Universal Basic Income

Debate between Karen Buck and Jim Shannon

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.

Welfare Reform Bill

Debate between Karen Buck and Jim Shannon

Wednesday 15th June 2011 Commons Chamber

[Jim Shannon (Strangford) (DUP)]

I commend credit unions to all Members for the work they do, but for those in financial difficulties, the crisis is already there and unless someone is already in a credit union, they cannot borrow from it. With respect, I do not believe that credit unions are an option.

[Ms Buck]

That is absolutely right. The Government mention credit unions as part of the package of alternatives that they want to see picking up the slack. They may have a role for some people, but the hon. Gentleman is right that they are not an emergency response. As I said in my opening remarks, precisely because a disproportionate number of the individuals who need crisis intervention do not have a local connection or a stable household background, they are the ones who will not be in a credit union. They are disproportionately unlikely to be in a credit union or to have the scope to be able to join one. That is precisely why the social workers—expected to be a part, although admittedly not the entirety, of the gatekeeping process for the replacement of the discretionary social fund—are so concerned. Although they will not be alone, they will be very much on the front line of gatekeeping for this dramatically reduced and very different type of service, which is patchy and might be flourishing in some cases and not in others. As I said in Committee, the consortium of community care stated a few months ago that social workers are anxious about having to deliver the social fund, knowing that applications for community care grants are already turned down in 60% of cases. They say that their role as advocates and supporters for people in need through a crisis in their lives is dangerously undermined by the new financial gatekeeping role that they will be asked to take on.

In evidence to the Committee, Councillor Steve Reed, speaking on behalf of the London Councils and the Local Government Association, said that local authorities have expressed an in-principle willingness to be part of this process. I understand why he would do that. He also told the Committee that he was worried that the localisation of the discretionary social fund should be fully funded and that it should cover all the costs, including the administration costs, which, for the community care grant alone, were £19 million in 2008-09. As we have drawn out in the debate over the past hour, the likelihood is that the administrative process for local government and the gatekeeping, which will not simply be about deciding whether to give a crisis loan or community care grant but whether to find people alternative levels of support, are likely to put an increased financial burden on local authorities.

Some Government Members on the Committee argued that social workers and others will be able to provide more intensive, personalised intervention for people in crisis, helping to end a cycle of repeated loan applications, but that is likely to make the situation worse. If the 3.64 million crisis loan applicants or 640,000 applications for community care grants have to be funnelled through a more intensive and personal level of intervention, who will do that work? Where are the social workers and the available time in local government to improve on this? The answer is that they will not be there. Local authorities are retrenching and they are on the back foot financially, and the likelihood is that they will have a smaller pot of money as they act as gatekeepers for an even wider group of individuals.

The Minister tells us that there is an expectation that there will be some form of review process, but the current review process is national and now every local authority will be expected to set up its own, leading to huge complications with differences in approach and the structure and bureaucracy of setting up a process in every local authority to determine how initial decisions will be reviewed and appealed against. I know that that causes a great deal of alarm in the advice sector.

Let me return to the vexed concern about local connection. Sample work on discretionary fund cases was carried out by the Department last year, which considered a basket of 500 different cases, and 20% of those cases involved people who were homeless. Some 20% and more of the applicants in such cases—the amount varied between different parts of the country—had no single connection with any individual local authority. That is my single biggest concern about the Government’s approach to this agenda.

One example, which was highlighted in the media last week, is the case of victims of domestic violence. A group of the women’s charities has written to the Minister for Women and Equalities, warning that some councils will not be financially able or willing to help women escape violent partners on the grounds of the provisions in this part of the Bill. The belief is that there will be an increased postcode lottery of provision that does not reflect the Government’s previous claim that tackling domestic violence is a priority and the fear is that councils could impose a local connection test that could disadvantage women fleeing domestic violence who are often, almost by definition, forced to move into another local authority area. The charities say that many women fleeing the home have to leave everything behind, including household furnishings and essential items, such as cookers, that most families take for granted to rebuild their lives in a new home. They quoted a mother from Croydon, south London, who left her abusive partner in 2003 and said that she had only been able to escape a life of domestic violence thanks to a £700 grant that helped her to rebuild her life. The chief executive of Women’s Aid said:

“The social fund is a vital resource for victims attempting to rebuild their lives after domestic abuse and, if it is not available, victims may be forced to return to their abusers.”

The director of Refuge added that if the discretionary social fund is abolished, there is a risk that

“more women will be forced to delay their escape from their partner.”