Of course we need Services and Income

UBS + UMI is possible

Of course a minimum income is necessary, this is a universal understanding. Lop off the extreme ends of the spectrum and there is no one who is advocating for one or the other, certainly no one at the IGP’s Social Prosperity Network. What we have tried to do is to inject some evidence based rigour to the discussion, so that we can develop a clearer structure for policy evaluation and sequencing.

Our recent report has stimulated some interesting reactions from progressives, namely calls for services not to be promoted over cash distributions. “Let’s have both UBI and UBS” has been a common refrain. The idea is that we don’t need to choose one over the other and they are complementary bedfellows which should both be part of a single proposal for the future of social security and welfare. It is exactly that argument that we have been researching and unpacking at the IGP for three years, and it is really important that we develop a more detailed and practical understanding of how services and incomes interact and what the effects of changing each are likely to be.

The summary, which I expand below, is that a comprehensive and sufficient fabric of universal service provision must be in place before a universal cash distribution can be started otherwise various very negative consequences follow, as has been observed in the real world as well as modelled in theory. The sequencing, as ever with any policy, is vital to inducing the desired results and if done right could transform cash distribution from the distraction its detractors fear into the emancipatory success its adherents aspire to.

A universal income must be launched in a society where basic needs are already being met through public services. As Lena Lavinas has researched in Brazil, if a government guaranteed income is distributed to people whose basic needs are unmet the effect is to feed them into the global debt machine because it makes perfect sense for recipients to leverage their future incomes to meet basic needs in the present , and it makes perfect sense for finance operators to extend credit on the basis of a state-guaranteed future income stream. Others, including Louise Haag, have looked at the conditions necessary to yield the meaningful agency that a UBI could provide and concluded similarly that comprehensive state provision of basic necessities, as well as strong property rights, and collective ownership of development and finance, are preconditions to achieving the objectives. It is noteworthy that all UBI-like proposals developed for the UK have concluded that housing must be dealt with separately, precisely because it is a basic need that could absorb the entirety of any cash distribution. It is also uniformly true of UK UBI-like proposals that they assume the existence and maintenance of the existing public services, keep most or all of the targeted benefits system in place, and advocate for expansion of public services. These are the conclusions of UBI advocates.

The research and the evidence seems clear that a UBI launched into a society without a decent set of UBS already in place will feed the poorest into debt servitude, spur inflation of prices for basic services, and stimulate consumerist spending. The 2018 ILO report on UBI makes the point well: “A UBI by itself is insufficient to provide a stand-alone solution to redress an ever more unequal primary distribution of incomes; to the contrary, unless embedded into a coherent policy framework that takes these broader factors into account, a UBI may exacerbate inequality and damage inclusive growth and social justice.”

The ILO report also shows that a full UBI is unachievably expensive, so whatever cash distribution we add to the current system it will be something much more like the Weekly Allowance modelled by NEF. This kind of small income is not a UBI, and we should help unconfuse the policy discussion by refusing terms such as “partial” or “diet” UBI unless the proposal is something that intends to lead to a “full UBI”. I propose we use the term a Universal Minimum Income (UMI, aka “YouMe”), because that’s a more accurate description of what is being proposed by UK and socially orientated advocates. Whereas a “full UBI” is defined as providing enough to live on, and a “partial UBI” as the first step on a path to a full UBI, a UMI is defined as creating a minimum income floor below which no one can fall – which aligns with the objectives of recent schemes, such as the Compass proposal, published for the UK.

The freedom of choice and the enhanced agency that cash distribution provides to recipients is a strong thread, but it is important to unpack what kind of freedom and agency we expect a cash recipient to gain. Meaningful agency is determining what kind of work you do, how you spend your time, how much head space you have to devote to nurturing your relationships and figuring out the most rewarding contributions you can make. Contrast this with “consumer agency” in which the choice is between purchasing this brand or another, or the simple agency of being able to both heat and eat, and we can all acknowledge the huge distinctions. If the intention is to provide meaningful agency then the recipient must either have their basic needs satisfied before they get a cash distribution (which would otherwise be spent on simply satisfying essential needs without any real enhancement to their lives), or receive a basic income large enough to cover all basic needs plus a margin (a “full UBI”).

