying into the same Lump of Labour fallacy that the Luddites fell for. Automation frees humans from drudgery and opens up the economy to new opportunities. Where once vast swathes of the population toiled in the fields as subsistence farmers, mechanization allowed these people to become industrial workers, and their descendants to become information and creative workers.
As today’s industries are decimated, and as the market price of media falls closer and closer toward zero, new avenues will be opened up. To that end, Canada has seen a surge in startups in recent times. Towns that were once oblivious to people in the country have become a melting pot for fresh Fintech startup ideas. Case in point is this FinFund Media app that aims to simplify getting loans in The Pas for individuals by leveraging the power of local rural communities to send and receive money. Similarly, new industries will be born in a never-ending cycle of creative destruction to keep the economy churning. Yes, perhaps universal basic income will help ease the current transition that we are going through, but the transition is not the reason why universal basic income is inevitable.
Welcome to the world of hyperdeflation
So why is it inevitable? Take a look at Japan, and now the eurozone: economies where consumer price deflation has become an ongoing and entrenched reality. This occurrence has been married to economic stagnation and continued dips into recession. In Japan – which has been in the trap for over two decades – debt levels in the economy have remained high. The debt isn’t being inflated away as it would under a more “normal” rate of growth and inflation. And even in the countries that have avoided outright deflationary spirals, like the UK and the United States, inflation has been very low.
The most major reason, I am coming to believe, is rising efficiency and the growing superabundance of stuff. Cars are becoming more fuel efficient. Homes are becoming more fuel efficient. Vast quantities of solar energy and fracked oil are coming online. China’s growing economy continues to pump out vast quantities of consumer goods. And it’s not just this: people are better educated than ever before, and equipped with incredibly powerful productivity resources like laptops, iPads and smartphones. Information and media has fallen to an essentially free price. If price inflation is a function of the growth of the money supply against growth in the total amount of goods and services produced, then it is very clear why deflation and lowflation have become a problem in the developed world, even with central banks struggling to push out money to reinflate the credit bubble that burst in 2008.
Much, much more is coming down the pipeline. At the core of this As the cost of superabundant and super-accessible solar continues to fall, and as battery efficiencies continue to increase the price of energy for heating, lighting, cooking and transportation (e.g. self-driving electric cars, delivery trucks, and ultimately planes) is being slowly but powerfully pushed toward zero. Heck, if the cost of renewables continue to fall, and advances in AI and automation continue, in thirty or forty years most housework and yardwork will be renewables-powered, and done by robot. Water crises can be alleviated by solar-powered desalination, and resource pressures by solar-powered robot miners.
And just as computers and the internet have made huge quantities of media (such as this blog) free for users, 3-D printers and disassemblers will push the production of stuff much closer to free. People will simply be able to download blueprints from the internet, put their trash into a disassembler and print out new items. Obviously, this won’t work anytime soon for complex objects like smartphones, but every technology company in the world is hustling and grinding for more efficiency in their manufacturing processes. Not to mention that as more and more stuff is manufactured, and as we become more environmentally conscious and efficient at recycling, this huge global stockpile of stuff acts as another deflationary pressure.
These deflationary pressures will gradually seep into services as more and more processes become automated and powered by efficiency increasing machines, drones and robots. This will gradually come to encompass the old inflationary bugbears of medical care, educational costs and construction and maintenance costs. Of course, I don’t expect this dislocation to result in permanent incurable unemployment. People will find stuff to do, and new fields will open up, many of which we are yet to imagine. But the price trend is clear to me: lots and lots of lowflation and deflation. This, ultimately, is at the heart of capitalism. The race for efficiency. The race to do more with less (including less productivity). The race for the lowest costs.
I’ve written about this before. I jokingly called it “hyperdeflation.”
Global Japanization
And the obvious outcome, at the very least, is global Japan. This, of course, is not a complete disaster. Japan remains a relatively rich and stable country, even after twenty years of deflation. But Japan’s high level of debt – and particularly government debt – does pose a major concern. Yes, as a sovereign currency issuer borrowing in its own currency the Japanese government runs no risk of actual default. But slow growth and deflation are stagnationary. And without growth and inflation, the government will have to raise taxes to cover the deficit, spiking the punchbowl and continuing the cycle of debt deflation. And of course, all of the Bank of Japan’s attempts at reigniting inflation and inflating away that debt through complicated monetary operations in financial markets have up until now proven pretty ineffectual.
