The aim of this paper is to devise a national incomes policy for the UK that lifts everybody out of poverty through universal distribution of Citizen’s Income [i] across all age groups of the UK. Income tax is made progressive, stretching from 2% paid by the lowest earners to 79% paid by the highest. National Insurance paid by employees is abolished being incorporated in income tax [ii].
The definition of poverty in the Child Poverty Act 2012 is adapted. That Act defines poverty as “household income below 60% of median income.” To simplify the analysis I am describing ‘individual poverty’ as an income of less than 60% of wage earners’ median income (across the UK). The median income in 2012/3 was about £21,000 per annum. Thus anyone with an annual income less than £12,600 (60% of £21,000) is by this definition in poverty. (This is £242 per week). About 4.6 million individuals of the earning workforce of 30.4 million people in 2012/3 [iii] were in what may be called ‘statutory poverty’.
BASIC CONCEPTS OF THE PROPOSED INCOMES POLICY
· All wage earners are paid as now by their employers, or by self if self-employed, at one of 12 levels [iv] of wage extending from level one at £9,000 per year (as the average of the 2012/3 range £8,105 - £10,000) to level twelve at £500,000 per year. These levels are based on HMRC data for 2012/3. (The levels are each defined by HMRC as a range of income but for the sake of simplicity here the calculations are based on the mid-point of each level’s range).
· National insurance payments by employees are abolished - employers continuing to pay. (This is a long overdue change – here being subsumed by income tax. Employers national insurance payments could be subsumed by corporation tax but this is not proposed here.)
· Every wage earning citizen pays some tax, stretching from 2% of wage at level one to 79% at level twelve. (The payment of income tax being recognised as a citizen’s duty and evidence of responsibility to the wider society).
· Every wage-earning citizen aged between 20 and 65, receives payment from the state – described as Citizen’s Income - of £4,000 per year (£76.92 per week) - irrespective of how much earned in wage.
· This brings the income of the 1.9 million wage earners at level one to £12,800 per year, which is above the level of ‘statutory poverty’.
· Why should everyone receive Citizen’s Income?
· It lifts the poor out of ‘statutory poverty’.
· It provides an immediate safety net for anyone losing employment.
· It eliminates much of the bureaucracy associated with means testing and the inevitability of genuine mistakes and of malicious fraud.
· in effect it is wage earners in levels one to four (14.2 million people) who are ‘a drain on the state’ because those at levels five and above (16.2 million) pay more in tax than they receive from the state.
· Every non-wage earning citizen aged between 20 and 65, receives the same payment as a wage earner: Citizen’s Income of £4,000 per year (£76.92 per week). This is irrespective of whether they are seeking work, full-time carer for family members – young or old, or plain work shy and idle. (The latter group, reckoned to be very small, is the price for the simplicity of the system and avoidance of bureaucratic means testing.)
· This compares with today’s job-seeker’s allowance of a maximum of £72 per week for age 25-65 (which is only paid for six months). The state full-time Carer’s Allowance is £62 per week or £3,200 per year.
· Every child (through a parent) receives a Junior Citizen’s Income from birth to age 20 of £1,000. (This compares with present Child Benefit of £1,076 for first child and £712 for additional children – but shortly to be available only for a second child).
· Every senior citizen aged over 65 receives payment from the state – described as Senior Citizen’s Income – of £6,000 per year, irrespective of how much tax they have paid beforehand. (This compares with the maximum State Pension of today based on sufficient National Insurance contributions paid of £6,029 per year).
· Citizen’s income replaces old age pensions, child benefits, tax credits, job-seeker benefits etc but not housing benefit nor disability benefit. It should be seen as a privilege of living in a rich society and obviating the need for means testing for benefits. Yes, it goes to rich and poor alike – but the former return it in income tax.