The more useful measure in calculating agency is “residual household income”: the amount of money you have left after your basic needs have been met. It is this income that creates meaningful agency and so evaluating the effective way to increase this is the key to realising the emancipation objective. In our reports we have revived the concept of a ‘social wage’ to describe the effect that the provision of services has on residual incomes because essentially there are two ways to increase residual income: to raise income or to lower basic costs. As a result of various efficiencies inherent in public service provision, especially via socially orientated non-profit providers, the real cost of policies that reduce basic costs are lower than policies that increase incomes, which means they require less taxes to achieve the same outcome.

If we accept these findings, then we also have to conclude that the development and implementation of a comprehensive infrastructure of basic services is a necessary pre-condition for the success of any additional cash distribution. This calls into question the usefulness of any “trials” of basic income before the services are in place.

Recognising that any increase in social provision will require higher taxes the IGP has sought to consider the fiscal situation alongside the social objectives and pay equal respect to both sides. When it comes to raising the funds to pay for our proposals we have included a variety of factors including the historic record of taxation levels, the distributional effects of certain tax changes and the practical possibilities that maintain the broad acceptance on which any tax regime relies. Our primary concern is to develop practical policy proposals that conform with widely accepted parameters, and accommodate the widely held perception that taxes are already at a fairly high level. At the very least we want to be cognisant of when we are making a proposal that extends beyond existing norms, and then be prepared to make arguments that support the feasibility of such extensions.

We have used the term “affordable” to reference a bundle of fiscal concerns, and I’ll take this opportunity to unpack that and explain what we are referring to. We consider a policy to be affordable if it can be funded from general taxation without exceeding total levels of taxation seen in similar countries around the world, and if it is a long-term sustainable source of tax revenues. We fully acknowledge that there is a broad range of total taxation across the developed world and that there is no magic number which represents a maximum limit. What we can observe across OECD countries using standardised accounting methodologies is that very few exceed 50% GDP in total government spending and across UK history that measure has never exceeded 46%. From this we conclude two parameters for affordability: that proposing policies that would require UK taxes to exceed 45% requires an attendant argument about why UK society would be prepared to enter new fiscal terrain, and exceeding 55% requires an argument about why democratic human societies would enter uncharted domains. From our perspective, policies which conform to, rather than exceed, these established norms means that they can be more easily argued for without having to propose that social attitudes will also change dramatically. Changing social attitudes is an entirely more speculative endeavour than rearrangement of priorities and allocations within existing parameters.

OBR databank

There are sources of funding that are situationally appropriate but which are not sustainable over the long-term which we have also excluded from our proposals partly because our objective is a sustainable rearrangement of social and fiscal parameters, and partly out of respect for other budgetary needs. Chief amongst these are environmental taxes, of which the most keenly needed is a global carbon tax. Environmental taxes are based on taxing “bads” to reduce their use and so explicitly aim to reduce the revenues produced over time. This is excellent policy, but the funds produced would be best matched to, and needed for, the corollary expenses of climate breakdown mitigation.

Similarly there are good proposals lying around for the reconfiguration of wealth and property taxes, and corporate and finance transaction taxes, as well as plenty of aspirations for capturing revenues lost to evasions and avoidances. But we look at current government revenues across countries in similar situations to the UK and see that two thirds of all revenues derive from taxes on incomes and sales and around a tenth from businesses, and conclude that the greatest share of the burden of any sustainable increase in taxation will also fall across the same sources and we cannot responsibly argue that new revenues will come only from other sources that will not directly affect a large portion of the population. The distributionally regressive effects of increasing sales taxes further shunts the burden towards income taxes and therefore to a minority of the population that are going to be net contributors to the fiscal balance. This means that political acceptance of the use of funds will be have to be broadly distributed.

