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The Minister for Employment (Damian Hinds)
It is a great pleasure to serve under your chairmanship, as always, Mr Davies. I would like to join the congratulations to the hon. Member for Inverclyde (Ronnie Cowan) on securing this important debate. I thank everybody from all parts of the House who contributed to it. I was particularly interested in the speech of the hon. Member for Oldham West and Saddleworth—
Damian Hinds
I am so sorry.
I think she confirmed that the official Opposition are considering a universal basic income. We already knew that the Scottish National party will look into it further after their conference, and we now know that the official Opposition also see some benefits in it.
Debbie Abrahams
I think the Minister is running away with himself. I said it would be useful to explore it. That is not how he characterised it.
Damian Hinds
I am grateful for the clarification.
A universal basic income or similar systems that guarantee a minimum income to all have been debated and discussed at some length across the world. This debate has been stimulating and important, and discussing UBI and similar concepts, such as the negative income tax, which was a popular subject for academic debate before UBI, is an engaging activity. Any system that promises protection and, to quote the recent report from the Joseph Rowntree Foundation and Compass,
“freedom of choice for individuals between work and leisure”
is bound to sound appealing. It is difficult to argue with a utopian system that enables individuals to choose whether to work or to engage in leisure activities, alongside all the other valuable things that people do, such as voluntary work and caring.
However, as the Compass report suggested, the big issue with UBI is not whether it is desirable but whether it feasible. Would it be affordable, and could it be introduced in a way that prevented losses among the poorest sections in society? The hon. Member for Inverclyde said we should not turn our back on laudable aims. I could not agree more, but laudable aims are not enough. When Jack Kennedy said he wanted to put a man on the moon, he knew that just willing it would not make it happen. It had to be technically feasible.
The Citizen’s Income Trust, which the hon. Gentleman cited, and the RSA claim to have developed cost-neutral models for a scheme, but less highlighted is the fact that they could do so only by collecting huge amounts of additional tax. I can confirm that that is not everybody’s definition of cost-neutral. As the JRF and Compass report found, the additional tax revenue required to deliver a sustainable UBI would be as much as £160 billion. Such a system is clearly unaffordable, even if we assume that the introduction of a UBI would not affect individual behaviour in the labour market and that nobody would give up paid work as a result of its introduction. That assumption, of course, goes against common sense. It goes against trials that have happened in other countries, which have been referred to, and the principles of this Government and all recent Governments that I know of.
Caroline Lucas
I have got the Compass figures in front of me. The report says that the net cost of the hybrid model that Compass proposes would be about £8 billion a year. That is a significant sum, to be sure, but it is not impossible if we are talking about a revolution in the way that work is organised. The problem with many of the contributions this afternoon is that it has been assumed that we go on as we are now and suddenly graft a citizens’ income on top of it. I think the way work is going to look in the future will be very different; therefore we need to look at bolder ideas.
Damian Hinds
I think the hon. Lady has the relevant page in front of her; I do not, but I have it nearby. From memory, if she casts her eye about three lines further up above the £8.2 billion figure, she will find another figure for what the impact on income tax will be. That is where the total effect, which is so much greater, is laid out.
Damian Hinds
I am spoilt for choice. I give way to the hon. Member for Oldham East and Saddleworth.
Debbie Abrahams
I am interested that the Minister is picking on one model. We need to be clear that there is a range of different models. He needs to clarify that in his remarks.
Damian Hinds
I am more than happy to clarify that the report looks at five models. There are three different proposals that might be called pure UBI models, which would deliver different levels of universal income; then there are two hybrid or adjusted models. The one that the hon. Member for Brighton, Pavilion (Caroline Lucas) referred to was, I believe, model No. 5, so it was the second of the adjusted models. The other ones are more expensive. The pure UBI models are more expensive than that one.
Ronnie Cowan
As we have heard here and in the main Chamber on a number of occasions, when the money is required, it is found, whether it is to renovate this place or Buckingham palace, or to spend on the vanity project that is High Speed 2 or on Trident nuclear missiles. The money is there; it is just a question of which box we want to put it into.
Damian Hinds
I do not know where to go with that. I am not sure that it is true that the money is there; in fact, I am confident that it is not. In this country, the only way in which we raise money for public expenditure is through taxation on individuals, companies and other activities.