This is where some form of universal basic income comes in: ultimately, the most direct stimulus for lifting inflation and triggering productive economic activity is putting cash in the people’s hands. What I am suggesting is nothing less than printing money and giving it away to people – as opposed to trying to push it out through the complicated and convoluted transmission mechanism of financial sector lending. This will ultimately become governments’ major backstop against debt deflation, as well as the temporary joblessness and economic inequality created by technological acceleration. Everything else, thus far, has been pushing on a string. And the deflationary pressure is only going to become stronger as efficiency rises and rises.
Throw enough newly-created money into the economy, inject inflation, and nominal tax revenues can rise to cover the debt load. Similarly, if inflation gets too high, cut back on the money-creation or take money out of circulation and bring inflation into check, just as central banks have done for the last century.
The biggest obstacle to this, in my view, is the interests of those with lots of money, who like deflation because it increases their purchasing power. But in the end, rich people aren’t just sitting on hoards of cash. Most of them do have businesses that would benefit from their clients having higher incomes so as to increase spending, and thus their incomes. Indeed, in a debt-deflationary spiral with default cascades, many of these rentiers would face the same ruin as their clients, as their clients default on their obligations.
And yes, I know that there are legal obstacles to fully-blown ‘helicopter money‘, chiefly the notion of central bank independence. But I am an advocate of central bank independence, for a variety of reasons. Indeed, I don’t think that universal basic income should be a function of fiscal spending at all, not least because I think that dispassionate and economically literate central bankers tend to be better managers of monetary expansion and contraction than politically motivated – and generally less economically literate – politicians. So everything I am describing can and should be envisioned as a function of monetary policy. Indeed, what I am advocating for is a new set of core monetary policy tools for the 21st century.
by Andre Coelho | May 1, 2016 | Opinion
Jobs in security are on the verge of obsolescence. Security jobs usually refer to night watchers, guards, soldiers, intelligence officers, police officers and so on. Armies, police, security companies and related industries employ millions of people worldwide, wielding vast amounts of power and influence on society and the natural world. However, and in spite of that, they are doomed. Why? Because people want to be happy and, on the verge of global societal breakdown, are beginning to understand that their happiness is linked to everyone else’s and that this positive state of being is so much better than the ever present fear, uncertainty and isolation. Happy people tend to be fraternal, cooperative and empathetic (and their happiness reinforced by these behaviors), which in the long term means there will be no need for “security” jobs, as we know them today. Much of the violence, war and conflict in the world today stems from the pure need for maintaining these “security” structures, which are ridden with a mentality of war, mistrust and distorted notions of what security means for most people.
But what is a security-specialized mega-entity, which employs dozens of thousands of people (for example the US Army), to do when people seem oblivious of their past importance and meaning and simply do not value them as much (if at all)? It tries to survive. And that may mean resorting to unconventional, radical approaches, such as covertly instigating conflict or actively promoting or supporting entities or actions which lead to scarcity, inequality and fear among people (which are powerful instigators of conflict and violence). That is their mantra as survival strategy goes. But guess what? The worldwide arrival of the basic income is imminent.
Not a novelty in itself, the basic income is arriving now with a renewed strength, strongly linked to values of peace, equality and freedom. Freedom to pursue happiness, to have a share of what should be shared resources, to connect more deeply with other fellow human beings and the natural world. The basic income, besides helping to liberate millions of people from directly and indirectly imposed slavery, also gives a bright opportunity for those strapped to the “security” business to abandon it, now that their hearts are no longer aligned with its associated roles. With less critical mass, fewer incentives and fewer individuals with a war-prone mentality , security entities will crumble.
Now I am not saying many innocent people who are employed by these entities deserve to be miserable – the idea is to protect them from collapse by systems such as the basic income and allow them to finally start doing what they really believe in with their lives. However, only dramatic transformations in our society (which stem from changes at the personal level) will eliminate security entities as we know them. Jobs in security are about to end and that is – given new and refreshed social approaches like the basic income – great news.
by Guest Contributor | Apr 23, 2016 | Opinion
From the Basic Income Canada Network by
Roderick Benns, on March 29, 2016
Robert-Falcon Ouellette
As a youth growing up in Calgary, Robert-Falcon Ouellette remembers being inspired by the 1988 Olympics. Ouellette’s parents struggled financially, and his father was in and out of the picture. But his mother managed enough money so he could enjoy swimming at the City pool where he took to the water “like a fish.”