The annual personal allowance (PA) has become a favourite target for increasing taxation because it has become regressive at its current level and because it avoids specifying increases in tax rates (which are the general public’s ready barometer for taxation levels) – we used half the PA to fund our UBS proposal in our 2017 report. However there are reasons to be sceptical of any proposal that suggests that the PA can be eliminated, for two reasons: it’s not practical, and cutting it turns regressive at the bottom. It is simply not reasonable that every pound or dollar earned by everyone will be declared for tax were the PA to be abolished, indeed there would serious concerns about the intrusion of the state into private lives were it not legal to earn at least some very minimal income without declaration. Tax schemes which assume revenues from every unit of income are not credible.

The final category of revenues that we specifically avoid at the IGP are those that depend in some way on the recent financialisation of our economy. These include: wealth funds (especially debt funded), quantitative easing, modern monetary theory, IPO garnishments and financial transaction taxes. It is our opinion that financialisation is the direct consequence of stepping away from our social responsibilities in the latter half of the last century and it is more generally observed that financialisation is causing distortions to the allocation of resources that are destructive and unsustainable. If we are to build a new social settlement in an era of climate balance it seems incongruous, to say the least, to rely on an engine of the current dysfunction which needs to be diminished in importance not made to central to our future prosperity.

So “affordability” to us has what we believe is a credible foundation in what we can reasonably expect to raise in additional taxes and sustain into the future as a permanent rearrangement.

No policy proposal that does not specifically and intentionally contribute to moving society and economy towards greater environmental sustainability should see the light of day from now on. UBS is a policy that stems from concerns about environmental sustainability and consideration of the changes that our whole society will have to make to shift to an environmentally sustainable posture. Mass transport, digital inclusion, efficient housing, communal food, shared resources and the promotion of a less material, decommodified lifestyle are intrinsic to the UBS proposal, and those are all necessities to enable the transition to environmental sustainability. There is broad agreement that we will not gain acceptance for the environmentally required changes to behaviours without protecting the least well off from deepened insecurity, and this will require shielding low-income households from the extra costs of transition to alternative energy sources for everything from direct costs of heating, food preparation and transport to the indirect increases in costs that will arise in less specifically individual services like health, care, and education. Mitigating these costs will never be efficiently or effectively met within the timescales required by increasing personal incomes.

Next we come to the social conditions that we seek to create, a matter I know my colleagues at the IGP would prefer I had come to earlier in this piece. Our belief is that greater wellbeing and a “larger life for the ordinary person” will result from increased capacity in our societies and communities, that the ability of communities to find and create their own solutions to the specific manifestations of the generic challenges of climate, aging and automation is the key to achieving our objectives. We believe that creating the conditions that support local agency is the strategy that will deliver the result we seek. Therefore we believe that policies that bring individuals together in social groups and that empower those groups with communal agency are the path to prosperity. This includes the empowerment of individuals to feel safe, to make the best of their opportunities for contribution, and to participate in the cultural and political life of their communities. However it is solidaristic rather than individualistic empowerment that we believe is the more effective and powerful ingredient to achieving personally satisfying lives because we are such deeply socially orientated creatures.

Personal incomes do play an important part in providing both agency, freedom and dignity for individuals. We have a strong sense of fairness that also dictates that in a society as rich as the UK no one should be bereft of a minimum income. So we agree that access to some level of personally disposable UMI must be part of any modern welfare system.

Now let’s examine the context within which all of the above will play out over the coming decades. Both public opinion and any UMI scheme require that services are upgraded first, so let’s have a look at what that’s going to mean for public finances.

