11 November 2005

The Citizen's Income, the Flat Tax and ID Cards.

I am strongly in favour of having a Citizen's Income (CI) in this country. A basic universal living allowance paid to every citizen, regardless of employment status that replaces all other government payments - benefits, tax credits, pensions etc. This will free millions from the benefits trap - where people are not financially rewarded for work because of a drop in benefits.

Free from this dependency on benefit, employment would be likely to grow. A CI will allow huge efficiency savings, by allowing benefits administration to be almost totally scrapped. It would also free millions from poverty and allow them a much bigger choice in the type of career and training they undertook. But a CI needs strict controls on identity fraud and this is why ID Cards and an NIR would be needed.

In an economy worth annually £1.2 trillion, the government currently spends almost £520 billion. We would need around £350 billion of this for a decent CI to cover all basic housing, food and energy costs etc. with every adult receiving around £150 a week and a smaller payment to under 16s. The present cost of social protection and related administration is around £150-£200 billion.

To maintain spending in other areas this would mean a total government spending budget of £670-£720 billion. The extra £150-£200 billion needed could be raised by introducing a flat income tax of around 39%. All tax allowances would be abolished and so would the NI ceilings and allowance. Total revenue raised in this area would rise from £220 billion to £400 billion as a result of these changes.

Just as the introduction of a CI would lead to massive simplification of the benefits system and huge savings in administration, the flat tax would be a massive simplification of the tax system and lead to massive savings in administration here as well.

Remember that the receipt of a CI would more than compensate most people for the tax rise and loss of tax allowances, with the poorest benefiting the most. Anyone on lower than median average earnings will be better off. Remember the median average earner is the exact middle earner, where half the working population earn less and half earn more. If anyone is in any doubt of the need for some redistibution, here is a reminder of the present situation.

Because of the massive progressive impact of a CI on redistribution, this will allow in the long term, a move away from progressive taxation on income and savings and a move towards more regressive taxation on expenditure. The advantage of this would be the ability to move taxation away from things we want to encourage, like working and saving and concentrate on taxing things we want to discourage, like environmental degradation and pollution. This is currently difficult because of the regressive impact, but a CI could be used to easily and efficiently compensate for this regressive effect.

Now I'm not saying any of this will be politically easy, there are lots of self interested parties to overcome, particularly the massive redundancies needed in the civil service and such a massive change could not be done overnight, it would take political consensus over 2 or 3 parliaments as it is gradually introduced, but without ID cards making ID fraud much more difficult, it would be virtually impossible to properly introduce a CI. There's more information on a CI at the Citizen's Income Trust.

13 comments:

  1. That's an interesting idea, and I wish the experimenters well. I've heard about this sort of thing before, but I worry that it'll founder over definition of citizenship.

    If it becomes viable, then it might be reasonable to discuss possible means of preventing multiple claims.

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  2. Or if we had an ID scheme first that was working well, the fraud aspect would be one less worry about the scheme.

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  3. I prefer to put the horse before the cart, myself. Sure, suppose that you reduce multiple enrolment to zero. That doesn't answer the questions of "who should be entitled" and "how do we prove that this person who was not born into the identity scheme is entitled, based on their paper documentation".

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  4. These are things you have to make a judgement on. The main point is to prevent multiple receipt of the CI.

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  5. I was actually nodding along for the first few paragraphs of this post. A flat tax, and elimination of means testing on benefits, makes a lot of sense. I particularly like the suggestion that the flat tax should be at roughly the same rate as the current top rate; anything less than this is just a sop to high earners.

    Unfortunately, you spoil it by suggesting that state expenditure should actually go _up_. At roughly 40% of GDP, the government is already pretty chubby. What could we cut to pay for it?

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  6. eben, you misunderstand. I would invest the savings from cuts in bureacracy into the CI, this shows as extra govt revenue, but it would just be redistributed straight to the public.

    State expenditure on health, education etc, would remain the same under this proposal. It is effectively revenue neutral in terms of govt expenditure. I don't see a need for cuts in health or education, transport budgets. In fact I'd like to see them increased to the level in France or Germany or even better, Sweden. But the argument for a CI is independent of govt expenditure, the electorate can set that at what they wish.

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  7. Eben: "What could we cut to pay for it?"

