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June 03, 2005

Citizen’s Basic Income.

Mr S&M takes on the arguments put forward by Jarndyce on the unfairness and inefficiencies of the labour market. I’d been pondering, in my rather slow manner, what would be the correct answer and I think that Chris has found it.

The set up is basically this, that while we might pay lip service to there being a free market in labour, in fact, there are a number of reasons why it is not so. Thus, there need to be corrections made to that "free market" in the form of minimum wages, rules about holidays, working hours, sick pay and so on.  Yet we also know that such rules in themselves have a deleterious effect on employment.

One of the major reasons for the unfreeness of the labour market is that on the one side, if they lose their job, people have no income. They therefore find it very difficult to tell a bad or abusive employer to take their job and shove it.

Solution? Instead of cloggingup the market with ever more prescriptive rules in ever more detail, scrap them all, but hand more power to labour by providing a Citizen’s Basic Income. Workers thus have a great deal more bargaining power for they can indeed, at less (but not no) risk, quit and go elsewhere. Elegant I call it.

Update. Several comments ask more about the CBI. Yes, everyone gets it whether they work or not. It replaces unemployment pay, tax credits, State pensions, child benefit, rent allowances, incapacity benefit, everything, the entire panoply  of the welfare state.  There is no means testing, no withdrawal of the income as you work. Anything you earn is over and above the benefit. A reasonable level in the UK at present would be around 100 a week....it’s about what we spend at present anyway. Much more at Mr. S&M’s place.

In effect we are re-routing the money we already pay, doing so in amanner that does not distort the economy and the incentives to work and in the process redressing some of the asymmetry of power between the worker and the employer.

June 3, 2005 in Economics | Permalink

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Comments

Citizen's Basic Income? You mean like a guaranteed wage, whether you work or not?

Posted by: Tim Newman | Jun 3, 2005 9:10:29 AM

Yeah, sounds a bit like unemployment benefits to me.

Posted by: Brian | Jun 3, 2005 9:23:36 AM

Would it replace pensions too? And what incentive would there be for people to work? Would they earn more than the basic income by working? If so, would their working income top up or replace their citizens income? If the former surely we would immediately alienate any incoming workers? Skilled or otherwise? Seriously, are there any reports and thoughts on this elsewhere that expand? Bueller?

Posted by: katie | Jun 3, 2005 9:24:33 AM

I think this sounds like a cracking good idea.

Posted by: lth | Jun 3, 2005 11:25:44 AM

Would foreigners living here be eligible for it? My understanding is that under EU rules, anyone from the EU-15 would be eligible; if so, how to stop benefit tourism?

Tim adds: Correct, and we already have benefit tourism. Just another reason to leave, eh?

Posted by: Phil Hunt | Jun 3, 2005 11:45:44 AM

t also has the advantage of everyone getting the same thing - now we can stop farm subsidies.

Posted by: mark | Jun 3, 2005 12:55:29 PM

I have to say, Tim, you're bang on with the CBI. I would just tweak yours a little: keep a set, flat payment (non-means tested like Child Benefit) per child born to a family/mother. Something to provide the right economic incentives for couples to have children.

Oh, and you forgot one other thing: as well as scrapping all those benefits above, you'd be able to fire all the thousands of bureaucrats who spend their lives administering them, policing the minimum wage, chasing benefit fraudsters, and so on. Double whammy.

Posted by: Jarndyce | Jun 3, 2005 1:08:22 PM

Time Newman is incorrect. It's not like unemployment benefit as I presume it would be paid whether you work or not.

In any case, we have no unemployment benefit in the UK. We have JSA and means-tested benefits (and, of course, incapacity benefit).

Many, if not most, of the unemployed get precisely nothing after the statutory 6 months of trivial JSA. This is because they either have savings or a working spouse which disqualifies them from all benefits (and handily artificially keeps them off the unemployment figures)

Posted by: HJHJ | Jun 3, 2005 2:29:50 PM

Jarndyce,

Rather than fund succesful-sex (reproduction) would it not be better to let couples pool their tax situations i.e. double tax free allowance, 40% tax over 72000GBP?

I see no need for more people in the UK. I think the population would naturally find a more wealthy level each if there were less people per acre.

Posted by: Rob Read | Jun 3, 2005 3:42:54 PM

The actual level of the CBI would obviously be important - the hypothetical £100/week level (from the earlier of Mr S&M's posts) would require the abolition of all VAT exemptions, income tax reliefs and inheritance tax relief, as well as scrapping the DTI, Department of Culture, Media and Sport and the CAP.

Without those measures, the fundable level of CBI drops to £136.6 bn/ 45.5 million adults, or £58 per week. Even if we add in the scrapping of the DTI and DCMS, we only nudge it up to £143.3 bn/45.5 million adults - a hair over £60 per week. As Housing Benefit wouldn't exist, I don't think that it is affordable. Even at £100 per week, housing costs would be prohibitive.

It's a nice idea, but I'm still not convinced of its affordability.

Posted by: Andy Cooke | Jun 3, 2005 9:09:31 PM

I like it. Milton Friedman proposed something very similar some years ago, if I recall correctly.

Posted by: Mary in LA | Jun 3, 2005 11:20:49 PM

Andy Cooke, those things are definitely doable. I would say £75/wk /adult; £25/wk/child would be a nice starting point.
It may even encourage families with a stay-at-home parent again, reducing the labour pool, reducing unemployment and improving wages. Yet the stay at home parent with an average of 2.2 children would now have economic value.

Posted by: Monjo | Jun 4, 2005 2:01:30 PM

It's a nice idea, but as someone said in one of the other threads, if it isn't so low its unlivable on (if that is indeed a word) then some people will just live off it and do nothing. Means tested benifits don't hit the rich, they hit the people trying to work themselves out of poverty, so I like that aspect of the CBI. However, I think a better idea would be to have zero or possibly negative tax on say the first £10,000 you earn. That way, moving from benifits to work is economically worthwhile. At the moment, if you take into account the loss of various benifits and tax costs, the minimum wage can seem something like £2-3 per hour to a single parent. Would any of us really work for that much?

Posted by: Gazaridis | Jun 4, 2005 11:21:51 PM

In high housing cost areas, a single person can receive in housing benefit, council tax benefit and job seekers allowance almost 200 pounds a week net! On top of this there are free dental care, eye care and other advantages. This amount is the equivalent of around 14,000 pounds a year gross pay or over 7 pounds an hour in a 40 hour job.

Losing all this benefit is a massive disincentive to find work. If you are unskilled it is almost certain that finding work will actually make a person worse off financially. This cannot be right.

The Citizen's Basic Income (CBI) is the solution! As well as removing this poverty trap, there are the savings in administration. The UK govt currently spends around 450 billion pounds a year, most of this is on social security.

With the removal of all means testing and most of the regulatory bodies for employment rules, the savings would be massive.

All that would be needed to pay for it would be the abolishing of tax allowances and maybe a small rise of 5 to 10% in the basic and top rates of income tax. These rises would be easily offset for most working people by the receipt of a CBI of 100 pounds a week on top of their earnings. 100 pounds a week each for the 60 million people in this country would cost 300 billion pounds a year, not much more than what we spend on social security anyway!

Posted by: Neil | Jun 8, 2005 4:32:22 AM