“I was there as much as possible – I just loved every minute of it,” says Ouellette, who is now Member of Parliament for Winnipeg Centre.
“Until one day a coach spotted me and invited me to join the University of Calgary swim team.”
The coach talked to both Ouellette and his mother, but the cost was a couple thousand dollars per year. He remembers the coach telling his mom that her son had great natural talent which should be developed. But the financial barrier was too severe for the family. In fact, even the visits to the City pool for leisure swimming soon stopped, also for financial reasons.
“That was a real dream of mine,” says Ouellette. “I’m still marked by it.”
Ouellette, who has gone hungry before as a youth and even spent one summer homeless, says he is sure there are many stories like this that have played out similarly across Canada, many much worse than his. Persistent poverty and lost opportunities are the kinds of things he suspects would dramatically be reduced if Canada had a basic income.
A basic income guarantee can take different forms but it is generally understood to ensure everyone an income that is sufficient to meet their basic needs, regardless of work status. The rookie MP is determined to have empirical evidence of how such a social policy change might benefit Canadian families, by establishing basic income pilot projects in the country.
His determination to have data undoubtedly comes from his depth of education. Ouellette is something of a Renaissance man, with degrees in music, education, and a PhD in anthropology. He also has 19 years under his belt with the Canadian Armed Forces, retiring from the Royal Canadian Navy with the rank of Petty Officer 2nd Class. Even now, he remains a part of the naval reserve.
The MP, who serves on the House of Commons’ finance committee, recently invited Professor Evelyn Forget to Ottawa to make a presentation because he wants his Party to consider testing the idea in a few regions across Canada, including rural, urban, and on a First Nations’ reserve. Forget was the researcher who unearthed promising data from the well-known Mincome experiment, which ran from 1974 through 1978 and which helped establish a minimum income for about a third of the people who lived there.
Forget dug up the records from the period and found there were fewer emergency room visits and less recorded incidents of domestic abuse. As well, less people sought treatment for mental health issues and more high school students continued on to finish Grade 12 to graduate.
When she appeared before the committee, Forget recommended a basic income of $18,000 per year. It would be paid, when necessary, by using the existing federal tax system. People could still earn money over and above this basic income but Forget recommends it be taxed back at a rate of 50 per cent on each dollar earned over $18,000.
When he was running for a seat in the federal election, Ouellette actually met a woman in a working class neighbourhood of Winnipeg who had been a participant in the Mincome experiment. It was a story Ouellette found inspiring. The Mincome money she received allowed her to go back to school to finish her education while she raised her three sons. Today, two of her sons have their Masters degrees, with one working for the City of Winnipeg and the other for Manitoba Hydro. The third son owns his own business.
“Here’s a single mom who was always just trying to get ahead. She now owns her own, small home and she helped her sons do well. That’s the hope for basic income – that’s why it deserves to be tested,” says the MP.
To that end, Ouellette has sponsored an online petition here to bring pressure and attention to this issue for his own government to support further study. He will likely have some high level supporters in Ottawa. Jean-Yves Duclos, federal Minister of Families, Children and Social Development, stated to several media outlets that a guaranteed minimum income is a policy with merit for discussion. As well, Senator Art Eggleton, has just called on the federal government to launch a basic income pilot.
Quebec has strongly signalled its interest in turning their existing income support tools in the direction of a basic income guarantee and Ontario recently announced it would fund a basic income pilot in an undisclosed location.
“We often hear poor people just make bad choices. Sometimes societies make those choices for us, though. If we have a society that supposedly believes in meritocracy without opportunity, then you don’t have a society of merit you have one of privilege,” he says.
“And as a society we just might be losing out.”
by Tyler Prochazka | Apr 18, 2016 | Opinion
Just because someone is disabled doesn’t mean they’re any less of a person. Most disabled individuals can still work jobs, get into Disabled Dating, have families, go places, etc. However, society has a tendency to discriminate against them and doesn’t offer disabled the same treatment as able-bodied individuals. Is basic income guilty of this too? That’s what we shall be discussing in this article.
