Politics of a Citizen's Income paid from a Land Value Tax

The following assumes no other changes to our tax and benefits system whatsoever.

According to Savills residential property values in the UK are £6,165bn. There are 28.2 million dwellings in the UK.

Let us assume that LVT is the equivalent to 3% tax on the current selling price of each home.

Total potential LVT revenues are £185bn.

UK population is 64.6 million.


A Citizen's Income from which we all get an equal share of LVT = £2,864 per person (including children).

Property value London/SE = £2,772 bn, LVT = £83 bn pa
Property value other regions = £3,393 bn, LVT = £102 bn pa

Population London/SE = 17.4m, Citizens Income = £50 bn pa
Population other regions = 47.2m, Citizens Income = £135 bn pa

Net flow of income to regions outside London/SE = £33 bn pa

Break even point for owner occupiers = £95,500 property value per person

So a household consisting of a couple with two children would be no better or worse off if they lived in a home worth £382,000.

Average UK house price £218,474.

                                                              Conclusion.

Almost all constituencies outside London/SE would be better off under a LVT + CI.

Couples with two children living in a house worth £382,000 or less (176% of current average house prices) would be better off.

Over half of Londoners who now live in rented accommodation would be better off.

In short, only a small minority of UK constituencies, mainly in the SE of England would be worse off and vote against such a proposal.

As well as reducing both regional and individual inequality, LVT + CI would allow the market to allocate property at optimal efficiency, reducing vacancies and under-occupation.

It would also reduce the selling price of property to its capital only value. Saving future title holders £36bn per year in mortgage interest repayments. (assuming current outstanding mortgages total £971bn would be reduced to £324bn)

A win-win-win.

For the purposes of a clear illustration of distributional effects, no changes to our tax and benefits system take place. However, it would be better if as many bad taxes were replaced with an LVT as possible, and our benefits system largely replaced with a Citizen's Income. Reducing the deadweight losses associated with each.

A win-win-win-win.

All we need is some politicians who can make a good pitch...

Reader's Letter Of The Day, and...

DBC Reed alerts us to some pro-Citizen's Income letters in The Guardian, best of which was this:

… In order to pay for basic income, the most logical change to the taxation system would be the introduction of a land tax, the effect of which would be to reduce property prices and, in conjunction with basic income, stimulate the economy by putting more money into circulation. The net result would reduce inequality and have a negative effect on the income of rentier landlords who would undoubtedly see the measures as an attack on capitalism itself: yet another good reason to make it happen.

Bert Schouwenburg, International officer, GMB

The next letter provides a totally bizarre Killer Argument Against Citizen's Income, Not:

I think most Guardian readers would be instinctively drawn to the idea of the universal basic income as a signifier of a return to universal welfare, but we should be careful what we wish for. Charles Murray, arch champion of neo-liberal reform of the state, has been arguing for this for years as a means of eliminating forever the welfare state.

Karen West, Aston University

Dude WTF.

So the socialists say that people like Charles Murray wants to "eliminate forever the welfare state". A Citizen's Income is merely a radical simplification of the "welfare state", altho' it would get rid of most of the apparatus of the welfare state, i.e. most of the hundreds of thousands of civil servants working for the DWP and housing departments, plenty more at HMRC and so on. Perhaps that's what she means..?

(As an aside, I was at a Citizen's Income Trust shindig last year, and both Natalie Bennett and John McDonnell spoke in favour of it. Are they also "neo-liberal"? Sticking "neo-" in front of something to make it sound conspiratorial and evil is usually a sign that somebody has nothing to contribute.)

I've heard just as many authoritarians/right wingers complain that a Citizen's Income is some evil, neo-socialist stalking horse.

I have pointed out many a time that there are some overlaps between non-socialist left and libertarian right, and pretty much everything I support is exactly in that overlap. If done sensibly, a Citizen's Income would not be significantly more or less redistributive than the current welfare system and all the tax breaks it could replace, it's not really a political thing at all.

Can't these opponents on left and right agree between themselves whether it is a wicked far right idea or a wicked far left idea, and then we can then take on the winner?

Reader's Letter Of The Day

From The Guardian:

Declan Gaffney (Even in Finland, universal basic income is too good to be true, 10 December)* is right: a universal basic income, or citizen’s income – an unconditional income for every individual citizen – is a lovely idea. It would provide a secure financial floor on which everyone could build; it would make it easier for people to earn their way out of poverty; it would remove intrusive government bureaucracy from a lot of people’s lives; it would enhance social cohesion.