Unfortunately the complete tables of results of these proposals are too large for display on this website, but the following table gives the results for four wage levels. Someone currently earning £9,000 a year (and paying no tax nor NI) would get an increased income of £12,820; someone earning £40,000 and receiving an income after tax and NI of £30,200 would find their take home pay increased to £34,400; a high earner of £125,000 would find take home pay reduced from £80,000 to £78,000; while a very high earner currently earning £500,000 reduced to £219,000 by current tax and NI) would find it cut further to £109,000. This would still be nearly nine times the income of the lowest paid.
Wage level 1st 6th 9th 12th
Annual wage average ‘000 £9 £40 £125 £500
No. of people ‘000,000 1.9 6.1 0.4 0.1
2014/5 actual income ‘000 £9 £30 £80 £219
Proposed tax rate 2% 24% 41% 79%
Annual tax to be paid ‘000) £0.2 £9.6 £51 £395
Citizen’s Income ‘000 £4 £4 £4 £4
Proposed total income ‘000 £12.8 £34.4 £78 £109
HOW THIS PROPOSAL WOULD FIT, FOR EXAMPLE, INTO THE 2015 UK BUDGET
It is instructive to put these figures into the current budget (as determined by the Chancellor of the Exchequer in July 2015). The figures chosen for citizen’s income (£4,000, £1,000 for children, and £6,000 for pensioners) would cost the nation the same as does ‘Social Protection and Tax Credits’ of £231b. Would it provide for all the needs and supports currently available? Budget papers on the internet unfortunately give no breakdown of the Social Protection item. Presumably this curiously termed item includes old age pensions, child benefits, tax credits, job-seeker benefits and disability benefits – with housing benefits coming under the Housing and Environment item of £28b. The disability benefits in Social Protection would not be covered by Citizen’s Income. But since the government’s tax take in the proposal exceeds the envisaged total cost of Citizen’s Income by about £15 billion there is probably sufficient to cover disability benefits and to provide compensation for those few who may lose out on the change in benefits.
This is, of course, a naïve proposal but it shows that the introduction of Citizen’s Income could more or less eliminate poverty nationwide. It is based on two fiscal policies.
(1) Every individual in the UK receives a payment by the state of Citizen’s Income, with a low level (of £1000 per year) for age 0-20, a high level for age over 65 (of £6000 per year). and an age 20-65 level (of £4000 per year) which would just about maintain anyone who cannot or chooses not to work without it being an incentive for not seeking a job. There would be no means testing.
(2) A progressive level of income tax stretches from a low value of 2% of income for the poorest paid to 79% for the highest. It embraces the notion that every earner should contribute to the national exchequer as a citizen’s duty and evidence of responsibility to the wider society, and the higher the income the greater should be the contribution to the common weal.
The cost of Citizen’s income in (1) would be met by the re-organisation of income tax set out in (2). (The opportunity is taken to incorporate employees’ national insurance into income tax.)
Yes, this would hit hard the 700,000 people at levels 9 to 12 who all earn £125,000 and more and especially those at level 12 who are paid on average £500,000 per year. (This is not the place to develop the moral argument that challenges very high wages other than to re-iterate that on this scheme they would still have take-home-pay worth nearly nine times the take-home-pay of the lowest earners.)
And yes there will be a few idlers. A wise society will tolerate this and see it as society’s price for eliminating much of today’s poverty.
It is envisaged that this level of Citizen’s Income would lift virtually everybody out of poverty and more or less eliminate the current complexity of benefits and credits that are a nightmare to navigate for those in need. The current system of benefits, credits and pensions is so beset by eligibility criteria that anyone trying to ascertain what they are entitled to faces a nightmare of regulation. Indeed we can wonder whether many people miss out on entitlement because of failure to understand the ifs and buts of the system.
Citizen’s Income is envisaged as an age-related payment by the state to every citizen without any means testing. It should replace old age pensions, child benefits, tax credits, job-seeker benefits etc. It should be recognised as a privilege of living in a rich society where some citizens are more fortunate than others and so are required to contribute to the welfare of the less fortunate. Yes, Citizen’s Income goes to rich and poor alike in order to avoid the agonies of means testing: but the richer members of society return it within their income tax payments.