The Universal Basic Income movement continues to pick up steam around the world, with reports that Finland is interested in starting its own UBI pilot program, joining a growing list of countries around the world. Still, many important questions surround the details of a basic income system.
One criticism raised even by some supporters is that many recent discussions of the UBI have overlooked the disabled and chronically ill. This is not the first case of discrimination against people with disabilities to affect the U.S financial system. While disabled people are always able to take out disability insurance from somewhere like https://www.leveragerx.com, there is no reason why they should be left out of the Universal Basic Income plan.
For example, in its groundbreaking UBI report the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) mentioned disability only to say specific benefits for the disabled were excluded from its model. This is something very important to the disabled community, many of whom click here to get information about their long-term options.
This silence has led some commentators to be skeptical of the UBI’s ability to accommodate the specific needs of disabled individuals. In an article recently published in the Independent, one critic worried that a basic income would either be too low to assist the disabled or too high to be affordable.
Critics are right to point out those who need special assistance are an important consideration when constructing a UBI scheme.
Fortunately, there are ways to integrate these concerns into UBI models while largely retaining the program’s simplicity.
For instance, an additional supplement for the disabled could be granted based on the severity of the disability. The current structure and eligibility requirements for disability insurance from the U.S. Social Service Administration could be utilized to determine the amount of additional aid.
There are three potential options for such a supplement:
- Provide a simple cash transfer that will allow the individual to spend the money accordingly.
- Provide a cash transfer to an account modeled on the Health Savings Account (HAS) structure. HSAs restrict account purchases to medicinal goods and services, but an individual can generally purchase these goods and services from any provider they see fit. This structure may capture the best of both worlds; it would prevent fraud given that those who are not truly disabled would be unlikely to apply for a supplement that is restricted to purchasing goods and services needed for disabled individuals, while also retaining account holders’ flexibility in choice of private providers.
- Expand in-kind services that cater to disabled individuals. While specific in-kind services that should be expanded are beyond the scope of this article, it is almost certain that existing federal and state services for the disabled would not be altered if a UBI was implemented.
Regardless of which option is chosen, none of them make the UBI “utopian” as some critics have recently charged. By adapting existing governmental structures, policymakers can create a UBI while also making special accommodations for those citizens who do need additional supplements to the basic income. Such a system would still be much simpler than the existing structures of government assistance. In the United States, for instance, the vast majority of the current social services bureaucracy could be eliminated and replaced with a streamlined system that looks at only age and health/disability status to determine the size of the benefit. In fact, for those with invisible disabilities, a UBI would likely be a vast improvement to the current situation.
So far, critics have come up short in offering compelling reasons why accommodating those with special needs will drastically undermine the efficacy of UBI models. Nonetheless, they do raise an important concern, and the UBI movement must make room for discussion regarding how to integrate these needs into the basic income.
by Citizens' Income Trust | Apr 9, 2016 | Opinion
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. The Child Tax Credit is a vitally important tool that helps many parents survive. Whilst the source here suggests television may be undermining the safety of children, it is clear that further cuts to Child Tax Credits would compromise their safety and security in an even more detrimental way.
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. This would free parents up, allowing them to look more openly on Daycare Spots and the like for what they want out of a daycare or childcare company rather than relying on what is in place.
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. The changes will help bring education to more children which will improve their cognitive development far more in their early years. Non-profits like Defending the Early Years are campaigning to get just, equitable, and quality early childhood education for every child so these childcare benefits would be extremely beneficial.
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:
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
by Guest Contributor | Mar 29, 2016 | Opinion
By Clive Lord
Almost everyone I know of who supports the Basic Income (BI) does so on the grounds of social justice. I agree of course, but for me less inequality is only the second most important of three reasons to support the Basic, or as we call it in Britain, the Citizen’s Income.
When I joined the embryonic PEOPLE, now the UK Green Party, in 1973, I listened as an enquirer to a spiel based on the threats to the global environment caused by indiscriminate economic growth, which had been exposed by the Massachusetts Institute of Technology report Limits to Growth in 1972. I agreed with every word, but I had a question:
“What is your social policy? You are proposing a deep recession. I agree it will be necessary, but every recession to date has caused widespread hardship. What will you do when desperate people start looting?”
