Anne Miller of the Citizens Income Trust, 31.3.14
• After the Second World War there was a consensus towards a fairer society, with a welfare state, free secondary education and a National Health Service.
• This consensus lasted until 1979.
• What has happened since?
Note about market economies
• Many benefits for all, but
• Market economies do not redistribute from rich to poor.
• Even the Neoclassical economists’ model of the perfect competition market, at its best, assumes that there is an equal distribution of the assets among many small agents to begin with.
• Then it will merely maintain the status quo distribution.
• Markets need regulating to prevent a repeat of the excesses witnessed in recent years.
Why the state should redistribute from rich to poor
• State should counter-act the natural tendency of the market.
• State should look after the welfare of all of its citizens, not just its wealthy ones.
• State should help all to flourish, - better work-life balance, etc.
• Equality has been better for everyone (Wilkinson & Pickett, The Spirit Level, 2009).
• Poor people have a lower propensity to save, and buy fewer imports, therefore national demand will increase after redistribution.
• Redistribution is likely to regenerate local economies and thus the national one, and leave it less at the mercy of the global economy.
• Most people in this country think that we have a democratic government.
• But the real purpose of the government is to make marginal changes in favour of the wealthy.
• How have UK governments been complicit in this betrayal of the people?
• Opted out of clauses for Social Protection for workers in Maastricht Treaty, (1992), - in favour of ‘flexible’ labour market to promote growth.
• The purpose of growth is to protect the rich from having to share their income or wealth.
• “Since 1979, practically all the gains in household income [in the UK] have gone to the top 40% of households”. (www.cia.gov/library/publications/the-world-factbook/geos/uk.html, c. 2007).
• In a recession, suddenly “we all are in this together”, and the poorest must shoulder the burden: ie. benefits and public services are cut.
• Ratchet effect of growth - recession - growth etc - leads to widening inequality.
• Relaxation of financial regulations:
• ‘Big Bang’ deregulation of Stock Market and privatisation of London Stock Exchange, 1986
• Transferred weakened regulatory powers from Bank of England to the under-funded Financial Services Authority (1997)
• Required lower deposits by banks with BoE
Encouraged/relied on Financial Sector for contribution to UK economy (10%)
• Glass-Steagall Act (1933) ‘repealed’ in USA by the Gramm-Leach-Bliley Act 1999, (retail and investment banks had been separated - to enable savings in retail banks to be protected) - reckless lending - sub-prime property market
• UK copied USA and relaxed this separation.
• Govt’s engagement in 2 wars in 2001 & 2003 meant that it borrowed heavily & could not reduce the public debt in the boom years, as was normal practice.
• Government encouraged inflationary property price boom - capital gains realised and spent on consumption - fuelled economic demand.
• Housing boom siphons wealth out of pockets of 1st time buyers into pockets of current home-owners - if realised.
• Govt should have controlled buyers’ deposits and size of mortgages relative to incomes (as in 1960s), and controlled housing market generally - ie. for homes, not as speculative investments.
• Housing bubble burst, (not in Germany, nor in Canada) --> bad debt and negative equity.
• Sold off council houses, but councils prevented from using the gains to renew the housing stock.
• Encouraged demutualisation of Building Societies, but resulting banks not properly regulated
• Pressure on rented properties put rents up.
• NB. Sold off nationalised industries and utilities, and reduced tax rates on the wealthy.
• Squandered north sea oil income, rather than invest in infra-structure
• Reckless lending, sub-prime mortgages, in USA.
• ‘Sophisticated’ instruments for inter-bank lending.
• Reckless borrowing on international financial market.
• Credit Rating Agencies, eg. Standard & Poor, Moody’s, and Fitch, etc. passed many toxic packages as AAA rating, - was major element in 2008 Crisis.
• Investment banks gambled with clients’ money
• Speculated with Sterling
• Bankers awarded themselves massive bonuses, ‘performance-related pay‘, whether good or bad performance.
• Banks’ reserves would not cover their debts.
• Some banks were ‘too big to fail’.
• Government bailed out RBS, HBoS and Lloyds, by buying up a large proportion of their shares.
• Private profits, public debt.
• Austerity package, plus Quantitative Easing
• Swingeing cuts to benefits and to government expenditure on services.
• Neither Germany nor Canada suffered the property boom or bank crashes.
• Around 1980, both USA and Canada also reversed their postwar trends to greater equality, and became the most unequal in the west, followed by UK.
• Germany, France, Switzerland, India, Japan, Netherlands, Finland, and Sweden managed to maintain their post-war level of equality during this latter period.
• National Insurance benefits have not been maintained at initial levels, and have become lower than the Social Assistance (supposedly safety-net) levels.
• Benefit levels are less than Government’s own poverty benchmarks.
• Government has changed from using RPI to lower Consumer Price Index to update benefits.
• ‘Major reforms’ have been merely tinkering at the edges.
