Saturday, 28 August 2010

Design your own Citizen's Income scheme

A fellow Citizen's Income advocate asked me for a few sources of info on the cash cost of the existing Welfare State. I shall post the 2009-10 figures here post here for future reference:

1. The Department of Work & Pensions pays out benefits & pensions of £148 billion and has running costs of £9 billion, page 89 of their departmental report. That's GB only so stick on 3% = £5 billion for NI.

2. HM Revenue & Customs pays out £12 billion in Child Benefit and Child Trust Fund, page 42 of their annual report and trust statement, as well as £27 billion in Tax Credits (page 124. The admin costs of Child Benefit are less than 1% of what is paid out (Hansard) but the cost of administering Tax Credits is about 3%, i.e. another £1 billion.

3. One universal entitlement that many people overlook is the personal allowance for income tax. HM Revenue & Customs' ready reckoner says that the value of this benefit is £52 billion. The personal allowance is inherently redistributive from higher to lower earners, because for a given required tax take, having a zero tax rate on the first chunk of income means that the remaining income is taxed at higher rates.

4. There's no official figure for the value of the exemption for earnings under the earnings threshold for National Insurance, which is a bit lower than the income tax personal allowance, but the saving is higher (total NIC is 23.8% of wages but basic rate income tax is only 20%, so let's call it £40 billion for sake of argument.

The Citizen's Income purists say that we wouldn't need a personal allowance with universal benefits, and it certainly makes the maths a lot easier. I'm a moderate so I don't see the harm in allowing people to waive their CI entitlement and have a correspondingly high personal allowance*, but hey.

5. There are lots of other bits and pieces, like student grants, tax breaks for pensions (about another £40 billion) but let's ignore those for simplicity. I'd get rid of the tax breaks for pensions, but I'd scrap higher rate income tax as well, for example, so that doesn't go into this equation.

That gives you a total budget of £295 billion or thereabouts, of which about £15 billion is severe disability related stuff, which I think we ought to leave as it is.
You also need to know is the population of the UK by age bands:
0 - 17 years = 13 million
18 - 24 years = 6 million
25 - 64 years = 33 million
65 years and older = 10 million
You then think up a figure for your Citizen's Income and do a bit of multiplying. Here's my suggestion:

0 - 17 years, 13 million x £35/week = £23.7 billion
18 - 24 years, 6 million x £52.50/week = £16.4 billion
25 - 64 years, 33 million x £70/week = £120.4 billion
65 years and older, 10 million x £140/week = £73.0 billion
Total = £233.6 billion.

Stick on 1% for admin costs, and we're looking at a saving of up to £45 billion per annum.

We'll have to use some of that saving for transitional measures (like DWP redundancy costs) and for building a lot more social housing (I'd scrap Housing Benefit for private tenants, it's a waste of money), and of course there are a million UK pensioners who live abroad, some pensioners are entitled to more than £140 a week anyway, and I've ignored the fact that women currently get a state pension when they are 60.

And so on and so forth, yadda, yadda, but we're still looking at a reasonable overall cash saving, not to mention the overall economic and social benefits of all this.

* If they scrapped the personal allowance and gave everybody £70/week instead or £52.50/week for younger adults, that's equivalent to increasing the tax-free personal allowance to £11,773 for people 25 and over and to £8,830 for people aged 18 - 24 (assuming basic rate tax and Employee's NIC stay at 31%). Under current rules, the state pension is taxable income, so it's easier to imagine that pensioners get a tax-free state pension and very small personal allowance to use against other income.


Witterings from Witney said...

Hell MW, you been a busy boy researching!

Will bookmark this for a reference source.

BTW - bloody good post! Have a merit mark, in fact take two and keep one for later.

Mark Wadsworth said...

WFW, ta.

Anonymous said...

How would it work for immigrants?
Or for students ? Or foreign students?

DBC Reed said...

As is usually the case,you miss the opportunity to boost purchasing power by distributing government created credit,the way Lincoln paid for the Union Army.There is no logical reason why something like Quantitative Easing should n't be distributed to the punters as an unearned income rather than given to the banks to loan at interest to the punters. Perhaps this is the kind of unconventional measure Bernanke is contemplating.

Charlie B said...

Why do I have to pay taxes with money that has already been taxed? - I should be able to set VAT and Council Tax against income tax (as indeed I can deduct state taxes, including sales tax, against federal income tax in the USA).

Mark Wadsworth said...

Anon, make up your own rules! In my version, UK students get the CI (or course); and immigrants don't get it until they have been here 5 years, no criminal record etc.

DBC, I'm coming to that later.

Charlie B, I don't understand the question. I'll do "design your own budget" and 'design your own tax system" later on.

Bayard said...

"One universal entitlement that many people overlook is the personal allowance for income tax."

This point needs to be made MUCH LOUDER, so that Daily Mail readers can hear. Yes, WE ARE ALL ON BENEFITS ALREADY, even the Duke of Westminster, Richard Branson and Lord Rothschild.

Mark Wadsworth said...

B, thanks. Another point to get across to the DM brigade is that old age pensions are welfare as well. There's no absolute difference between a pensioner and somebody on the dole.

And what about all the other universal entitlements - the right to vote, to call a policeman or the fire brigade, to use a public library, free-at-point of use health or education, to have the council oppose new developments you don't like, etc etc.

Scott Wright said...

@ Bayard

That's the main thing I like about the UKIP policy on benefits, I think you are right in that more needs to be made of this undeniable fact.

As the current bunch of scum in parliament show no signs of favouring radical change to the tax system, more should be done to lobby for tweaks which make the current system more closely resemble a citizen's income scheme. Universal withdrawal rates are the way forward for sure but does IDS have the brains and the testicles to pull it off.

Onus Probandy said...

Strangely, I'd reverse the two middle ones.

People from 18-24 need more support than the 25-64 group. At 18 you're trying to get a house, a car, pay for transport, all on your starting wage. As you get older, people implicitly earn more than they did when they were younger. Therefore they need less help, not more.

That would save quite a wodge of cash on your figures.

0-17 = 23.7bn
18-24 = 6 * 70 = 21bn
25-64 = 33 * 52.5 = 90bn
65 = 73bn

Total = 207.7bn

I'd be inclined to take the saving and raise these figures more, but that's just fiddling really.

I also like the idea that there is no child benefit. I've always found it objectionable that the more children you have the more child benefit you get. Having children is a choice, if you can't afford an additional child -- don't have one. Universal benefits of the above sort solve this problem.

Mark Wadsworth said...

OP, fair point, but I set these rates to be in line with current IS/J-SA/E&SA rates, which are lower for 18-24 year olds.

And there would be 'Child Benefit' (£35 a week CI), the point is there won't be any 'Child Tax Credits' (which is a straight bribe to single mothers).