There are 101 Reasons for a Citizen’s Income (if anyone is in any doubt about that, then the Policy Press will gladly sell them a book with that title). And yes, a citizen’s income is a useful thought experiment against which to judge proposed changes to the benefits system. But it’s more than that. It really is feasible. Research results published by the Institute for Social and Economic Research show that there are at least two practical ways to implement a citizen’s income and that one of those methods could implement it very quickly: which could be helpful if universal credit proves impossible to implement.

The high-profile new elements in the debate are the Finnish and Utrecht pilot projects, and the Swiss referendum next year. Equally important is the number of UK thinktanks now running their own research projects. The Adam Smith Institute has recently published a paper on a variant, negative income tax; and Compass, the Fabian Society, and Royal Society of Arts are researching the feasibility. The debate on citizen’s income has shifted from being a debate about its desirability to being one about its feasibility. The next stage might be a debate about how to implement it in the UK before everyone else beats us to it.

Dr Malcolm Torry, Director, Citizen’s Income Trust

* The article itself was the usual hatchet job by an authoritarian socialist.

Outbreak of commonsense in Finland.

From City AM:

Just days after George Osborne announced his latest mass of adjustments to Britain’s tax and spend system, reports from Finland revealed that its government is looking into a somewhat simpler policy – giving each Finn €800 (£576) a month.

This may seem like madness. Why, I’m sure many of you will ask, should folk be handed money purely for existing? Won’t people respond by just sitting around doing nothing? Evidence suggests not. In fact, the Finnish experiment – if it goes ahead – is designed to reduce unemployment, which currently stands at over nine per cent...

And so on, all good stuff.

The interesting bit is this: "the policy, despite sounding – prima facie – like a left-wing fantasy, has been endorsed over the decades by pro-market economists such as Milton Friedman... This proposal is similar to a system endorsed by the free-market Adam Smith Institute called a 'negative income tax'."

That struck me after the vote on whether RAF planes should bomb Syria. Proper 'left wing' MPs voted against (Greens and most of the Labour Party), as did a few proper 'right wing/libertarian' MPs' such as David Davies and Peter Hollobone. Nigel Farage MEP also came out against.

So there are overlaps between 'fantasy left' and 'free-market/libertarian'. There are plenty of other examples, like legalising drugs or replacing taxes on earnings and output with LVT. The two groups give different reasons for supporting the policy, but they both come to the right conclusion, which is the main thing.

Hence and why I am perfectly happy to describe myself as "left/libertarian", which of course means I get shot by all sides, from the greenies, socialists, Conservatives, Homeys and Faux Libertarians alike.

Reader's Letter Of The Day

From today's Evening Standard:

Oliver Healey writes (Letters, 27 October) that "A London income tax could be used to eliminate the in-work poverty that millions of Londoners face because of high living costs".

The dividing line is not between high and low earners. It's between those lucky enough to have bought their own home more than 10 or 15 years ago and private tenants. A long-standing owner-occupier can live quite comfortably on a modest income, but private tenants lose half their income in rent and really struggle, even on above-average salaries.

What would bridge this gap is a London-wide property value tax to be distributed to all Londoners as a universal dividend. An average household in an average value home would break even; owners of "prime London"* would finally start paying for the privilege; and renters/recent purchasers would be able to use their universal dividend to cover half their rent or mortgage, thus reducing their living costs to a tolerable level.

Mark Wadsworth, Young People's Party

* With the benefit of hindsight, I should have included "BTL landlords". Ah well.

"Critics have said it could cost £280 billion"

From the BBC:

Every adult in Britain would be paid a basic income regardless of wealth or earnings, the Green Party will say in a commitment to appear in its manifesto.

But Natalie Bennett, the party's leader in England and Wales, told the BBC a Citizens' Income of £72 a week would take time to implement...

Critics have suggested it could cost £280bn.

That depends how you define 'cost'.

The total amount nominally paid out (including lower amounts to children and double that amount to pensioners) plus running costs, fraud and error would be approximately £280 bn. Nobody's disputing that.

It would all be 'paid for' by scrapping an equal and opposite amount of existing state pension/welfare payments and tax reliefs (notably the tax-free personal allowances for income tax and NIC) and reducing running costs, fraud and error. (Housing Benefit and disability related benefits would continue for the time being) In other words, the cash 'cost' is exactly the same as the current system. That's the whole point.

