Universal Basic Income

Debate between Jim Shannon and Karen Buck

Tuesday 13th October 2020 Westminster Hall

[Ms Karen Buck (Westminster North) (Lab)]

It is a pleasure to contribute to this debate under your chairmanship, Mr Davies. I congratulate the hon. Member for Inverclyde (Ronnie Cowan) and others for securing the debate. We have heard strong contributions from Members who have critiqued the existing social security system and shown how its weaknesses have been exposed during the pandemic. That is absolutely right, for reasons that I will come on to, but we have heard not only about the pandemic, but about a recognition that the current social security system has a number of fundamental problems.

We have rehearsed the problems with the universal credit system on many occasions in the past and will no doubt do so again, 10 years on. Many problems have arisen from the fact that many people have been excluded from receiving help and the restrictions that apply, ranging from the five-week wait to the benefit cap and many other problems.

It is also true that there is a very long-term and fundamental issue with social security that those who support versions of universal basic income recognise. No system stands still. The world has changed fundamentally, particularly the world of work and the extent to which we are increasingly in a world of flexible employment, income volatility and fundamental demographic change.

Even the principles that Beveridge set out as the basis of the post-war social security system, starting with the concept of a flat-rate system, soon had to change as the world changed—as women went into the workplace and different pockets of disability emerged. The interaction between those at work and the nature of the jobs they were doing also changed and increasingly became a system that topped up the basic, flat-rate insurance-based systems, so we have ended up with a complex hybrid.

It is also true—I will come on to this in a minute—that whatever system we end up with will have to accommodate a variety of different approaches. Members have stressed this morning, and I agree, that if we want to build an argument for a form of universal basic income, the Government have done a lot of the work for us by introducing a system that has embraced conditionality and sanctions with vigour in recent years. If we want to convince people of the merits of a basic income, we could not do much better, given that the DWP seeks to micromanage so much of people’s lives, whether they are out of work or in work conditionality, where interaction with job centres often feels like an obstacle course of booby-traps designed to trigger sanctions. Those sanctions are wildly disproportionate including, until last year, cutting people off without support for up to three years. The social outcomes of all those policies include what many refer to as the soaring numbers of people whose destitution is such that they are dependent on food banks.

I do not want to cover all the points that have been made, but I will refer to two areas where the basic income argument is particularly relevant. The first is income volatility and the ability of the social security system to deal effectively with the fluctuations in income that have become characteristic of the labour market. Again, the problem is not new but, as self-employment, sometimes very dubious forms of self-employment, the gig economy and zero-hours contracts have become more prevalent, it is particularly pertinent.

The ability of the social security system to react in a timely manner to sudden drops in income is stretched to the limit. Despite the use of realtime information from the tax system, the monthly cycle of universal credit payments does not correspond to real-life volatility in many household incomes, as John Hills of the London School of Economics has certainly shown. There is a strong case for mitigating that volatility through payments that do not respond to changes in income, which is precisely what child benefit—the nearest thing we have to an element of basic income—does. The stability of child benefit has been shown to be one of the most valued components of the social security system. Whatever happens to earnings from other benefits, child benefit can always be counted on.

The second point concerns the basis on which benefits are awarded, whether to individuals or households. Our personal taxation system is overwhelmingly based on individuals, but our benefits system is increasingly based on the assessment of household income. Universal credit has reinforced that disparity. It is a benefit designed around an out-of-date model of a single breadwinner and it disadvantages second earners in the household, who can find most of their earnings lost to household means-testing. We should not be comfortable about the fact that people in lower-income households face a completely different set of implicit tax rates from the better-off.

[Jim Shannon]

I want to underline the issue. It is not just about finance, but about health, and the physical and mental responses to that. Does the hon. Lady feel that that has to be taken into consideration when it comes to support in such a scheme?

[Ms Buck]

I totally accept that security is fundamental to people’s physical and mental wellbeing. That is implicit in the idea of recognising the weaknesses of the existing system and how it responds to volatility, most obviously demonstrated during a crisis such as the pandemic, but consistent over the long term.

