THE BLOG

Free Money for All - The Only Way Forward on Welfare

09/01/2014 14:54 | Updated 11 March 2014

The start of 2014 has been marked by the announcement of yet another assault on Welfare spending - a planned £12bn in cuts targeting the very poorest. The ground for this has been laid by a relentless campaign to distinguish between 'them' - the people on benefits, and 'us' - the people who pay taxes. This is illustrated clearly by Channel 4's divisive Benefits Street. It's clear that tinkering around the edges, promising to reverse one cut or another, is not going to cut the mustard. We need a wholly new approach - a basic income for every adult.

The idea of a basic income is not new - some version of it has been advocated by thinkers as diverse as Martin Luther King, Bertrand Russell and Milton Friedman, and has proponents from across the political spectrum, from Socialists to Free Marketeers. Versions of it have been implemented in Alaska, Iran and Brazil, with recent trials in villages in India and Namibia. The idea is simple - every adult receives an equal amount each month, tax free, regardless of income or circumstances. Unlike benefits, which are withdrawn as you earn more, creating a 'benefits trap' where accepting a job can leave you worse off, the basic income would be guaranteed, making sure work always pays. There are a host of other advantages: currently unpaid work such as bringing up children and looking after elderly relatives would be financially recognised by society. Part-time work would be more viable, for those that want a little more time to study, pursue new interests, or spend more time with their children. Students would have less debt, people would be able to refuse unpleasant jobs (or demand a higher wage for them) and vulnerable people would no longer be stigmatised as 'benefit claimants'. A basic income would also fund a whole range of socially beneficial activities that are not currently rewarded such as voluntary work and local community activism.

All this sounds utopian, but is actually very realistic. The UK could afford to pay a basic income of £10,000 per adult per year. How would this be funded? Assume 49 million adults in the UK: £490 billion a year is needed to pay them a basic income. This sounds a lot, but not when you consider that UK GDP was around £1.5 trillion in 2012. Firstly, the current benefits and pension system, with its inefficient and intrusive system of means testing, currently costs around £200 billion a year. The abolition of pension relief nets another £40 billion per annum. Since the basic income would be almost double the current state pension this is more than justifiable. We could raise another £15 billion from inheritance tax by dropping the threshold (the 'nil-rate band') to £80,000. Finally, and most importantly, abolish the income tax personal allowance and tax all income at 46%, netting an extra £242 billion a year. That might sound a high rate of income tax, but when you include the £10,000 basic income, everyone earning less than £30,000 would be better off. Those total £497 billion, enough to pay the Basic Income with a healthy £7 billion left over for administration costs and contingency. That's just one funding suggestion - there are other options, such as increasing capital gains tax, corporation tax, or instituting the so called 'Tobin tax' on Financial transactions used by bankers. It's clear from these figures, however, that a Basic Income would be eminently affordable.

Of course some people will object. They will ask why we should give money to people regardless of whether they work or not. Isn't that rewarding laziness? Firstly, we already do give money to people out of work, we just do it in the most inefficient way imaginable, which fail to reach the most in need due to the complexity of the process and the social stigma attached. Means tested benefits are extremely expensive to implement, whereas (as shown with Child Benefit and the State Pension) universal benefits are cheap to run and reach almost everyone. Secondly, the evidence from trials in Namibia and India shows that people are much more likely to work when given a basic income - economic activity increases as people have the freedom and economic security to start the businesses they've always dreamed of, and their increased spending stimulates the economy. Thirdly, and perhaps most importantly, a basic income would re-establish the ties that bind society together. Unlike the current climate of division and suspicion, everyone would be a contributor and everyone an equal recipient - we really would be 'all in it together'. A basic income is the ultimate in social inclusion, a powerful demonstration of the equal status of every citizen. It wouldn't just help the poorest; it would be better for all of us.