It would take no time at all to implement; for pensioners and children we use the existing system as for state pensions and child benefit; existing welfare claimants continue claiming what they are getting (but in return they get a BR tax code so pay full income tax and NIC on all their earnings, if any).

The majority of adults who are in work just get an appropriately higher personal allowance (i.e. £72.40 x 52 ÷ 32% = £11,765) but no cash paid out (it nets off with the PAYE they would have had deducted). There's a bit of faff with people who less than the new higher personal allowance, but it is a lot less faff that the existing system, in particular working tax credits.

There will be a few winners and losers, but we are talking relatively few people affected and relatively small gains or losses. A really simple system like this is inevitably slightly less 'progressive' or redistributive than the current system because on the whole, low to middle earners are likely to gain at the expense of non-earners, but so what?

The only debates to be had are whether £72.40 per week is too low or too high; what to do with Housing Benefit; and whether we ought to start tinkering with 'transitional measures' for the small number of people who end up with less money in the short term.

Job done.

Tip top tokenist Tory tinkering.

From the BBC:

The Conservatives are considering limiting child benefit to three children, BBC Newsnight has learned… It would save an estimated £300m a year - but Tory MP Dominic Raab said it was not purely about cost but could "send a message about personal responsibility"…

Child benefit can be claimed by anyone responsible for a child under 16, or under 20 if the young person is in education or training - though since 2013 there have been restrictions for families where one parent earns more than £50,000 a year. It currently pays £20.50 a week for a first or only child, then £13.55 for other children.

Deliberately ignoring the elephant in the room as per usual.

Child Benefit is (or was) a splendid benefit, it was small amounts of money (nowhere near the average cost of bringing up a cd) but everybody gets it (until recently when it was withdrawn for higher earners). The total nominal payout is about £10 billion a year and fraud, error and admin costs are so small as to be barely measurable.

The cash value is nowhere near the average cost of bringing up a child (the bulk of which is loss of mother's wages) so eases the pain a bit without actually distorting behaviour.

The biggie is Child Tax Credits, up to £53 a week per child plus bits and pieces, which is a total payout of about £25 billion a year, the bulk of which goes to a small number of large families with low or no (declared) income.

For second and subsequent children, the extra cash you get from having another child is £66, which is probably more than the marginal cost of bringing up a second or subsequent child. If a mother is at home and not in paid employment, then the loss off her wages is a sunk cost. So this does distort behaviour quite a lot.

Fraud, error and overpayments are endemic; admin costs are enormous and they put a sadistic amount of effort into clawing back overpayments from randomly selected people. And it is savagely means-tested, of course.

Now, if you chuck Child Benefit and Child Tax Credits in the pot and divide it by the number of eligible children, it comes out to about £55 per child per week (see pages 8 and 9 of the Citizen's Income Trust booklet), without the need for means testing and so on, which seems fair enough to me.

If you want to cap this at three or four children per family/mother to "send a message about personal responsibility" then that also seems fair enough; any 'savings' from doing so are minimal in the grander scheme of things (£1 billion a year, perhaps?) but possibly worth having.

The other good thing about having a flat rate amount of £50-odd per child per week is that it sorts out the so-called gender pay gap, which is actually a mothers-vs-everybody else pay gap. If you means-test it, then you leave the pay gap as it is.

Natalie Bennett on top form

The LBC have put up a transcript of her car crash interview.

As to building more social housing, they both missed the point.

It doesn't really matter what they cost to build in £millions or £billions, the important consideration is whether the overall annualised cost (minus rental income) is less than paying Housing Benefit to private landlords.

Gov.uk says there are 1.7 million HB claimants renting from private landlords at a total cost of £9.32 billion a year = £105 a week average.

Councils can wangle land virtually for free, and the build cost for a small terraced house or a decent flat can't be more than the £60,000 figure she gave*. Let's say councils borrow at 3% over 25 years, that's loan repayments of £3,500 per unit per year plus £1,500 annual maintenance and running costs = £100 a week.

So even if councils allow people to occupy them rent free, it's still no more expensive than paying Housing Benefit.

If you factor in rental income of £80 a week (the average charged for social housing), it is a considerably better deal for councils, tenants and the taxpayer. And it's a considerably better deal for working private tenants who are not claiming HB because private sector rents will fall markedly and/or lots of landlords will sell up**.

