Sunday, 7 March 2021

On behalf of two of your constituents

Email I just sent (some typos corrected), for the record. Direct quotes from the MP's email to her constituents in italics.
Dear Ms M......

I am the Secretary of the Citizen's Basic Income Trust (formerly "Citizen's Income Trust").

Two of your constituents (I have bcc'd them in, in case they wish to pursue the matter further) have asked me to contact you regarding certain unsubstantiated claims you have made about Basic Income in general and our research in particular.
"The question of feasibility is one we should consider. No matter how desirable a UBI-style programme might be, it must also be feasible in the present context of our economy. When considering feasibility, we must address... whether it could be introduced in a manner that prevented losses amongst the most vulnerable in our society."

We agree entirely!

We assume that when you say "the most vulnerable" you mean existing welfare claimants. Three points here:

1. It would be easy to set the basic income at a level which such people's welfare payments do not fall significantly or do not fall at all. Whether we call it "income support" or "universal credit" or anything else, £1 paid out as "basic income" costs the DWP LESS than £1 paid out as "income support" or "universal credit" because there is little or no admin cost involved (short of basic fraud detection, which as we know from Child Benefit is nigh undetectable with flat rate benefits).

2. These people are particularly vulnerable because they know that benefits are very conditional, if there is the slightest administrative hiccup or they inadvertently breach a certain condition, they can lose their welfare income for weeks or months. A reliable non-withdrawable weekly payment of £90 each and every week is worth far more than knowing you will get £100 in most weeks but sometimes you will get nothing at all for a month or two.

3. You ignore the most "vulnerable" of all. For example those who have just lost their job, those who do irregular low paid jobs (zero hour contracts), and many more who do not receive any welfare payments at all because they do not meet the bureaucratic requirements (the homeless), or are discouraged from claiming because they know - or reasonably believe - that they might have to wait for several weeks to receive their Universal Credit, by which time they might have found a new low paid job and have to pay everything back, thus compounding the misery.
"could dramatically increase the number of children living in poverty (as was also found in modelling by the Citizen’s Income Trust)"

We have published lots of examples of Basic Income systems. Some replace most existing mainly means tested benefits with a single payment; others replace fewer such benefits and pay the Basic Income in addition, which automatically reduces the entitlement to and cost of means tested benefits. It would have helped your constituents in forming a decision had you actually provided full details of the particular example you were referring to.

Some of our examples do indeed show that certain groups (in particular unemployed single mothers) would receive £10 or £20 less a week. Others show that they would be largely unaffected. It is up to the government of the day to decide which system to choose.
"The report found that the additional tax revenue required to support such a system could be as much as £160 billion. Such a figure would indicate that UBI systems would be unaffordable..."

I will let Compass and JRF speak for themselves.

In none of our workings has the additional "cost" amounted to anything like that much - and none has required any change or at least any significant change to the rates of income tax and National Insurance (depending which example you choose).

Clearly, most adults are in steady paid employment and earn more than the income tax personal allowance of £12,500. We have always said that the Basic Income would be a straight swap for the personal allowance and the NI lower earnings threshold, so most adults would barely notice a difference - they receive a Basic Income of £70 - £100 per week, but pay extra tax of £70 - £100 per week. This could be dealt with via PAYE (as was the case in Ireland until recently) so this is not an extra "cost". It would be foolish to consider the £160 billion as a cost and the extra £160 billion as extra tax revenues.

(So this step is purely administrative - for the time being, it is easier just to exclude people in steady jobs from Basic Income and let them keep their personal allowance and lower earnings threshold, but they know that Basic Income is there if they suddenly need it. As the Adam Smith Institute has pointed out, for the majority of people there is no difference between the current system, Basic Income and Negative Income Tax).

The cost of paying the Basic Income to existing claimants (group 1 above) would barely change, depending on the precise level and which benefits it replaces.

There will more payments made to group 3 above - those in low paid and irregular work, but at least half of this will be clawed back by the PAYE system (the tax free allowance and lower earnings thresholds would be zero). This clearly obviates the need for a parallel means-testing system.

As you must know, clawing back benefits via the PAYE system is already part of the UK's overall system - for example student loan repayments and the higher earner child benefit charge. The PAYE system can easily be adapted to claw back all benefits automatically by adjusting each individual's PAYE code. The simpler the benefit system, the easier it is to adjust PAYE codes, they can be uprated each year automatically.

Any residual additional "cost" can be offset against the admin costs incurred by the DWP and HMRC, including losses due to fraud and error and student loan write offs, which are in the order of £20 billion - £30 billion a year. The net cost will be a drop in the ocean when set against UK government spending overall.

And whatever system you choose, the welfare state costs this country nothing. Some citizens pay in, others get money out, some pay in and receive similar amounts (people on Working Tax Credits). Workers pay in now and get a state pension when they reach retirement age. No sensible system is "unaffordable". I pay my children pocket money. That superficially costs me money, but it costs us as a family unit precisely nothing, and clearly improves our overall happiness - £20 a week is not much to me but £10 a week each means a lot to them.
"even when the effect on individual behaviours in the labour market are not considered... Our current welfare system, built around Universal Credit, seeks to incentivise claimants to move off benefits and to provide tailored support to help people find work and increase their earnings".

