April 14, 2005
I said yesterday that I'd explain why I thought the Greens' policy of a citizen's basic income an unconditional grant paid to all adults, as promoted by these guys - would be a fantastic idea. Here goes. First, a CBI is genuinely egalitarian and anti-managerialist. One reason why the traditional welfare state has not achieved as much redistribution as the left would like is that it hasn't tried to. Instead, its function has also been to manage, corrall and stigmatize recipients. William Beveridge said in 1942 that the aim of his scheme of welfare benefits was to "make and keep men fit for service." The same motive underpins Gordon Brown's tax credits.
A CBI attacks all this.
It recognizes that the purpose of the welfare state is redistribution, not job creation for managerialists. Because it would be so much simpler to administer than tax credits, it would dismantle the hierarchical bureaucracy that has captured the welfare state for its own ends. And in giving everyone the same entitlement, there would be no role for those who wish to stigmatize and harass recipients.
In a similar vein, a CBI is flexible. It recognizes as the Beveridge welfare state and tax credits do not that family circumstances differ and change. It gives people the same income whatever their circumstances. It therefore avoids the problems of having to identify deserving and undeserving claimants, and minimizes dangers of fraud.
For this reason, A CBI acknowledges the importance of individual responsibility. It says that being old or a parent of a large family are no reasons for you to get extra income, because these are circumstances that are foreseeable and chosen.
If the CBI is sufficiently generous a point I'll come to any hardship that remains is due either to free choice or to (insurable) bad luck. It's therefore no business of the state.
What's more, given the CBI, you can do what you want; part-time work, study, setting up a small business. In this sense, a CBI ends the dependency culture and promotes self-reliance. The CBI says: let's give up trying to second-guess how people are going to lead their lives and crafting responses to the problems they might encounter. Instead, give them the money and let them get on with it.
In this sense, a basic income would increase freedom. The liberty that matters is not merely the ability to choose between bundles of goods, but the ability to choose among the various lives we may wish to lead. A basic income would promotes this freedom by allowing people to choose between leisure, child-rearing, education and work.
This is not the only way in which a CBI would increase freedom. A CBI would permit the scrapping of masses of regulations upon companies, such as minimum wages or working time directives.
This is because a CBI answers the question: to what are the worst-off entitled? It therefore removes the need for regulations aimed at protecting the worst off. Workers wouldn't need governments to step in to protect them from bad employers - because if they were not content with the contract offered by bosses, they could stay at home on the basic income. Similarly, there would be no need for heavy state subsidies to industry, agriculture or the arts, because all the necessary subsidies would be provided to individuals by a basic income.
Finally, a CBI, if accompanied by taxes on inheritance and the ownership of natural resources, provides compensation for past unjust appropriations of land and mineral rights. We can see it as part of Robert Nozick's "rectification state", aimed to redress historic injustices. A CBI is the compensation we should get from past generations of unjust appropriaters. Because we cannot identify precise losers from these unjust appropriations, the principle of insufficient reason suggests an equality of payment to everyone.
So much for the theoretical case for a CBI. But is it affordable?
In static terms, yes. Table A3.1 of the 2005 Budget lists four pages of tax reliefs. By abolishing VAT exemptions and zero-ratings and income and inheritance tax reliefs, we could save over £90bn. And this doesn't touch tax reliefs in savings or capital gains.
Table C11 shows that we'd save another £121.4bn by abolishing social security benefits, £15.2bn by scrapping tax credits, and £3.2bn from the Common Agricultural Policy; all these handouts would of course be replaced by the CBI. And table C13 shows that we'd save another £6.8bn from scrapping the DTI and Department for Culture, Media and Sport.
This gives us almost £240 billion. With an adult population of 45.5 million, this would give a CBI of just over £5200. That's £100 a week, which is £18 a week more than the basic state pension.
And this is without cutting the bureaucracy which administers tax credits and social security, without changing income tax rates and, leaving inheritance tax rates at an absurdly lenient 40 per cent. Now, I'm not laying down any blueprint here. I'm merely showing that, in static terms, a CBI is affordable.
But of course, there's an obvious objection here. An income of £100 a week might encourage lots of people to drop out of the workforce. If they do, tax revenue would fall so much that we couldn't afford a decent basic income. And even if we don't get this extreme drop-out rate, the resentment workers feel towards shirkers could undermine the spirit of community which some believe a basic income should help promote.
I'm not sure how big a problem this is. An income of £100 a week is not a king's ransom. The only people likely to take it instead of working are those whose marginal product is so low that they would contribute little in taxes anyway.
Indeed, there are three arguments which suggest a CBI might increase employment and hence tax revenues.
First, it would reduce the huge benefit withdrawal rates that people receiving tax credits now face; the IFS estimates (pdf) that 4.6 million working parents face a marginal tax rate of over 50 per cent. People's incentives to work longer hours or find better jobs would therefore increase.
Second, as a CBI should be accompanied by abolishing the minimum wage, wage rates might fall to price people into work.
Thirdly, under a CBI everyone would be significantly financially better off in work than out. This is not the case now. Incapacity benefit, for example, is a big disincentive to get work.
So, a CBI is probably feasible and desirable. There are of course objections to it. But I suspect the real reason no major party supports the idea has less to do with these objections, and more to do with unthinking illiberal managerialism.