That woman is her own worst enemy. And I happen to know that she has been presented with itemised and robust calculations for paying for their suggested Citizen's Income; I accept that you can't her to remember the finer details but surely you can expect her to remember that it's all been worked out and costed?

If you join the dots, they can also claw back a lot of the Citizen's Income in rent, in other words you can choose between £72 a week cash or a roof over your head, however modest.

FFS.
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* Steven L points out in the comments that if the government spends money on having housing built, it claws back a fair bit of that (a third?) in CIS deductions, PAYE, corporation tax (housing is zero-rated for VAT).

So if it funds construction by borrowing, it is cash positive in the first few years. The 3% interest cost is further reduced by income tax thereon.

I cheerfully admit that £60,000 might be a bit on the low side and I did not factor in a cost for land. But all of these little adjustments net off to nil at worst, leaving the overall saving to the taxpayer intact.
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** Bayard in the comments thinks that the latter effect will outweigh the former:

"If the Housing Benefit claimant market collapses, because either there are no claimants or the claimants are suddenly a lot "poorer", then the most likely outcome is that there will be a lot of houses on the market as the BTLers sell up."

Either way, it's all good, as most private tenants would rather be owner-occupiers.

Reader's Letter Of The Day

From City AM Forum:

Re: The only way to really cut spending is to reengineer the state, yesterday

The cost of government is the net burden on taxpayers.

Simplifying our tax and benefits system by scrapping all means-tested, conditional or contributory benefits, and replacing them with a citizens income, would reduce costs and lower the overall tax burden.

This could save at least £10bn a year, and would also remove crippling rates of withdrawal (which create welfare traps). Saving money and getting people back into work: what’s not to like?

Given that it would only be payable to UK citizens, it even circumvents EU benefit rules.

Name withheld

That looks exactly like the sort of letter I would have written... only it wasn't me. The point being that if everybody gets the same Citizen's Income, the net cost to the average/median household is precisely zero.

"A Citizen's Income would be unaffordable"

Is one of the daftest arguments I have ever heard.

The point is, of course, that the Citizen's Income is a tax rebate, so however much tax the median/average/typical household pays in to the central pot to fund the CI, they will get exactly the same amount back. So for the vast majority of households, the gain or loss from running a CI is merely a percentage of the difference between their income/spending* and the CI level.

This gain or loss will always be lower than the gain or loss under the current bizarre combination of contributory and means-tested benefits (which are diametrically opposite concepts and cancel each other out) where the majority do the paying in and a sizeable minority receive the pay-outs.

For example, if we assume that the personal allowance for income tax and the NIC primary threshold are reduced to zero and rolled into our fiscally neutral CI (meaning = no change in tax rates), somebody in work pays £3,021 more in income tax and NIC (using 2014-15 rates) but receives £3,700 a year in CI and ends up £679 a year better off.**

How can anybody in their right mind say that they wouldn't be able to afford to be £679 a year better off?
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* Most working households pay more in National Insurance and VAT than in income tax. A sensible tax system would replace NIC and VAT (the worst taxes of all) with Land Value Tax anyway, in which case, the cost/benefit to an individual household of the CI system is the difference between the rental value of the home they choose to occupy and the rental value of the median home. The median household will always break even, and for most households it would be plus-minus a couple of thousand pounds a year.

** There are people who earn less than the personal allowance, of course. Under current rules they are entitled to Working Tax Credits and there will be some very marginal cases (i.e. those who do just over 30 hours a week, and how on earth they police this I do not know) who would end up £10 a week worse off - if they continued working exactly the same number of hours.

But they are relieved from the grief and hassle of filling in endless forms, having to worry their award might be clawed back, having to worry about what happens if their hours drop below 30 hours a week, signing back on to the dole again etc. That costs the taxpayer nothing, saves the taxpayer a few bob as we no longer need so many civil servants, but is worth a fortune to the individual claimant; if they spend another two hours working instead of dealing with/worrying about all this bureaucratic crap, they are ahead of the game, as is society in general.

Global Citizen's Dividend calculator

This is something I'm working on for JJS and I'm posting it here to see if it works:

Citizen's income in practice

From Le Monde Diplomatique, via Moneyweek, we get a report of a practical demonstration of the benefits of a basic, un-means-tested income for everyone:

A new pilot study at Panthbadodiya could significantly change living conditions for the poor, and India’s approach to fighting poverty. The village is taking part in the Madhya Pradesh Unconditional Cash Transfer Initiative, a project run by the Self Employed Women’s Association (Sewa; a trade union that has defended the rights of women with low incomes in India for 40 years), with subsidies from Unicef (United Nations Children’s Fund) India.