Dr Paul Monaghan
Everyone watching the debate will be interested if the Minister can tell us which of those initiatives that my hon. Friend the Member for Inverclyde (Ronnie Cowan) cited cannot be afforded by the UK Government?
Damian Hinds
One of the main things that I am in the Chamber to say is that a universal basic income has a number of drawbacks, one of which is the great cost attached. If I may, I will now continue through my remarks.
The Government’s approach to welfare has been about recognising the value and importance of work, making work pay and supporting people into work, while protecting the most vulnerable. A universal basic income goes against every aspect of that approach. Indeed, it would put at risk the huge progress that we have made over the past six years in transforming lives through the power of work. Employment is at a record high. As we announced this morning, there are now 31.77 million people in work.
Kate Green
I hope that the Minister, in his analysis of the Government’s track record in relation to paid work, will also address the rise of in-work poverty under this and the previous coalition Government?
Damian Hinds
If the hon. Lady will bear with me, the claimant count is close to its lowest for 40 years, unemployment is at the lowest rate for 10 years and pay is rising. Our reforms are working. Why would we put all that at risk by implementing a blunt policy of financial handouts that does not treat people as individual human beings, with their own different ambitions and aspirations? UBI would also make no allowance for those with additional needs—a pure UBI system has no additional payments for those with disabilities or variations in housing costs, as the hon. Member for Banff and Buchan (Dr Whiteford) highlighted. Our reforms are about supporting people to reach their full potential, treating them as individual human beings and giving them the opportunity to get on.
Universal credit lies at the heart of the Government’s commitment to reform the welfare state, as the Opposition spokesperson, the hon. Member for Oldham East and Saddleworth, rightly identified. We want a welfare state that is fairer and more affordable, tackling poverty and welfare dependency, while supporting the most vulnerable households. The Government believe that work is the best route out of poverty, which universal credit supports by supporting people into work and by making work, and more work, pay. Together with the rise in the personal tax allowance, investment in childcare and the national living wage, our reforms are ensuring that support goes to those who need it most. There is additional help to cope with essential living costs, such as housing and childcare, and we will ensure that being in work will always pay.
Universal credit is already changing people’s lives for the better. Claimants are moving into work more quickly and staying in work longer than under the legacy system. For every 100 people who would have found employment under the old jobseeker’s allowance system, 113 universal credit claimants will have moved into a job.
Debbie Abrahams
There is so much in that sentence, and the preceding ones, that I do not know what to pick on first. The increase in wages is slowing down, according to today’s figures. Also, will the Minister explain why millions of people will be affected by the cuts in work allowances for UC under the Welfare Reform and Work Act 2016? In effect, they will get a £2,000-plus a year cut.
Damian Hinds
According to this morning’s figures, we still have good wage growth in this country, and at a time when we have low levels of inflation, so real wage growth is also close to 2%. The hon. Lady mentioned universal credit, which is a massive reform to the welfare and social security system, with the smooth taper rate taking away the cliff-edge points at 16, 24 and 30 hours a week. Those are important developments in supporting people into work and up the hour scale.
Some of the extra things we are doing include childcare, with the 30 hours for three and four-year-olds, the tax-free childcare and the increase under universal credit relative to tax credits from 70% to 85% of eligible childcare costs. Those are all critical things that the Government have been doing to reform welfare, and to help people into work and to develop in work.
Our high employment rate shows that an active welfare system that helps people into work, rather than only handing out money to everyone in the same way, is the right approach. Compare that to a system of universal basic income. I have already mentioned the report from Compass and the JRF, which shows that UBI would be prohibitively expensive. The report also shows that UBI would create too many losers among the poorest families and dramatically increase the number of children living in poverty—a point confirmed through modelling even by the Citizen’s Income Trust. UBI would dramatically increase inequality, because it does not account for individual needs and circumstances.
Some, such as the RSA, in what was a reasonable line to develop, suggest introducing adjustments—some such points have been made in the debate—and maintaining additional means-tested benefits alongside a UBI to fix that inherent flaw. The problem, however, is that the more we adjust to counteract the inequalities inherent in a UBI system, the closer we come to something that begins to resemble universal credit.