As calculated here Citizen’s Income should in most cases exceed the benefits and credits currently paid to disadvantaged individuals. Where this is not the case some compensatory payments would be appropriate.
Citizen’s Income is not intended to replace disability benefits or housing benefits. As now these need individual assessments and appropriate levels of payment by the state.
Dividing the workforce into twelve pay-level groups is useful for developing the argument but in practice it were better to have an algorithm which converts annual wage at any level into a tax percentage so that, for example a wage of £9,000 accrues 2% tax, £40,000 24% tax and £500,000 79% tax.
Employee (but not employer) National Insurance contributions would be abolished. In effect in the proposal employee NI is joined with income tax to make one deduction from wages rather than two. If Government chose to abolish employer National Insurance it could replace it by raising corporation tax (at present 20% of a company’s profits). Most employers would probably welcome these changes.
It would be necessary to ensure that unscrupulous employers did not try to cash in on Citizen’s Income by holding wages down. Legislation to enforce the payment of the Living Wage might provide the safeguard.
Deciding year by year the actual levels of payment of Citizen’s Income and the algorithm determining the percentage of tax to be deducted from wages should be in safe hands such as the Office for Budget Responsibility working to rules determined by government..
Some will condemn the idea of Citizen’s Income as a charter for the idle. They are likely to be few in number because idleness becomes boredom which eventually leads to a search for activity, ie work. In Small is Beautiful, E F Schumacher described what he saw as the Buddhist view of work – which many of us would see as highly commendable:
The Buddhist point of view takes the function of work to be at least threefold: to give a man a chance to utilise and develop his faculties; to enable him to overcome his ego-centredness by joining with other people in a common task; and to bring forth the goods and services needed for a becoming existence ...
To organise work in such a manner that it becomes meaningless, boring, stultifying, or nerve-racking for the worker would be little short of criminal; it would indicate a greater concern with goods than with people, an evil lack of compassion and a soul-destroying degree of attachment to the most primitive side of this worldly existence. Equally, to strive for leisure as an alternative to work would be considered a complete misunderstanding of one of the basic truths of human existence, namely that work and leisure are complementary parts of the same living process and cannot be separated without destroying the joy of work and the bliss of leisure.
This essay suggests that Citizen’s Income will be a successful fiscal strategy where employment promotes the “joy of work” in addition to creating wealth. In many, but not all, enterprises this seems to be the case: where it is not managers should be finding ways of improving the working conditions of their employees.
Naïve? Yes. But if my calculations are roughly accurate they show that there could usefully be intensive national discussion about ways of simplifying our earners’ taxes and benefits systems within a framework of social justice and welfare provision which lifts the poor out of poverty. I suggest that it is time the United Kingdom adopted the idea of Citizen’s Income.
A previous essay on this theme (now archived) ended with a 'speech' that a Chancellor of the exchequer might make on national TV just after introducing these measures in his budget in Pariament.
My fellow citizens, in putting forward this radical proposal for citizen’s income, this revolutionary proposal for a maximum wage, and this essential proposal for a sufficient minimum wage, I am simply proposing that in the future no one in this country of ours shall be impoverished because of those amongst us who have, by ability or by chance, so ordered our societal structures that they gain a disproportionate share of the annual income of our nation.
We are the richest people that have every lived on this island, richer than our parents, and much richer than our grandparents, but somehow we have allowed too much of these riches to be acquired by a few. Our forefathers struggled for all to be able to vote so that they could play their part in the affairs of the nation. It is now our turn to struggle for all to have a fair share of the income of the nation. The quality of life of our children and grandchildren is at stake. These measures should eliminate child poverty – long an ambition of government – and also protect the elderly and the disabled.