The research director, Sarath Dewala, explained: “The experiment involves giving individuals a small sum of money, at regular intervals, as a supplement to all other forms of income, and observing what happens to their families if this sum is given unconditionally.”

There were no conditions regarding wages, employment, caste, gender or age, and the recipients could use the money as they saw fit. Besides social security benefits, adults received 200 rupees ($3.65) a month, and mothers were given 100 rupees for each child. Four of the villages had had help from Sewa for some years, with the organisation of support groups, savings cooperatives, bank loans, training in financial management and support during visits to local officials. Twelve non-participant villages served as controls for comparative study.

The idea of giving money to the poor without asking for anything in return startled some. “They told us the men would use the money to get drunk, and the women to buy jewellery and saris,” said Dewala. “But it’s a middle-class prejudice that the poor don’t know how to use money sensibly. The study showed that a regular income allows people to act responsibly. They know their priorities.

Studies at the beginning, mid-point and end of the project confirmed that, in villages receiving payments, people spent more on eggs, meat and fish, and on healthcare. Children’s school marks improved in 68% of families, and the time they spent at school nearly tripled. Saving also tripled, and twice as many people were able to start a new business.

Well, that's one prejudice disproved. Now we have to get over the "Giving money to the undeserving" one.

Common Sense?

On R4 this morning I actually heard the Cleggster say something almost sensible.  No.  Really. He did.

He sayeth, in response to a question about Mansion Tax, something on the lines of 'we think that it is a good thing to reduce taxation on labour and enterprise and increase it on property and wealth'.  Now we know he's a bit confused about the factors of production and 'wealth', but really that is pretty good for the Cleggster.

And then I read BoJo's piece in the Telegraph.  The first bit of which is 100% ignorant home-owner-ist.

And then I read this at the Adam Smith Blog. (Penultimate paragraph)

This got me thinking about and reading up on - when I should be working - Citizen's Income.

Combining CI with, or if you prefer funding CI from, LVT is so shatteringly sensible it is impossible to see why anyone objects to it.

The beauty of combining the two is that it makes clear that a large part of rent - the location value - is just privatised taxation.

It's a genuine example of commonsensical joined up thinking.

Does that make it doomed?

Seven Days

(Just for a giggle, the numbers in the excerpt are hyperlinks to take you straight to the relevant footnote, like wot Wiki does.)

From the BBC:

Jobseekers will to have wait seven days before first claiming Jobseeker's Allowance (1) and may have to sign on every week, under new government plans(2)

Chancellor George Osborne also said those claiming unemployment benefits who did not speak English would have to attend English classes (3).

Jobseekers will also be required to have a CV before claiming benefits.(4)

1) The "seven day wait" is supposed to encourage people who have just lost their jobs to focus on finding a new job before they go and claim benefits instead, which has some superficial appeal until you think about it for a few seconds...

a) How easy or hard it is for somebody to find another job if they are made redundant, their contract comes to an end etc depends entirely on that person. There are some who will be back in work within a couple of days; there are some who will never have paid work again; and everything in between.

b) We can safely assume that those people who know they will have a new job in a few days will indeed focus on getting a new job, so to the extent that they even bother applying for dole money, we might as well make the process as quick and simple as possible, i.e. you turn up with your P45 and give your bank details to waste as little of their time as possible while they do their job applications. For those who will never work again, one week is not going to make any difference to the public finances, but it paying them dole from Day One will soften the blow ever so slightly.

c) It is the marginal cases which we have to worry about, the low-paid, low-skilled, temporary and part-time workers who hover between employment and unemployment. It is clearly better for them to be in work that out of it, so [easing] the transition from dole to paid work and [easing] the transition from paid work to dole are equally important.

d) So let's look at such a marginal person who is on the dole and is offered a three weeks' work on the minimum wage. That's £650 gross (let's ignore Working Tax Credits and PAYE), from which they deduct travel and other costs (call it £5/day) and three-plus-one weeks' dole money = £284, net gain £291, an effective hourly wage of £2.77. If they only stand to lose three weeks' dole money, the net gain is £362, a net hourly wage of £3.45 - so it's not hugely more, but might be enough to tip the decision towards taking the job in enough cases to produce an overall gain.

