There has been criticism of the Green proposals for a Citizen Income (CI). How will it be funded? Does it really help the poorest?
It's actually all very simple. What's complicated is the costly and inefficient welfare system it replaces.
The Green proposals are to implement a £72 a week payment to all adult citizens, and a lesser amount to children.
There have been claims (notably by Andrew Neil on the Daily Politics) that this will "cost" £280bn per year.
So first a quick sum. £72 x 52 weeks x 50m [adult population] equals £187bn
This is the approximate yearly amount of the adult part of the payment.
Then we have to deduct £72 x 11m (=£41bn). These are the pensioners already receiving more than the CI sum in state pension and pensioner credit. That leaves £146bn to find.
The children's part of a CI depends on the amount it is set at. But we already have a childrens Citizen's Income in Child Benefit (or we did before the coalition started to means test it). If we imagine the child rate is set at half the adult CI rate (£36 a week), that would cost approximately £12bn more than child benefit does currently. So that makes a total of £158bn for our CI.
A lot of money for sure, but well below Neil's inflated sum of £280bn.
So where is this £158bn coming from?
Actually Andrew Neil answered his own question.
The scrapping of the personal tax allowances alone raises around £100bn.
The Green plan is to merge the regressive National Insurance with Income tax to have more honest, progressive and transparent taxes on income. The richest do not pay the bulk of National Insurance, whose burden falls largely on low to middle income earners. The untaxed "rentier" income from capital and the scrapping of the NI ceiling for those earning over £42,000pa would raise many tens of billions more. Lets say £20bn for a conservative estimate. That leaves £38bn left to find for our CI.
To administrate our current £160bn welfare bill costs about £20bn a year. The current army of bureaucrats and means testers uses up over 10% of our welfare budget. To administrate the universal child benefit was 1%. 1% is the sort of figure needed to administrate a universal CI. So once again savings of tens of billions off the welfare it replaces.
A CI replaces completely jobseekers allowance (£3bn to 6bn) and Income Support (£4bn to £8bn) (depending on levels of unemployment).
So we are now down to between £4bn to £11bn left to find.
The Greens are proposing a 1% wealth tax on over £3m of assets. which they estimate will raise £40bn. Andrew Neil disputed this figure, citing the lower threshold (£800k) French wealth tax that only raises £4bn a year. I suppose it all depends on how forcefully such a tax is implemented and how much is allowed to be avoided through capital flight.
Finally, a Citizen's Income would replace the impossibly complex system of tax credits. Around 7 million households are entitled to Working Tax credits and Child Tax credits. Around 5 million claim them costing around £30bn-£35bn a year (Note: this brings the total raised to more than needed for the proposed CI).
Critics use tax credits to point out that a CI could actually penalise some lower earners currently claiming these credits. Though the higher than child benefit rate I propose for the children's CI would probably make sure families with children are always better off.
I think that the huge change in the personal allowance in the last few years from £6,500 to £10,500 has made calculating a more progressive level of CI more difficult. Coupled with the replacement of the tax credits system, it might mean that a more generous CI would need to be implemented than the one proposed by the Greens to ensure that absolutely every low earner is better off. This could be clawed back through higher rates of income taxes on higher earners.
But the impact of a CI remains sound.
A payment of £3,744pa is better than tax allowances that saves you less (approx. £3,000pa). Only the higher tax rate payers should lose out with higher rates when NI is merged with Income Tax.
And the real impact is on the financial incentive to work.
Tell the unemployed you can earn money AND keep your £72 a week payment and the financial incentive to work has been dramatically improved.
Green leader Natalie Bennett did the Citizen's Income a disservice with her poor level of detailed knowledge of this policy. She needs to do her homework and be much sharper in future interviews and debates.