Basic Income Scheme: How to Pay for it

Why it won’t ‘cost the country’ £280 bn.

The Telegraph started it. The BBC Sunday Politics repeated it. So did the Spectator, and numerous Tory-leaning publications. But where did they get this number?

If they just multiplied unemployment benefit/Jobseeker’s Allowance by the number of people in the UK (as I suspect), they have made a big assumption.

It is that with the introduction of Basic Income Scheme (BIS), everyone will immediately down tools, give up work, sit on the sofa and wait for those BIS cheques to roll in. That’s the only way it can possibly ‘cost the country’ the maximum amount the scheme might pay out. Not convinced? Here’s a very broad-brush explanation:

When you tick the box about your employment status, there are basically four categories you could be in, and Basic Income will affect each differently.

Unemployed people should be in receipt of JSA, which BIS would replace. There should be no net cost for them, except for those who have failed to qualify for JSA for one reason or another. These people who have ‘fallen through the cracks’ of the benefit system would undoubtedly be winners fron BIS. The cost is hard to quantify, but should we begrudge giving benefits to those in most need of them due to failures in the current system? In addition, the admin costs saved will be significant. No more ATOS for example.

Fully-employed people are already in receipt of a Basic Income-type payout, but few of them know it. It comes in the form of their personal tax allowance, which is rarely included as government expenditure, but is in effect no different. I reckon the tax allowance is the equivalent of about half Basic Income set at the JSA level. The rest of BIS would be clawed back in tax, so that for the fully employed, who use their full tax allowance, there would be no net cost. How you distribute the claw-back among taxpayers is a left/right political decision, and not relevant here. The main point is that it would be fiscally neutral.

Retired folk already get a Basic Income in the form of a state pension. So their BIS payment would be deemed to be part of this, and there would be no net cost, unless there were some who ‘fell through the cracks’ of the pension system, and weren’t getting their due.

Which leaves the big winners in a Basic Income Scheme: part-time employed people earning below the tax threshold (students can be included here). These are deemed not to deserve any unemployment benefit/JSA, nor their full tax allowance. So they lose/lose. If everyone’s employment status stayed the same, the cost would be quite easy to work out: it is the amount that their total tax payments (from which the claw-back comes) fall short of the total BIS paid to them. My guess is that it would be of the order of £10 bn, (but I could do with some help here!)

But here’s the thing. Given the option of part-time work below the tax threshold, supplemented by BIS, wouldn’t quite a lot of people go for it? Currently would-be part-timers are either in a ‘benefit trap’ (they can’t earn small amounts or they would lose most of it in benefit penalties), or a ‘tax allowance trap’ (they shouldn’t cut their earnings/hours or they would not gain the full benefit of tax allowances and some tax credits). Removing these obstacles to part-time work would probably produce a huge change in the nation’s work patterns.

It is the number of people that would opt for part-time work that is the big unknown. Formerly unemployed who worked part-time would actually save the country money by paying a little tax (their tax allowance is paid as BIS cash, remember). However, those who drop below the tax threshold would indeed cost more, and this would indeed have to come from an increased tax rate on those above the tax threshold. Again, how this extra cost is distributed is a left/right problem.

Basic Income is a classic Green idea, outside the normal left/right axis of politics. The level at which it is set, and the way that the extra cost is paid for are left/right questions, but the principle is Green.

A Basic Income Scheme could, at a stroke, remove the ‘Benefit Trap’, remove the stress of having to qualify for benefits, remove the pressure to work full time on those that have other pressures (like caring for family members), allow a better work/life balance, allow and underpin voluntary work and much more: all thoroughly Green objectives.

There are indeed plenty of problems that haven’t been worked out, and I don’t think will be unless one country actually tries it. But those problems do not include paying for it!

Jamie McMillan

Dorset

26 January 2015

PS I should now go and look at Green Party policy to see whether this bears any resemblance to it!

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One thought on “Basic Income Scheme: How to Pay for it

  1. Pingback: Jamie McMillan, “Basic Income Scheme: How to Pay for it” - BIEN

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