2) I was at the launch of Malcolm Torry's new book about Citizen's Income yesterday called Money for Everybody (hi to Katie, Dave and Geoff).

a) He gave a quick overview of how the UK's welfare system had developed over the years, and one key point is that of all the bright ideas politicians have come up with over the years, some good some bad, the ones that were adopted (good or bad, mainly bad) were always ones which increased the amount of bureaucracy and the number of civil servants.

(He gave the example of the Pensions Credit, which is savagely reduced if a pensioner has any savings (which in turn are subsidised by being in a tax exempt ISA and subject to a hidden wealth tax called negative interest rates) but then to soften this, there is a parallel Savings Credit to partially reinstate the Guarantee Credit which people lose if they have savings. Absolute madness.)

The bright ideas that were rejected, however good, were the ones which would have reduced bureaucracy and the required number of civil servants.

Ask yourself: does making welfare claimants waste an hour every week instead of every two weeks more likely to get a job? Not really. Does it require a larger number of civil servants? Yes. There's your answer to that.

b) One question put to him was how he saw the transition happening.

I suggested an answer myself; it is simply no big deal. Anybody on the dole (call it IS, PIP, JSA, ESA, whatever) just continues to receive their £71 a week but at the next signing on date, is simply given a PAYE code BR (i.e. no personal allowance) and told to get on with it. If they find work, there is no need to report anything to anybody ever again and they continue to receive their £71 a week - but they have income tax deducted from their whole wage (and NIC from most of it), so they more in tax than everybody else and in the weeks where they earn much more than £200, the tax and NIC withheld is more than £71 and they have effectively paid for their own dole.

There's no need to change anything else at all. Because of the maths, there'd be little incentive for them to claim Working Tax Credits if they work more than 16 or 30 hours etc. So WTC could remain on the statute books for ever, but nobody would ever claim it. Everybody who loses his job or leaves school without immediately starting work could get the same - £71 a week and a BR tax code. It might well be that these people end up a few quid a week better off than people who have been in work throughout, but that can easily be fixed by increasing the personal allowance for income tax and NIC accordingly.

3) This is a splendid idea. I wonder why nobody else had it first. Even better, make people pay a few pounds towards each class (by deducting it from their dole) and make them continue paying until their English is good enough.

4) What's the point of that? The people likely to find work again anyway will either already have a CV or be looking for the type of job where you don't need very much. And a CV is of absolutely no help to the no-hopers.

There's no harm in the people at the Job Centre helping people put a CV together if people ask for help - it certainly helps employers if every CV follows a standard format, which changes over time. I haven't updated my CV for fourteen years and I have no idea what they are supposed to look like nowadays.

But apart from that, making CVs compulsory is just yet another job creation scheme for the civil servants who have to check them, isn't it?

Yeah! Citizen's Income booklet has been updated for 2012-13 figures.

The 2012-13 version with explanations is available here.

Re: Labour's proposed cap on total benefit spending

Reader's letter from CityAM:

Labour's welfare cap will be meaningless without concrete mechanisms, backed by law, to cut benefits if spending exceeds the limit.

Richard Morris.

Agreed.

The point here is that if you decide what welfare payments to any individual will be depending on their "individual circumstances", total spending is difficult to predict or control:

a) If people lose their jobs, then clearly there'll be more claims for unemployment benefit And then you can have lots of lovely bureaucrats trying to find reasons not to pay it out, or you can allow a higher number of claims and pay a smaller amount per claimant, and it all gets very fraught.

b) Whatever rules you invent, people will circumvent them. If you get more in IB than in JSA, people will overclaim IB. If the hassle involved is less claiming IS than JSA, people will claim IS, and they will either deliberately change their "individual circumstances" to fit the criteria or they will just lie (it's difficult to say which is worse).

c) There is no point introducing a "law" to say that total welfare spending is to be capped at £xyz billions, because any future government can repeal the law, simply lift the cap, indulge in dodgy accounting etc. So you need to have a political mechanism, i.e. make it easy for the general public to understand what total welfare spending is and how changes affect them (favourably or unfavourably).

But assuming that having a fixed and known total welfare budget is A Good Thing (and I believe it is), then as per usual a flat rate Citizen's Income hits the spot.

You get the same whether you are unemployed, stay at home parent, studying or working, you get the same whether you are low paid or high paid, doing irregular, temporary, part time or full time work, you get the same whether you are single, living together or married. The only variable is your age.

