Citizen's Basic Income: An Overview.

Malcolm Torry, Director of the Citizen's Income Trust, provides a summary of a policy initiative gathering momentum in political circles…

A Citizen’s Basic Income – sometimes called Universal Basic Income, a Basic Income, or a Citizen’s Income – is an unconditional, automatic and nonwithdrawable payment to each individual as a right of citizenship.

First, some terminology -

‘Unconditional’:

A Citizen’s Basic Income would vary with age, but there would be no other conditions: so everyone of the same age would receive the same Citizen’s Basic Income, whatever their gender, employment status, family structure, contribution to society, housing costs, income, wealth, or anything else.

‘Automatic’:

Someone’s Citizen’s Basic Income would be paid weekly or monthly, automatically.

‘Nonwithdrawable’:

Citizen’s Basic Incomes would not be means-tested. If someone’s earnings or wealth increased, then their Citizen’s Basic Income would not change.

‘Individual’:

Citizen’s Basic Incomes would be paid on an individual basis, and not on the basis of a couple or household.

‘As a right of citizenship’:

Everybody legally resident in the UK would receive a Citizen’s Basic Income, subject to a minimum period of legal residency in the UK, and continuing residency for most of the year.

So, what of Citizen’s Basic Income schemes?

A ‘Citizen’s Basic Income scheme’ specifies the levels at which Citizen’s Basic Incomes would be paid for each age group, and the changes to the tax and benefits system that would be required to pay for the Citizen’s Basic Incomes. A scheme would either phase out as many allowances against personal income tax, and as many existing state financed cash benefits, as possible, and replace them with a Citizen’s Basic Income paid automatically to every man, woman and child, or it would reduce or remove personal tax allowances but would leave in place the current means-tested benefits system and recalculate each household’s means-tested benefits to take into account the household’s total Citizen’s Basic Incomes.

Either way, the scheme would:

 

• Create a secure financial platform on which all citizens would be free to build;

 

• Enable households to lift themselves out of poverty, because for anyone currently on means-tested benefits – whether out-of-work benefits or in-work ‘tax credits’ – marginal deduction rates would be lower than they are now, so additional earned income would result in more additional net income;

• Boost employment incentives: another effect of the reduction in marginal deduction rates for people currently on means-tested benefits; 

• Bring about social cohesion. Everybody would be entitled to a Citizen’s Basic Income and everybody would pay tax on all or most other income;

• Be affordable within current revenue and expenditure constraints; 

• Be easy to understand. It would be a universal entitlement based on citizenship that is non-contributory, non-means-tested, and non-taxable;

• Be cheap to administer and easy to automate; 

• End perverse incentives that discourage savings (savings reduce means-tested state pensions, so means-tested pensions discourage saving for retirement).

Payments would be automatic. Each week, or each month, every legal resident would automatically be given the Citizen’s Basic Income appropriate to his or her age. For most adults this could be done through the banking system, and for children it could be done through the bank accounts of their parents. For those few adults without bank accounts special provisions would be necessary. Larger Citizen’s Basic Incomes might be paid to older people, and smaller Citizen’s Basic Incomes to children and young people, but there would be no differences on account of gender or marital status, nor on account of work status, contribution record, or living arrangements.

The Citizen’s Basic Incomes would be tax-exempt and without a means test, but tax would be payable on all other income. The rate of tax would depend on the Citizen’s Basic Income amounts. The higher the Citizen’s Basic Income, the higher the Income Tax rate.

 

Funding a Citizen’s Basic Income scheme?

There are various ways of funding a Citizen’s Basic Income. There are schemes that can be funded by removing some tax allowances, increasing slightly the rate at which Income Tax is paid, and reducing or abolishing some means-tested and contributory benefits. But a Citizen’s Basic Income could also be part of a wider tax reform package including, for example, mechanisms to tax company profits in the country in which the profits are generated, a land value tax, a financial transaction tax, or a carbon tax.

At the point of implementation, either means-tested benefits could be abolished, or some or all of them could be retained and everybody’s in-work and out-of-work means-tested benefits recalculated to take into account their Citizen’s Basic Incomes. A Citizen’s Basic Income could either be implemented for everybody at the same time, or successively for different age groups.

However, to suggest that the State should simply give everyone some money raises some fairly obvious questions:

Would people still work?

Under the current system, in spite of sizeable benefit withdrawal rates (or ‘marginal deduction rates’, MDRs), the vast majority of working age adults choose to seek employment. With a Citizen’s Basic Income most people’s marginal deduction rates would fall, making it even more likely that working age adults would seek employment.

At the moment, parents and other carers can find that employment for a few hours a week brings only small financial gains – again, because of high marginal deduction rates. A Citizen’s Basic Income would reduce this problem, so that working age carers who cannot or do not wish to seek full-time employment would be more likely to seek part-time employment. With today’s benefits system, a flexible employment market can be a problem. A benefits system based on a Citizen’s Basic Income would make a more flexible employment market more possible and more productive for both employers and employees.

Is it fair to ask people in employment to pay for everyone to receive a Citizen’s Basic Income?

As a society we have chosen to fund payments to those not in paid work out of general taxation: so at the moment those in employment pay for benefits for people who are not. With Citizen’s Basic Income both those currently receiving means-tested benefits and tax credits and those not currently receiving them would receive a Citizen’s Basic Income. This would be a lot fairer.

Isn’t guaranteeing a right to work a better way to prevent poverty?

The best way to prevent poverty is through well-paid employment; and the best way to ensure employment’s widespread availability is to reduce the rigidities in the labour market that serve neither employers nor employees. A Citizen’s Basic Income would help to achieve this. A Citizen’s Basic Income in combination with a National Minimum Wage or a Living Wage would go a long way towards preventing poverty.

Why pay money to the rich when they don’t need it?

Simply because it is more efficient to pay the same amount to everyone than to run complicated means-testing systems. And in any case, because their Personal Income Tax Allowances would have been removed, the rich would be paying more Income Tax, so they would be no better off than they are now.

What about the particular needs of elderly people and people with disabilities? And what about housing costs?

Some groups of people need more money than others: particularly the elderly, because they are less able obtain employment income, and they might not have sufficient occupational or private pensions; and people with disabilities, both because they might have expensive care needs and because they might be less able to obtain employment income than other working age adults. Most Citizen’s Basic Income schemes assume Citizen’s Basic Incomes at higher levels for elderly people (often termed Citizen’s Pensions); and most Citizen’s Basic Income schemes retain separately regulated and administered benefits specifically for people with disabilities – separately regulated and administered because by definition a Citizen’s Basic Income is unconditional and so has to be paid at the same rate for everyone of the same age.

In summary, even if there were no specifically Christian case for Citizen’s Basic Income, the advantages that it would offer would be a perfectly adequate argument for implementing it.


[there will be a blog on the Christian case for Citizen's Basic Income shortly]

This is an extract from Citizen’s Basic Income: A Christian Social Policy by Malcolm Torry, available now in paperback, priced only £5 (RRP: £9.99).