The answer was: “If we have to, we shall shoot them in the street. Social breakdown is hardly the best way to alleviate poverty.”
It is all very well readers being as appalled as I was, because the basic premise was right. The speaker then challenged me:
“Do you have a better social policy in mind?”
I didn’t. I spent the journey home wrestling with my own question. Guess what I came up with. I discovered later that the Basic Income had already been invented several times, for different reasons, starting with Thomas Paine in 1798. But even now, 43 years later, limiting economic activity to the ability of the ecosphere to cope was not part of the “successful” Paris climate agreement in December 2015. It will fail without that. A Basic Income will allow a steady state economy to be acceptable to whole populations, and so become a policy option, but it will have to be world-wide.
It will be dismissed as “unaffordable” – this would only be true if the economy has collapsed beyond the ability to provide basic necessities for all, but if linked to ecological realities it will entail drastic redistribution. This brings us to the more common justification for a BI of reducing inequality, but if all the Basic Income does is allow the poor to spend money confiscated from the rich, the Paris agreement is doomed.
However, I am continually perplexed by the widespread failure to grasp the malevolence of means testing – taking benefits away as soon as the claimant has any other income.
The next few paragraphs refer to the UK but will apply anywhere means tested benefits are used. For the person losing a means tested benefit, the effect is identical to a massive marginal tax. The clearest demonstration of this can be found in an unexpected source: the 2009 report Dynamic Benefits: towards welfare that works, released by the Centre for Social Justice. The Centre was set up by Iain Duncan Smith, who has been Work and Pensions secretary in the UK Coalition, now Conservative government since 2010 – and has recently resigned in protest against announced cuts to disability benefits. Dynamic Benefits was the foundation for the government’s welfare ‘reform’ policies. Its key recommendation was the Universal Credit (UC), whereby on finding employment a claimant would retain 45% of their former benefits. The former Work and Pensions secretary reduced this to 35% on taking office. This means that the former claimant is faced with a tax rate equivalent of 65%. Bankers on the highest tax rate lose 45% of their income.
In Dynamic Benefits, there are several graphs showing benefit withdrawal rates as though they were taxes. In fact, the first part of the report, outlining the problem, is an excellent statement of the case for a Basic income. The UC is an emaciated BI which attempts to remove the work disincentive of means testing, but still penalises beneficiaries disproportionately vis-à-vis high-income earners.
While Iain Duncan Smith’s stated reason for resigning was cuts to disability benefits, I believe the real reason is the imminent scrapping of the UC. In four years since being announced, the UC has only reached 5% of the 4.5 million who should be eligible. The Department of Work and Pensions is claiming that the UC will be fully rolled out by May 2021. The track record of slippage to date makes that improbable. That the initiator of benefit sanctions, the bedroom tax, and Work Capability Assessments presents himself as the defender of the weak and vulnerable is sickening, but Dynamic Benefits remains a useful document for basic income debates.
But my third reason is much more fundamental. A Basic income can begin a shift to a totally new culture. Instead of haves vs have nots, or bosses vs workers , the new fault line will be those who want to preserve natural systems versus those who believe there will always be a technological answer. This will enable a low growth economy to protect the ecosphere.
Milton Friedman, an archetypal neo-liberal, was in favour of the Basic income. Market forces are a basic pillar of neo-liberalism, but instead of the current system whereby the strong can exploit the weak, persuasion will replace work compulsion. The would-be employee will have equal bargaining power with the boss. Needless to say, Employee Benefits such as healthcare cover will also need to be negotiable. Experiences in India and Namibia show that far from encouraging idleness, a BI facilitates entrepreneurship. But it will also allow people generally to heed eco-constraints, notably climate change, where competitive capitalism does not.
Anyone curious to know more, my Book, Citizens’ Income and Green Economics (2011) is available from the Green Economic Institute. My blog www.clivelord.wordpress.com which is more up to date, but 
inevitably less coherent, discusses the Tragedy of the Commons, population, the Greek crisis, migration and fracking.
We may yet save “Paris” (and the planet), and feed everyone. There is even something in it for the capitalists.
Clive Lord is a founding member of the British Green Party, a major contributor to the party’s first “Manifesto for a Sustainable Society” and a basic income advocate.