Seeing as the total population of the UK who would qualify is a known and stable figure and people's ages can be predicted years in advance, this means that the entire welfare budget can also be decided for years ahead. Once you've decided what this year's total spending and this year's rates are, you can also decide what the increases (or reductions) will be in the next few years.

We can argue and bicker over what that total budget will be and it will be divided up between different age groups ("hard working pensioners" will be pitted against "feckless scroungers" under the usual divide-and-conquer approach etc), but those are political decisions and nothing to do with the general principle.

Cue: Sarton Bander making his usual Faux Lib comments about the "extortion funded sector".

Stewart asks...

Stewart asked a few questions on Economic Myths: The Property-Owning Democracy:

Can you direct me to where you have discussed the Citizen's dividend in more detail?(1)

Excuse my economic ignorance, but what ensures it ends up in people's pockets, and doesn't just subsidise lower wages/higher prices?(2)

Also, if the dividend and LVT cancel each other out for the most part,(3) how do we support those who genuinely cannot find work (even when the disincentives to work have been removed by the new system)?(4)

Thanks, Stewart.

1) All over the shop. Try here or here, or indeed the Citizen's Income Trust. That booklet is well out of date (2007) but the updated version for 2012-13 should be up shortly (child rate £56.25, adult rate £71, pensioner rate £142.70, disability benefits are a separate issue, same cop-out on Housing Benefit).

2) We can safely assume that out-of-work benefits push up wages at the bottom end (because people are less desperate for a low paid job) and that in-work benefits pull down wages at the bottom (because people are prepared to work for less). At the moment we have a worst-of-both-worlds welfare system with quite separate in-work and out-of-work benefits.

If we replaced the whole shebang mish mash of out-of-work and in-work benefits with a flat rate Citizen's Income/personal allowance, then the two effects cancel out. People are less desperate for low paid work but more willing/able to take it, the effect on wages (upwards or downwards) is negligible.

3) They cancel out for median or average households. The people at the top pay in a shedload in and a larger number of people in the bottom quarter or third receive a few thousand quid a year out of the system. It's like feudalism but turned on its head.

4) There are some people who are disabled, but true disability benefits are a separate issue. They relate to the additional costs of being disabled and have nothing to do with your earnings capacity. If a lorry driver loses a leg, that's a blow to his earnings capacity as a lorry driver. If an office worker loses a leg and can manage with a false one, his earnings capacity is barely affected. Nonetheless, they are entitled to the same Disability living Allowance of £50 a week or whatever it is. Low cost mass insurance against losing a leg, you can't complain about that, there but for the grace of G-d etc.

And there are some people who have a low earnings potential anyway, it's no loss to the economy if they don't work, and some people who are quite happy living on a low income and not working at all. They'll have to cut their housing cloth to suit their budgets, I'm afraid.

There will be precious few people in expensive areas who genuinely cannot find work, by definition. That is because rents are to a large extent a function of local average wages and job availability - so rents in areas where it is easy to find work or where work is better paid are more expensive. If somebody can't even find a job in that sort of area, then they are knackered either way. Most people who are genuinely looking for work but can't find it will be in low-rent areas, so they will be net beneficiaries of the system; that excess of their CI entitlement over their LVT bill is paid out to them as rough and ready compensation for the fact that they can't earn as much.

George Monbiot talks sense: Shock

Spotted by MBK in The Guardian:

So where do we look for the idea that can make hope more powerful than fear? Not to the Labour party. If Ed Miliband cannot bring himself even to oppose a bill which retrospectively denies compensation to cheated jobseekers, the most we can expect from him is a low-alcohol conservatism of the kind that doused all aspiration under Tony Blair.

Last week I ran a small online poll, asking people to nominate inspiring, transfiguring ideas. The two mentioned most often were land value taxation and a basic income. As it happens, both are championed by the Green party.(1) On this and other measures, its policies are by a long way more progressive than Labour's.

I discussed land value taxation in a recent column. A basic income (also known as a citizen's income) gives everyone, rich and poor, without means-testing or conditions, a guaranteed sum every week. It replaces some but not all benefits (there would, for instance, be extra payments for pensioners and people with disabilities). It banishes the fear and insecurity now stalking the poorer half of the population. Economic survival becomes a right, not a privilege.