    This got me thinking. And apart from health and maybe public transport, (which I think are generally more efficient and better quality when publically funded), we could cut pretty much everything and factor that expenditure into the CI.

    Virtually all services could be privately provided. The savings in efficiency could be massive. The transparency of the system would be good too. I'm sure there must be problems with this, anybody any suggestions?

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  8. Ah, good point, should have RTFA. Some of what we currently see as tax allowances shows up looking like government expenditure in this scheme. Mostly I was angling for the destruction of bits of pork (DTI, DEFRA/ODPM, CAP, various regional assemblies, anything to do with Welsh etc).

    Cutting everything bar education, health, defence, some transport and the justice (sic) system would have a nice libertarian feel to it. I don't think it's feasible to fold education into the CI; this can't be allowed to be a discretionary item.

    On a related note, it seems to me that if you're going to tear down our entire tax structure you might as well go for sales tax with low or zero rated essentials. Much easier to police than even a flat income tax.

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  9. Eben: "Cutting everything bar education, health, defence, some transport and the justice (sic) system would have a nice libertarian feel to it. I don't think it's feasible to fold education into the CI; this can't be allowed to be a discretionary item."

    You are quite right, but I think there is plenty of potential to cut the departments you suggest. Anything with lots of bureaucracy in it. The only problem would be finding work for all the overpaid civil service duffers who have been uselessly shuffling papers from one end of the office to the other for 30 years, all at taxpayers expense. I'd imagine they'd be pretty unemployable. Only joking (I think!)

    "On a related note, it seems to me that if you're going to tear down our entire tax structure you might as well go for sales tax with low or zero rated essentials."

    If you mean VAT, I think the EU harmonise these things. I'm not sure how much leeway there is here.

    "Would companies, as legal persons, be eligible for this subsidy? Children? Children in local authority care? EU citizens? Commonwealth citizens? OAPs? Citizens of the Republic of Ireland resident in the UK? Asylum applicants? Those granted asylum? Persons of dual nationality? Convicted prisoners? Prisoners on remand? Partners of UK citizens who are not themselves UK citizens?"

    I've already mentioned Children and OAPs in the article, as for the others, we would have to make judgements. Some sort of qualifying residence and such, I'm not sure.

    Basically I was thinking of resident British Citizens and anyone who is resident and wants to become a British Citizen but I suppose anyone who lives in the country would be entitled, as long as they enrol on the NIR. Anybody outside the country should lose their entitlement.

    I think convicted prisoners would have their CI suspended while at her majesty's pleasure. After all, they are having their basic costs looked after. For those on remand, it would depend on whether they were convicted or not.

    "Basically, Neil, if your tactics here are to bumble up and down looking for crrrazy ideas with which, you judge, every right-thinking leftist ought to agree, and then claim that their success is predicated on the existence of the NIR, then I don't think you're going to get very far."

    I'm still trying to find a way to link proportional representation and the NIR, lol!

    As for your scheme, its good to see you recognise that a largescale biometric ID card scheme is a good idea, just got to work on your opposition to the NIR and then we are there.

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  10. Chris: This blog critiques the artcle you link to from Blimpish. It points out a number of errors in his article; that the claim about marital break-up is wrong and also that a NIT with a 50% take back is not the same as a CI. This take back will obviously increase work disincentives (as it did by 10%).

    I would love there to be a test for a CI on some island somewhere. It would have to have a significantly large population of a few hundred thousand at least, and the results would need to be measured over about a 5 year period.

    Maybe the same could be done for the biometric NIR at the same time. Then perhaps we could get concrete evidence that both of these things work or not as the case may be. I'd be pretty confident on both counts.

    I think a scheme like this could be initially funded by the UN in some poor backwater country with extra grants paid to the country. Haiti would be a good candidate to test it out on. I'm sure they'd welcome the extra aid.

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  11. Neil, have you been cribbing off David Lepper's copy of the Green Party MFSS again?

    Citizens Income

    A move towards eco-taxes

    There's lots of other good stuff as well. I must get round to writing about the Greens as promised.

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  12. Paul, As you know, I like a lot of Green policies, look forward to your post.

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  13. Hi neil

    I've come to similar conclusions to you on this and published it here...

    http://radicalchange.blogdrive.com

    with a link back to your posts

    There's some minor differences but the basic idea is the same.

    Dave

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