Wednesday, 22 March 2017

"Universal income would make inequality worse, say people who don't do numbers or logic"

Emailed in by MBK, from The Times:

A Labour proposal to replace benefits with a universal basic income would increase inequality and lead to billions of pounds in extra taxes, an independent review has concluded.

Let's just bathe in the warm glow of that self-righteous non-logic for a minute...

Would a fiscally neutral UBI paid equally to all mean that some small segments of the population receive less in benefits than they do at the moment? Yes, of course (mainly unemployed single mothers - many of whom might well have an undeclared live-in partner).

You can consider that A Good Thing or A Bad Thing, and say that it would "increase inequality" if you wish. In my book, treating everybody the same reduces inequality, the same as everybody gets one vote at elections, the right to vote is free and neither contributory nor means-tested.

In the next breath, the author is wailing about "billions of pounds of extra taxes", implying that people would be worse off all the way up the income scale, which in turn would reduce inequality.

Put the two together, and he is saying that everybody would be worse off, which is mathematically impossible.
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If you read the full report by Bath University's Institute for Policy Research, you notice that they have indeed played fast and loose with the numbers and ignored their own logic.

Let's go with their Model 2.4, page 20, which is fairly full-on "UBI set at the level of existing benefits" which they consider to be £67/week per child; £73/week per working age adult; and £156/week per pensioner. The gross cost of this would be £288 billion.

This would be part funded by eliminating the personal allowance for income tax, the basic state pension, Pensions Credits, Child Tax Credits and Child Benefit, Working Tax Credits and the various categories of unemployment benefit (Carer's Allowance, Employment Support Allowance, Income Support, Jobseeker's Allowance etc). They say the shortfall would be £76 billion, to be made up with higher taxes.
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Let's iron out the easy mistakes first, if you divide total Child Benefit and Child Tax Credits by the number of children in the UK, it works out at about £50 a week, so let's stick with that. No need to worry about funding it.

The same goes for a Citizen's Pension replacing state pensions (basic and earnings-related) and Pensions Credit. Add up current cost, divide by number of pensioners, comes out at about £156/week, job done, no need to worry about funding that.

Next, paying all UK resident working age adults who hold a British passport £73/week would cost £141 billion. The bulk of working age adults have a job and earn more than £11,000 a year, the intention is not to make them better or worse off.

This can be achieved quite simply by scrapping the personal allowance for income tax and the lower limit for NICs and halving the lower limit for Employer's NICs. The extra tax and UBI net off to nothing, so no problem funding this.

This leaves maybe ten million adults who are unemployed, students, low-wage/part timers earning less than £11,000, and non-working spouses. Nearly all these people currently get something or other - unemployment benefit, Working Tax Credits, Statutory Maternity Pay, Statutory Sick Pay, student loans and grants etc. These people break even if they get a flat £73/week.

We could shave off a few billion by sticking with current rules and paying people under 25 a lower weekly amount. The report ignores the current cost of SMP, SSP and student loans/grants or the under-25 savings, but clearly no problem funding this.

For sure, a couple of million low- and non-earning adults in the UK currently get zilch in benefits (mainly spouses of people with a full-time job), paying them £73/week is an extra cost of maybe £10 billion. But it costs about £10 billion to run the DWP and next to nothing to run a Citizen's Income scheme, so that extra cost covers itself.

So overall nobody knows what the additional cost or saving would be, it's all within the margin of error. Their headline figures of £76 billion and at least 4% on income tax are clearly miles out.

As to higher tax rates, most people would face the same marginal tax rate, a few low-earning non-claimant spouses would face a slightly higher tax rate and several million claimants (and people with children earning more than £50,000) would face much lower marginal tax rates if they find some paid work/increase their earnings.

Added to that is the fact that all this complying and claiming, notifying of change in circumstances, worrying about being overpaid and having to pay it back etc, all the hours wasted filling in forms, traipsing to the job centre, being on hold with a call centre etc falls by the wayside. That's not necessarily a cash cost, but a massive benefit to people in the bottom couple of deciles.

12 comments:

Bayard said...

"But it costs about £10 billion to run the DWP,"

That's a fsck of a lot of civil servants. Making civil servants redundant is a very very expensive operation. There would be some hefty one-off costs of introducing UBI.

Mark Wadsworth said...

B, true, but that's a one off cost.

Ben Jamin' said...

The trouble is that all these models are predicated on the assumption that any shortfall would be made up by rises in Income Tax ie extra costs.

If any shortfall were to be made up from flattening out and perhaps raising Council Tax, this would only lead to better allocation of existing housing ie reducing costs.

So if Labour want to put forward a Citizens Income and nullify the objections of the faux-libs then they only need address the tax side of the equation.

Ben Jamin' said...

"Would a fiscally neutral UBI paid equally to all mean that some small segments of the population receive less in benefits than they do at the moment? Yes, of course (mainly unemployed single mothers - many of whom might well have an undeclared live-in partner)."

That only depends on how you choose to do it.

http://markwadsworth.blogspot.co.uk/2016/09/politics-of-citizens-income-paid-from.html

Essentially, we have £200bn of land rents to fund whatever we want. Be that extra spending, tax cuts, a Citizens Income or a combination of all.

Labour are have got little to lose by advocating root and branch reform or our tax/benefits system. By that I overwhelmingly mean sorting of Council Tax.

Mark Wadsworth said...

BJ, agreed and agreed, of course.

Ben Jamin' said...

LVT = Poor Widows in Mansions
Citizens Income = Unemployed Single Mothers

Mark Wadsworth said...

BJ, LOLZ. The USM could move in with the PWIM and do the housekeeping, problem solved.

Ben Jamin' said...

"Would a fiscally neutral UBI paid equally to all mean that some small segments of the population receive less in benefits than they do at the moment? Yes, of course (mainly unemployed single mothers - many of whom might well have an undeclared live-in partner)."

In which case why not just crystalise this with a "Single Mums Supplement"? That way we could have a UBI without the USM problem, and then argue about the rights and wrongs of subsidizing single mums afterwards?

Mark Wadsworth said...

BJ, yes, that is what The Green Party ended up proposing as a compromise.

USM's main loss is the "working tax credits", which is a few thousand quid a year, let's say there are 300,000 USMs in the country, bung them all an extra £3,000 a year, cost £1 billion, barely worth arguing about. Then let the Guardian and Daily Mail argue that this is too low/too high while nobody else gives a shit.

Derek said...

BJ wrote, In which case why not just crystallise this with a "Single Mums Supplement"?

Good idea! They could call it Child Benefit and pay it to all mums!

Mark Wadsworth said...

D, yes.

Bayard said...

"BJ, LOLZ. The USM could move in with the PWIM and do the housekeeping, problem solved."

I can't see that working. The Pwim is very conservative*, wouldn't approve of USMs and certainly wouldn't want to have one living in her house.

*AFAICS, the Pwim is a mythical beast like the unicorn and so I can assign it any characteristics I like.