First there are the existing public services, which already command huge public support, and in particular health and education. I am sure we can all agree that neither free Internet access nor cash distributions are going to win out in a political fight with the NHS. The OBR (July 2017 : 166) long term forecasts are that the NHS will need an additional 5.8% GDP and adult social care another 1% GDP to cover increased costs of aging by 2060s. They estimate these costs rising at a rate of around 2% GDP in the coming decade, and OECD estimates are broadly similar across all developed countries. Education public spending has fallen by about 1% GDP since 2010 and we can safely assume that there will be broad support for restoring it to its previous high water mark of 6% GDP as we re train and re skill in the face of digital automation. So looking out to just the next decade it looks reasonable to say that the two big public services we already have are going to need an additional 3% GDP.

Second, to expand the public services that need to be in place to give a UMI the meaningful agency desired we should consider the original package of services included in our 2017 report: housing, transport, information, food, and some legal services. The overall budget needed to fund the services described in that report was 2.3% GDP. There is scope for rearrangement of the service bundles used to cost that package, for instance by increasing transport access and using more efficient public information services like public WiFi, but the overall budget still looks like a strong and defensible estimate of what it would take to increase the level of basic service provision so that basic needs are satisfied and provided either free or at significantly reduced cost compared with today. To that we would now add childcare because it is essential to building and maintaining the society we want and also vital to constraining long term costs. Anna Coote and I have done some work, based on NEF’s and others’ research, on what’s needed for child care to deliver real opportunity for our youngest citizens and drafted a universal service that would need about 1.4% GDP.

Add these basic service expansions together and we get a need for an additional 6.7% GDP a decade from now, rising to 10%+ a few decades from now. That would have the public share of GDP at 47% in 2030 if we do what’s needed to create the platform on which a cash distribution could succeed. Assuming that gets fully funded out of tax rises (and not debt or magic money), then HMRC’s ready reckoner suggests it would require halving the PA (2% GDP), adding 10p to the higher rate and 5p to the additional rate to take both to 50% (0.6% GDP), adding 10p to the basic rate to take it to 30% (2.5% GDP), and increasing Class 1 employee and employer rates by 3% points (1.5% GDP). Of course you could juggle those around and use different taxes but that gives an idea of the scale of the tax rises needed just to do the service bit before we even get to the income bit.

Looking at various UMI schemes that have been advanced for the UK lately (including our own in 2017) shows that very roughly 1% GDP in net additional taxation is required to fund each £10/week of UMI. Once the above changes have been made to the tax system to cover the UBS costs it becomes much harder to find revenue sources that retain an overall progressive effect, but let’s say we reduced the PA by another 30% (to just £50/week of tax free income allowed) and increased corporation tax by 6% points, then we could fund a £20/week UMI.

However funding a £100/week UMI on top of everything above would push the public share of GDP to over 57% and requires arguing that democratic societies are prepared to devote a higher proportion of their total economy to social needs than has materialized to date. My own analysis is that democratic societies could reach up into the mid 50%s but only in the most perfect arrangement where the basic security, opportunity and participation of every individual was rock solid guaranteed. To quote a friend of mine: “I’d pay another 10% in taxes, but then I never want to hear about another hungry child for the rest of my life!”

So a UBS plus UMI system is possible, but it is going to require us to elevate the public share of the economy from 40% to 50%. That’s 5% higher than the UK has ever had, but 6% lower than France currently has. It’s an argument that you can make, but let’s not under estimate the scale of the challenge ahead of us. Keep in mind that we only have one decade to transform our societies and economies to prevent runaway climate change and that transformation is going to require a much higher degree of solidarity, huge governmental focus, and other increases in spending and taxation related solely to that effort.

What the evidence does tell us is that we need to scale up our UBS efforts first, because a UMI before UBS would have more negative effects than positive. And this sequencing changes the dynamics of the environment into which a UMI would be launched, with the low hanging tax opportunities already used up and a population already bearing a much higher tax burden. Hopefully the enhanced social safety and solidarity engendered by the more extensive support provided by the UBS would reduce resistance to increased taxation, providing a path to the UBS + UMI possibility.

So let’s create the space for a UMI by investing in the UBS that are needed to make it work. The sooner we get started on UBS the sooner we can have a UMI.

Andrew Percy, Director of the Social Prosperity Network of the IGP at UCL

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