But also it will ensure that those who are unfortunate in losing their jobs because of the vicissitudes of the markets and those who for one reason or another have not sought paid work, will have a modest income sufficient to keep a roof over their head and the wolf from the door. That we can do this is a measure of the richness of our country and our concern for social justice.
The social scientists tell us that by narrowing the earnings gap between the rich and the poor one of the great characteristics of past generations in this country will return. Trust between people will grow. Suspicion of others will dwindle and, in consequence, communities will thrive. The evidence from countries like Norway, Sweden and Finland, where the earnings gap between rich and poor is much less than ours, is that by introducing measures which reduce that gap, there will be improvements in physical and mental health, less crime, fewer problems with young people, and in general a better quality of life.
In addition, a result of the fundamental shake-up of our national finances is that we will be able to contribute the United Nations expectation of 0.7 per cent of our gross domestic product in aid to countries less fortunate than ourselves.
But there is another, and perhaps even more important, reason for welcoming these proposals. And here I have to ask you to put your thinking caps on, for at first sight it is not obvious. Many people who have been at the better off end of the spectrum of earnings, will find that they have less spending power. They will have sufficient for the necessities of life and for some luxuries, but not at the level to which they have become accustomed. But before they give vent to violent feelings at how this change is affecting them I hope they will come to recognise that by reducing their consumption of goods and energy they are reducing their carbon footprint. By spending less (because they have less to spend) they will be making a significant contribution to tackling the threat of global climate change.
It is, of course, all of us that have to try, individually and collectively, to reduce our carbon footprint. During World War Two our forebears were confronted with posters on public transport asking, ‘Is your journey really necessary?’ Today we should be asking a broader and more personal question, ‘Is my expenditure really necessary?’ In a land of plenty, like ours, it is a difficult question to answer. Perhaps we should see it in the context of something that Gandhi said, ‘There is enough in the world for each one’s need, there is not sufficient for each one’s greed.’
Britain began the industrial revolution and today we are, hopefully, starting another revolution which, by spreading through the developed nations of the world, will cause our demands on the environment to contract, and, by helping the less developed nations to raise their standard of living and eventually converge with ours, will ensure that the world’s grandchildren, and theirs, will enjoy a satisfying quality of life unsullied by catastrophic climate conditions.
And so, my fellow citizens, in putting forward the biggest change in the economic arrangements that have ever come before this nation, I echo the words of an American President by saying, ask not what this budget means to you, but see how this budget will raise the quality of life for all.
This page posted on 25 September 2015
[i] Citizen’s Income is a key policy of the Green Party. I first wrote about it in Resurgence in 1985 (110,123, May/June) calling it ‘National Benefit’. In 2003 Clive Lord’s A Citizen’s Income: a foundation for a sustainable world was published. My (now deleted) website www.convivial-politics-could-save-the-world.com/narrow.html was a 2009 espousal of the idea, which I elaborated in my Convivial Policies for the Inevitable in 2012. Here I have used more realistic levels of Citizen's Income.This year (2015) the Citizen’s Income Trust (a long time advocate) has published Malcolm Torry’s “101 Reasons for a Citizen’s Income” as a follow-up to his 2013 book “Money for Everyone: why we need a citizen’s income”. Also this year the Joseph Rowntree Foundation published a monograph by Donald Hirsch “Could a ‘Citizen’s Income’ Work?”. My paper does not draw on these but argues the case from first principles and for specific levels of citizen’s income and a progressive income tax that subsumes national insurance contributions.
[ii] George Osborne, Chancellor of the Excheqeur, has toyed with combining income tax and national insurance but has found too many political difficulties in doing so.
[iii] A press release from the Office of National Statistics on 20 May 2015 said: “In 2013, 7.8% of the UK population were considered to be in persistent income poverty, equivalent to around 4.6 million people.”
[iv] In practice the levels would merge into a continuum and tax would be calculated by an algorithm that embraced the percentages of column C% in Table I.