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Can we afford a Universal Basic Income?

February 10, 2018 2:40 PM
By Michael Berwick-Gooding in Liberal Democrat Voice

In the last few years there have been a number of reports which consider the introduction of a Citizens' Income and how it can be funded. Towards the end of last year I came across the Compass report - "Universal Basic Income: An idea whose time has come?" written by Howard Reed and Stewart Lansley (and partly funded by the Joseph Rowntree Foundation).

Howard Reed and Stewart Lansley in the Compass report set out two schemes for a Citizens' Income, both of which keep the existing means-tested benefits, the existing State Pension, replaces Child Benefit and increases the higher National Insurance rate to 12% and abolishes the Income Tax Personal Allowance. Their scheme 1 gives children a Citizens Income of £49 per week, adults under 25 £51, adults over 25 £61 and pensioners an extra £41. It also increases all Income Tax rates by 3%. Their scheme 2 increases the Citizens Income rates by £10 and all Income Tax rates by a further 2%.

The RSA report "Creative citizen, creative state: the principles and pragmatic case for a Universal Basic Income" written by Anthony Painter and Chris Thoungpointed out that there were big tax cuts in 2015-16 totally £19.5 billion (including £8 billion to increase the Income Tax Personal Allowance to £10,600) so we should not be too concerned about having a shortfall in funding as the Citizens Income Trust might have of over £10 billion.

I have in the past suggested that the Basic Citizens' Income should replace the Income Tax Personal Allowance at an equivalent level. In 2020 this should be £48.08 a week as it is planned to raise the Personal Allowance to £12,500 at least then and maybe a little earlier. The extra cost of providing this level of Citizens' Income to all adults of working age is about £26.75 billion.

According to the IFS increasing the National Insurance higher rate for those earning below £100,000 a year to 12% should raise £10.1 billion. Extending National Insurance to all forms of income should raise more than £6 billion (12 x £300 million plus 12 x £200 million based on ONS figures <>). Both the RSA and the IFS state that restricting tax relief on pension contributions to the basic rate will generate £10 billion. Just making these three changes should generate over £26.1 billion. It should be acceptable for the government to cope with any possible small shortfall.

Therefore introducing a very Basic Citizens Income for working age adults while keeping all the existing benefits is affordable. And at £48.08 does not increase any rates of Income Tax.

If the Citizens' Income and Child Benefit were increased by £5 a week according to the Compass report this will cost £11 billion. They state that increasing all levels of Income Tax by 1 pence would generate £10.4 billion - again almost covering the full cost. It would mean that everyone earning less than £26,000 a year would be better off and those with two children would be better off if they earned less than £78,000.

Over a period of five years the Citizens Income for adults of working age could be £73.08 per week and Child Benefit could be £45.70 for the first child and £38.70 for the additional children. However, all the rates of Income Tax will have increased by 5% to 25%, 45% and 50%. This compares well to the Compass scheme 2 which has rates for children of £59 per week, for adults under 25 £61, for adults over 25 £71 and for pensioners an extra £41. However their scheme 2 has a shortfall in funding of £8.2 billion (while mine only of about £600 million) and treats the Citizens Income of adults and children as income and so reduces mean-tested benefits accordingly and there are losers among the bottom third poorest people.

With my second scheme for a Basic Citizens Income for adults of working age and increased child benefits coupled with retaining the existing benefit system (and not treating Citizens Income or Child Benefit as income) an unemployed couple with two children would receive £196.16 per week on top of their Universal Credit of £266.93 taking them to £463.09 well above the amount the Joseph Rowntree Foundation state in their report UK Poverty 2017 that a couple with two children aged 5 and 14 need each week - £401 (using 2015/16 figures).

* Michael Berwick-Gooding is a Liberal Democrat member in Basingstoke and has held various party positions at local, regional and English Party level. He posts on this site as Michael BG

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