Basic income as a fully individual entitlement could go some way towards addressing that problem, although it must be recognised that it is not a complete solution, because most of the proposals for basic income retain large parts of the existing social security system, most critically, housing benefit. Beveridge was defeated by the disparity in housing costs across the country, and that remains now—if anything, it is probably more pronounced than it was. A basic income is not the only imaginable way to improve the current situation, but the argument for it sets out the problem with great clarity.

Some contributions to the basic income debate, however, suggest that the reform could be easily implemented—“oven ready”, to coin a phrase—and that all that is necessary to deliver it is political will and progressive values. I do not want to drown the debate in figures, but it is important to get a sense of the scale of change involved in even modest basic income proposals. I will refer briefly to two important studies that address the issue of how to fund basic income. Both show incredible clarity and are from people who are sympathetic to the idea.

The first is a paper by the late Tony Atkinson, who was a towering figure in the study of inequality. The paper was published after his death in 2017. Tony Atkinson favoured what he called a participation income, which would be conditional on some form of social contribution, but not unpaid work. As those conditions do not influence the modelling, we can take the results as relevant to basic income in general. The adult participation income in his model scheme is £75 a week. Child benefit is raised to £52.60 and £89 for the first child. The scheme prioritises children, and is certainly not extravagantly generous to adults. Other social security benefits would be retained, so it is essentially a partial basic income scheme. The modelling shows that it would not eliminate poverty, but would lead to significant reductions.

How is the model funded? The personal tax allowance is abolished, so income is taxed from the first pound. The basic rate of income tax rises from 20% to 30% from the first pound of earnings, rising to 40% of gross income at £25,000 to 50% at £45,000 and 60% at £90,000 and beyond. An earned income tax discount is introduced to avoid excessive taxes on lower-income groups.

Members will appreciate that those are not trivial changes to the system of personal taxation. My hon. Friend the Member for Brighton, Kemptown (Lloyd Russell-Moyle) said that a basic income would require a total restructuring of the taxation system. That is not something that we can enter into lightly. The scale of what is needed to accommodate such changes is considerable. A doubling of the marginal tax rate on gross incomes of £25,000 a year would surely make even the most ardent supporter of basic income hesitate.

Any basic income scheme faces the problem that spreading payments out over the entire population will require either cuts to other expenditure programmes or increases in tax revenue. The Compass basic income model, which is widely quoted, does not offer a blueprint for immediate reform. The other scheme is intended as a policy that could be adopted immediately. Therefore, the basic income for adults and children is lower, at £60 and £40 a week respectively. To balance the books, the income tax personal allowance is abolished, as is the primary threshold for national insurance contributions, so all income is subject to tax and national insurance. A new lower rate of 15p in the pound is introduced for the first £12,000 of income to avoid successively disadvantaging the lowest earners. All other marginal rates are increased by three percentage points, so the basic rate would be 23% in England, Wales and so on. That gives an indication of what the implications would be for changes to the tax system. In both cases, marginal rates of income tax increase not just for the rich, but for middle and lower earners, and income that was never taxed before becomes liable for income tax and/or national insurance contributions.

Although I accept a number of the arguments about the positivity of changes to the social security system that give people security, we cannot dismiss the fact that we will either have to find significant additional contributions to make it work or look at how the changes to the taxation system will affect people and ensure that is part of the debate. It is worth pointing out that the pilot studies that have been conducted in other countries do not have the advantage of being able to do all this in realtime, precisely because to make a full basic income work requires social security and tax to be fully integrated as part of the model; it cannot simply be about testing some aspects of the scheme.

I welcome this debate, and I certainly do not dismiss the idea of basic income. I recognise and support the contributions made this morning. People are saying that a basic income can address long-term problems that are poorly handled by existing social security models. As Labour develops our proposals for replacing universal credit with a more generous and less stigmatising system, I hope we will rise to some of those challenges.