Universal credit is far more than simply a system of giving out money. It incentivises claimants to move off benefits and it provides tailored support to help people find work and increase their earnings. In contrast to UC, a UBI allows for no work-based conditions on payment to encourage that or to increase incentivisation, and for no complementing support to help people make the most of their potential.
Even the most modest of UBI systems would necessitate higher taxes, as I was discussing just now with the hon. Member for Brighton, Pavilion. Those increased taxes would be combined with the erosion of the tax-free allowance. At the same time, it would cause a significant decrease in the motivation to work among citizens, with unforeseen consequences for the national economy.
Trials of UBI have been mentioned in the report and in the debate today, such as those in the 1970s in the USA and Canada. The results showed that 5% of primary earners moved out of work, and an even greater number among secondary earners. The recent report that we have been discussing highlighted those results, but called that a small drop. From the perspective of a Government who have had to work hard with business—to have the entire economy working hard—to increase the employment rate by 4.3% over the past six years, that does not sound like a small drop to me.
Whereas at first sight a UBI seems attractive, as more scrutiny is given to the idea, the less attractive it becomes. As recently as June of this year, the concept of a universal income was formally rejected by Switzerland, as hon. Members know, with nearly 77% of people opposing the plan in a referendum.
I will briefly address some of the particular points made by hon. Members during the course of the debate. The hon. Member for Inverclyde suggested that our existing system has been driving up inequality, but 300,000 fewer households than in 2010 are now in relative low income. The evidence is clear about the role of work in helping families, and children living in those families, out of poverty. The evidence is strongest about where it is possible to move into work—[Interruption.]
Geraint Davies (in the Chair)
Order. There has been some sedentary commentary, but we have until 17.38, so if people want to ask to make an intervention, please do—obviously, it is for the Minister to allow.
Debbie Abrahams
Three out of four people in low-paid work are still in low-paid work 10 years on. How is the system helping them?
Damian Hinds
Helping people on relatively low incomes to increase their incomes by moving up the hours scale or the earnings scale is of course an objective that the hon. Lady and I share. That is why we have made the childcare reforms that I alluded to and brought in the national living wage, which will affect people who were previously on the national minimum wage but will also have a ripple effect on pay grades immediately above that. The critical thing, which we come back to time and again, is that universal credit will reform the system, in which there are certain cut-off points on the hours scale, to ensure that there is as smooth as possible a transition through work.
The hon. Member for Brighton, Pavilion talked about less secure employment. It is certainly true that today’s labour market differs in several ways from the labour market of the 1960s and 1970s. Several factors are at play, including the long-term shift to the service sector and the fact that people are living longer. Yes, it is also true that people are much less likely to stay in a job or work for one employer or even in one sector for their entire careers, but it is important to note that three-quarters of the increase in employment since 2010 has been in full-time work. Only around 14% of people in part-time work would prefer to be working full time, although obviously we want to increase the opportunities for them.
Relatively few people in the economy rely on zero-hours contracts, which give people on average around 25 hours of work per week. We know from surveys that most people on zero-hours contracts are not seeking to increase their hours. Although those types of contracts clearly are not even close to being suitable for everyone, there are some people for whom they work. A lot of people on zero-hours contracts are students or people coming back into the labour market, and such contracts can be a good way in. It is absolutely right for the Government to have banned exclusivity clauses that prevent people from taking up other work.
Damian Hinds
Will the hon. Gentleman forgive me if I press on? The extremely important point of technological change was raised, and that needs to be debated in the House and elsewhere. Some proponents of a universal basic income cite the inevitable changes in the world of work, driven by technological advance and artificial intelligence, which they believe will make many jobs obsolete and increase unemployment. That argument has a long pedigree, which goes back beyond the spinning jenny, and I do not at all belittle the importance of that discussion or the implications of structural change. We must of course be sensitive to such possibilities, but time and again over the decades, as technological change has removed the need for one type of work, it has created another.
In conclusion, although a universal basic income may appear to be desirable at first glance, any practical implementation would, I am afraid, be unaffordable. Because UBI does not properly take into account individual needs, it would markedly increase inequality. Universal credit is the right system for the United Kingdom. This responsible Government are implementing a system that encourages work, supports the most vulnerable and is affordable.
Geraint Davies (in the Chair)
I invite Ronnie Cowan to wind up the debate, for a couple of minutes.