Redistribution from nearly-poor to poorest, c. 1985
Marginal Deduction Rates
• When trying to earn their way out of poverty, claimants can face an MDR of nearly 96% (income tax 20%, NI 12%, plus aggregated benefit withdrawal rates).
• Universal Credit aims to reduce this to 65% for those whose incomes are below income tax threshold (personal allowance), and 76% for those above it.
• Higher-rate taxpayers with gross income of £41,450 and over, will face 40% tax and 2% NI, (2013-14).
• Additional-rate taxpayers with gross income of £159,440 and over, have enjoyed a reduction to 45% tax and 2% NI.
• MTBs have inherent disincentives to work-for-pay.
• MDRS are highly regressive system, even with Universal Credit.
Tax Expenditures (Loopholes)
• Personal allowances, tax exemptions, and tax allowances are the tax loopholes that the government provides for wealthy people to avoid paying their fair share of income tax legally.
• The taxes that HMRC thus fail to collect are called Tax Expenditures, which reduce the tax base and lead to higher tax rates on those who cannot avoid them.
• Tax Expenditures often profit the beneficiary in proportion to his/her income, eg tax relief on private pension scheme contributions.
• The magnitude of this hidden subsidy to the rich is about the same as 30-40% of subsidy to poorest via Social Security.
• The UK is recognised by rich people as a tax haven.
Outcomes for People
• Gross inequality
• Jobs for unskilled people have been automated, or out-sourced overseas.
• Workers’ wages have not been protected by government, as on continent, and many workers are in low waged, part-time, temporary jobs, leading to insecurity and fear.
• Benefit levels have not kept up with inflation, let alone with the prosperity of the UK.
• MTBs contribute to MDRs that present a major disincentive to work, so claimants are labeled as ‘idle scroungers’.
• Housing boom removed home-ownership out of reach for many aspiring first-time buyers, and rents have increased.
• Occupational pensions are less prevalent, and private pensions dependent on stock market are less reliable.
• Low-waged, part-time, insecure jobs, (zero hours);
• Poverty - even in work
• Financial insecurity
• Fear of long-run unemployment
• Poverty - out-of-work
• Child poverty: I in 4 children still in poverty, many in working households
• Marriage break-up
• Lose family
• Increase in crime rate
• Increasing gap between rich and poor
Outcome for economy
• The UK governments have imposed a state of austerity on the poorer sections of society.
• They have been trying Quantitative Easing - ie printing money to try to get the economy going again.
• Banks are trying to increase their reserves, rather than lending.
• Small companies find it difficult to get loans to invest.
• Large companies are not confident enough to invest now, before they see signs of recovery, ie the economy is demand-deficient, rather than needing a boost to the supply side.
More reasons to change the UK’s social security system
• Complexity & duplication of frequent and lengthy form-filling;
• Joint applications for means-tested benefits;
• Mistrust and control of claimants;
• Double standards between benefits and income tax system;
• The Government spends a lot of money to keep people in poverty - providing lifejackets, not guard rails;
• Prevention of poverty is cheaper than cure;
• In 2012, £241,695m was spent on’ social protection’ (transfer payments);
• This was 15.47% of GDP.
What sort of society do we wish to be part of and help create
• Equality objectives
• Financial security objectives
• Protect financially-vulnerable adults and families with children
• Labour market objectives
• Administrative objectives
• Personal choice objectives
• A Citizen’s Income (CI) scheme, to replace most National Insurance benefits and Means-Tested Benefits.
• A CI scheme by itself will not necessarily redistribute income from rich to poor, men to women and geographically
• We would need a new restructured hypothecated income tax system combining both current income tax and national insurance systems, without tax loopholes - transparent, simpler.
Define a CI Scheme
• Eligibility is universal, based on citizenship; the CI is not means-tested on recipient’s own or another’s income or wealth;
• Tax/benefit unit is the individual man, woman and child;
• Unconditional - not dependent on any preconditions - work, volunteer, gender roles, & Non-selective (differences based on age?)
• Paid regularly and & automatically to recipient;
Levels are Full or Partial or Child CIs
The definition of CI does not define the whole system
• One still has to decide:
• Who is entitled to it?
• How much will it be?
• How will it be financed
• Who should administer it?
The wider picture
• There is a whole set of other instruments with which it can be coupled fulfilling a variety of welfare objectives;
• There is no one optimum scheme
• For a given set of objectives and priorities, a CI scheme can be designed;
• A CI is not a panacea for all ills.
• But a CI is a necessary, but not sufficient, condition for a better society.
Arguments against CI
• Why give something for nothing?
• Poor are idle and don’t deserve it.
• What if some people choose not to work?
• Why give it to rich people, who don’t need it?
• Rich people will emigrate
• Powerful people will prevent it
• We cannot afford it
Can we afford it?
• Average (mean) income per head of man, woman and child in UK, 2012, was £18,174 pa, (£348 pw).