That is a major advantage of a Basic Income. There is no poverty trap. If a claimant finds a job, short or long term, low paid or well paid, they know that they will be better off. They can move seamlessly into work without having to wait weeks between their last welfare payment and their first pay cheque. If they lose their job, at least they know that their Basic Income is still coming in to cover essentials. The value of this goes above and beyond the pure cash value. It is good for peace of mind and a general sense of well being. Like home insurance - you hope that nothing ever happens and you will never have to make a claim - but it's nice to have the reassurance and it's worth a few hundred pounds a year.

Nearly everybody wants to "increase their earnings"! Most people receiving £100 basic income would prefer to have £100 basic income and another £100 in net wages after tax. Most people earning £20,000 want to do overtime or get pay rises or be promoted and earn £25,000 and so on. Persecuting low and non-earners does not add to this basic human instinct. The minority who do not want to or cannot increase their earnings because of caring duties and disabilities should not be punished. And yes, there is a residual group who live a very modest lifestyle and will stay on welfare. Trying to cajole them into work is pointless, no employer wants them. It's like expecting wealthy heirs and heiresses to lift a finger.
May I also take you up on this:

"the new Winter Grant Scheme which will deliver £170 million of funding to councils in England to provide vital support to the most vulnerable children and families"

There are nearly thirty million households in the UK. If that £170 million is paid equally to households in the lowest decile, that means about £60 each. Over a ten week winter, that makes £6 per household per week.
[Please note - in all our calculations we have assumed that welfare payments for housing costs and additional payments to people with a disability would continue as they are and be paid in addition to the Basic Income]
I hope this is food for thought

Yours faithfully


mombers said...

Universal Credit has at least one built in cliff edge that makes extra work significantly decrease take home pay. Free school meals are cut off abruptly at ~£7500, for two kids that's a massive lose for taking on anything less than several thousands of pounds extra work. Similar for a few other means tested benefits like prescriptions I believe.

Mark Wadsworth said...

M, anything with a sudden cut-off is a bad thing. Free school meals for all is the easiest (removes stigma) or just increase Child Benefit by a few quid.

James James said...
This comment has been removed by the author.
James James said...

Current "Universal Credit" withdrawal rate is 63%. Are there any obstacles to reducing this to 20%? Sounds like a quick win.

Mark Wadsworth said...

JJ, that can be easily done. Scrap means testing by DWP and give claimants a BR tax code.

Lola said...

She'll not even read this, is my bet. Some 'assistant' might and give her an edited version. Overall they do not want to hear. The Right because it cannot make the argument for it to its core vote and the left because it tales power away from them.

Mark Wadsworth said...

L, of course she won't read it. Her assistant will just press delete. This email was for the benefit of the two constituents, just to give them a bit of ammo in future.

James James said...

Lola, why can't the right make the argument for it? It would be stonkingly popular. It would also be good for the right in the long term by destroying the left's raison d'etre, since poverty homelessness etc would no longer be involuntary. It would also create a constituency of >51% of the population to lobby for lower government spending, since government spending reduces money available for the Citizen's Dividend.

Bayard said...

JJ, CBI will always be unpopular amongst the poor because it gets paid to the rich, who don't need it, and amongst the rich because it gets paid to the poor, who don't deserve it.

Mark Wadsworth said...

B, actual poor people and actual rich people probably couldn't care less who else gets it. It's the mean spirited middle-income busybodies who care. [I suppose you can count me as a generous middle-income busybody.]

Bayard said...

Unfortunately, all classes contain the mean-spirited and it's not just them. A sense of fairness is something we have inherited from our monkey ancestors and people of all classes objected to the Countess of C- going to the post office in her Rolls Royce and fur coat to collect her child benefit. You can argue the benefits of CBI until you are blue in the face, but, deep down, people know it's unfair.

Mark Wadsworth said...

B, the whole topic is pointless. It is impossible to pay everybody a UBI. There are net (tax) payers and net (UBI) recipients.

So I'm perfectly happy with most people just getting the tax free personal allowance instead.

Lola said...

JJ. You'd think so wouldn't you. But the 'right' is not the Libertarian Right, it's the rent seeking miserablists. I know this as I've had endless discussions with them about the whole thing. The Right like people to beg for benefits.

Mark Wadsworth said...

L, I think it's the middle muddle Guardian-Daily Mail crowd who want people to beg for benefits (if that's what you mean by rent-seeking miserabilists).

James James said...

"JJ, that can be easily done. Scrap means testing by DWP and give claimants a BR tax code."

That's one way to do it, but what I mean is, that 63% figure must be written down in a law and a computer system somewhere. So it could just be changed to 20%. Then the process of integrating the benefits system into the tax system could be done as a tidying-up exercise later.

Mark Wadsworth said...

JJ, sure, any number lower than 63% is a good step forwards. It's just seems to be so much mucking about for no purpose.