A basic income removes the stigma of benefits while also breaking open what politicians call the welfare trap. Because taking work would not reduce your entitlement to social security, there would be no disincentive to find a job – all the money you earn is extra income. The poor are not forced by desperation into the arms of unscrupulous employers: people will work if conditions are good and pay fair, but will refuse to be treated like mules. It redresses the wild imbalance in bargaining power that the current system exacerbates. It could do more than any other measure to dislodge the emotional legacy of serfdom. It would be financed by progressive taxation – in fact it meshes well with land value tax.(2)

1) And YPP of course, although for slightly different reasons.

2) As I said in the comments:

Yup, LVT and CI is an intellectually coherent match.

The gimmick being that people in the middle pay neither tax nor receive benefits as the two sides net off to zero. So it's like feudalism on its head, instead of The One Per Cent collecting all the rent, interest and tax and people in the middle paying for it, the bottom half receive a small net payment from the people willing and able to occupy the best locations.

Fun Online Polls: Garage conversions and "the bloated welfare state"

The results to last week's Fun Online Poll were as follows:

What do you see more often?

An integral garage converted into an extra room - 88%
A spare room converted into an integral garage - 12%

This ties in with my general observation of the world around me; I'd like to add that for every downstairs-room-converted-to-a-garage which I've seen, I've seen about ten integral-garages-converted-into-an-extra-room, if we could factor that in, the ratio between the two might be much, much higher.

Thanks to everybody who took part as usual.
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Dave Scotland left this highly inappropriate comment: "If we build more homes the nig nogs will come and fill them in no time."

Even if that were factually correct, that's not much of an argument, is it? You might as well say "There is no point improving our education system, as a load of foreigners will just come over here and send their kids to our schools", or "If we improved the NHS, then..." or "If we got crime down, then...".

If we take this Home-Owner-Ism to its logical conclusion, the government would be perfectly justified in allowing the country to go to wrack and ruin as a kind of poison pill defence against immigrants. Enforcing some kind of sensible immigration system is just one of many things which the government ought to be doing.
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I've been busy this weekend updating the workings on page 2 of the Citizen's Income Trust's pamphlet. Unsurprisingly, replacing the entire welfare and pensions system and various income tax/NIC reliefs like the personal allowance/primary threshold with a universal Citizen's Income/Citizen's Pension (set at current Income Support/Pensions Credit Minimum Guarantee rates) is as affordable now as it ever was, and that's before we factor in Laffer Effects.*

But one thing that is surprising is how much is spent on working age welfare. I've included just about everything you can think of: Income Support, JSA, ESA, Incapacity Benefit, Child & Working Tax Credits, Child Benefit, SMP, SSP, student grants and loan write-offs, other bits and pieces**. Remember that a large chunk of these (a third?) are paid to working families.

Can you guess what percentage of UK GDP they add up to?

Guess here or use the widget in the sidebar.

* Let's assume the revenue maximising income tax rate is 50%, in that case the benefit withdrawal rate which minimises the cash cost of welfare (or maximises the amount of welfare clawed back through means testing) must also be 50%. Current overall withdrawal rates for most household types are about 80% on anything up to a median sort of income.

** But not severe disability benefits or Housing & Council Tax Benefit.

Well duh.

The CPS got a fair bit of coverage for their report yesterday, which reminded us that "39.6 per cent of [working age] households received more in benefits than they paid in taxes in 2010/11 compared to 31.7 per cent in 1979 and 29.0 per cent in 2000/01.".

In their 'Questions for policy makers', they ask "Is there too much “churn” – taxing people and then returning many of the same funds to them in benefits?" to which the answer is almost certainly yes, but apart from that, so what?

Here's their Table 4 on original and final incomes, which is original income minus tax plus cash benefits and benefits in kind such as 'free' state education and NHS:
If you put those figures in a chart with a line of best fit, it looks like this:

So once you've done the netting off, what it all boils down to is a flat tax on incomes of 41% and benefits worth £12,825 for each household.

Now, you would be correct to argue that even a flat tax of 41% has huge deadweight costs, and that it would be far better to reduce this to a flat 20% and collect the balance with a tax on the rental value of land (perfectly do-able, as I showed at the weekend). And while there is a lot of evidence to show that allowing the state to be the monopoly provider of education or healthcare does not lead to the best outcomes, that does not mean that these cannot be funded out of taxes (via a voucher system - see plenty of European countries, schools in Sweden or nursery vouchers in the UK).

But the bold statistic that "39.6% of working age households receive more in benefits than they paid in taxes" itself is fairly meaningless.