• Different aspects to COST:
• Tax rates, - depend on objectives of the scheme, eg 32%, 40% or 50%
• Net transfers (sum of taxes paid by net taxpayers) - depends on degree of inequality to start with.
• Individual losers (and gainers)
• What about the public debt?
UK Debt/GNP ratio
• In 2010, the UK’s net debt / GDP ratio was c. 54%.
• In the first half of the 19th century, it reached about 260%, and did not go below 120%
• Between 1925 and 1950, it increased to about 240%, and did not go below 110%.
• Between 1945 and 1995, it was reduced from a high of nearly 240% after WWII, to about 25%.
• Between 1945 and 2005, UK debt interest payments as a percentage of GDP reduced from 6% to just under 2% by 2000.
• “UK is not ‘broke’. The national debt is not high by historical or international standards, the cost of servicing the debt remains manageable, and Britain retains the flexibility of having its own central bank”, (NEF and the Tax Justice network.)
“When I feed the poor, they call me a saint. When I ask why the poor are hungry, they call me a communist.” Dom Hélder Câmara,, Brazilian Archbishop, liberal theologian and social activist
Yes, we can afford a Citizen’s Income scheme!
The meeting broke up into pairs to encourage mutual discussion. This was followed by questions and contributions.
Andrew asked what the tax rate would be.
Annie replied that could be decided depending on how you wanted the citizen’s income distributed. Since the CI itself was a major distributive measure, she would prefer a flat rate income tax rate of 50%.
Lisa asked if there are any examples of CI in the world.
Annie replied that Alaska had an oil revenue based citizen’s income. Since 1976, Alaska has had a sovereign oil fund based on oil taxes. Every citizen gets between $1000-$3000 just before Christmas. Even Sarah Palin has not been able to abolish it!
In certain areas of India previous food and kerosene subsidies has been replaced by a direct cash payment. A scheme also exists in Namibia. In Iraq everyone gets $40 a month, although it is handed out to the head of household.
Stuart said there were three good arguments in favour of CI – trade unionist, feminist and citizen. From a trade unionist point of view, the absence of a guaranteed income means that workers cling on to badly paid jobs. A CI would force employers to pay better wages. From a feminist point of view, vital domestic work, such as child rearing and housework do not get economic recognition. The CI would help to remedy this. From a citizen’s point of view, a lot of the expenditure on healthcare is due to the depression and mental illness caused by poverty and insecurity.
Annie added that when the Canadian government introduced health benefits some years ago, they found that there were a lot of beneficial knock-on effects of universal healthcare.
Mike said there were two additional reasons to support a CI. There is the socialist argument that it weakens the employers’ ability to resort to the reserve army of labour to undercut waged and conditions, and it ensures that those who can pay, do pay. There is also the environmental argument about the use of the commons. A CI could be funded by private companies that make use of our land, air and water resources. There could be a combination of income and corporate taxation. Mike pointed out that only the Greens have CI as party policy.
Annie replied that certain green taxes could actually encourage people to pollute.
Ally said that some people argued that you needed an incentive to work. However, skilled jobs, which might provide an incentive, were increasingly being exported abroad. People will work if there are satisfying, high quality jobs available. There are plenty of opportunities to do this, if the economy is refocused on meeting human needs.
Annie said that the CI represented a whole new approach to society. It was not just a reform of social security. From late Victorian times up until the Second World War finance capital has dominated British society. Finance capital is not embedded in the economy and leads to very unequal income distribution. This was offset by the re-emphasis on the productive economy from the end of the Second World War to Thatcher. Now finance capital dominated once more, with very negative effects on the real economy. The CI could also help to regenerate local economies.
You had a situation at present where many necessary but less satisfying jobs were poorly paid, but other satisfying jobs were very well paid. CI might contribute to a lessening of the difference by raising the pay level of unsatisfying and lowering the pay level of satisfying jobs.
Eric said that a good entrepreneurial society needs to be backed by a good welfare state.
Steven said that over the last 30 years, because of increased individualism and selfishness, he had seen a marked increase in the ‘What can I get out of it society’ attitude. However, with the Scottish independence debate, a new more socially aware confidence had begun to emerge. However, there was still a substantial middle class, who remain somewhat better off than the rest of us, who will resist.
Annie replied with the ‘Overton Window’ about how ideas become accepted. They go through 6 stages – i) unacceptable, ii) radical, iii) reasonable, (iv) acceptable, (v) popular and then (vi) policy.
Annie said that a lot of the middle class was growing increasingly concerned about their children’s future in an increasingly insecure economy. Robin MacAlpine’s presentation of some of the Common Weal’s ideas to a very middle class audience at the Morningside Justice and Peace Centre had been very well received.
She concluded by saying the whole point of having an independent Scotland was to improve things for everybody, including ethnic Scots and incomers. She asked people to sign up to the CI campaign.
(Annie gave everyone present the following leaflets:- Citizen’s Income – An Introduction, What Is A Citizen’s Income? The Citizen’s Income Trust. More information is available at email@example.com)