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Monday
Feb072011

Simplifying welfare provision: a universal minimum income

I am honoured to offer my blog on open civil society as a platform for this stunning article from Warwick Collins proposing a Universal minimum income which offers a radically simplified new model of welfare provision with revolutionary potential to stimulate the economy.

The article, below, clearly describes how a universal minimum income could liberate enterprise and voluntary social activity as a means to bring the Big Society to fruition.

It provides a means for testing the consequences of universal minimum income, setting up a Treasury model and shows how its might assist in de-stigmatising welfare provision and can be an alternative to quantitative easing.

Work in Progress?

About Warwick Collins

Warwick Collins is the author of a number of internationally acclaimed works such as Gents, The RationalistThe Marriage of Souls and, most recently, The Sonnets, a fictional account of Shakespeare’s writing of his famous sonnet sequence.

Warwick was understudy to the leading theoretical biologist Professor John Maynard Smith. Collins proposed the theory that evolution is driven by “silent genes” which are now better know as “Junk DNA”.

Collins’s political views are liberal and libertarian, but in 1979 he was asked by Keith Joseph to join a British Conservative party think tank chaired by John Hoskyns, who became Chief Political Adviser to Margaret Thatcher, to work on issues such as privatisation. Collins, though left of centre politically, has always espoused the free market is a superior means of distributing wealth than the state, in common with “classical liberals” such as Gladstone. Collins’s political views manifested themselves in his novel Gents (1996) which has recently been republished by The Friday Project, and was reviewed as an all-time classic in The Times (8 September 2007).

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UNIVERSAL MINIMUM INCOME

A radically simplified new model of welfare provision with a revolutionary potential to stimulate the economy.

1. A universal minimum income could liberate enterprise and voluntary social activity, bringing the Big Society to fruition

Instead of pursuing the dubious goal of equality of outcome, which has generated — amongst other effects — the most extreme authoritarian states in human history, our precious social capital should be directed at a single great social objective: the absolute elimination of poverty. Unlike equality of outcome, which can never be fully achieved, this is a genuinely achievable aim. A universal minimum income would provide a finer mesh safety net than any existing welfare system, supersede most aspects of the welfare state, and be far less cumbersome to administrate. Such a reform would also give a major acceleration to the evolution of the Big Society, to a society rooted in community action and mutual help. More controversially, by reducing fear of penury, universal minimum income could also generate an extraordinary liberation of enterprise and creativity. This last hypothesis is in principle testable, at relatively low cost.

CPP_Conservative_party_344

Before outlining the following arguments, I should like to stress that I am a classical liberal with strong leftist social views who is also a fierce believer in the free market.

While I support equality of opportunity at every level, I disagree in principle with all policies aimed at equality of outcome. Equality of outcome is a form of uniformity. And it is far from being “progressive”. On the contrary, societies which pursue equality of outcome with sincere commitment, such as Stalin’s Soviet Union, against the natural variation and diversity within human societies, inevitably become deeply static and conservative (with a small “c”).

The path to this most extreme form of state authoritarianism is well understood. Absolute equality of outcome requires absolute government power to enforce it. The result has been a spate of the worst human tyrannies in history.

Heygate Estate

History also shows that societies progress far better towards happy, productive communities by encouraging maximum cultural diversity, including diversity of honestly acquired wealth. (Hong Kong, for example, a society based on maximum diversity, has developed far more rapidly — including its social provision and community services — than the earlier forms of Chinese communism. Fortunately, the Chinese communist party has recognised this and moved more recently towards the Hong Kong model of expanded diversity.)

Suppose that the socially liberal, small-state Coalition abandoned all the social capital invested in policies of equality of outcome, and instead concentrated on a single great radical objective — the absolute elimination of poverty. I believe this is possible, entirely practical, and consistent with a highly diverse, socially liberal, economically dynamic society.

It would be a society which is radically different from our own mixed economy. One of its features would be the greatest overhaul and simplification of the tax system in history.

I submit that there are already strong traces of this social direction in the developing policies of the Coalition. To give only two examples, the clarification of an over-complex set of welfare provisions to a single core benefit (with occasional extensions) is a powerful development along this path. Another is the promised simplification of the state old-age pension scheme, which aims to eliminate unnecessary bureaucratic complexity in favour of a single uniform state pension.

I believe the tax system should be similarly simplified, with profound and beneficial effects throughout society.

We currently have two very different tax systems, sales tax (such as VAT) and income tax, which produce approximately similar proportions of overall tax yield. In the 21st century, there is no outstanding reason for income tax.

Income tax was originally developed as a temporary means of raising finances for war, but subsequently politicians were loath to relinquish it as a source of state revenue. Great liberal politicians such as Gladstone were utterly opposed to it. In the course of Gladstone’s political career, he reduced income tax gradually in stages from 8p in the pound to 3p in the pound (increasing revenues at each reduction), though he never achieved his object of eliminating income tax altogether.

Gladstone’s objections to income tax were based on the level of interference of the state in people’s lives, the vast bureaucracy needed to implement taxation of individual income, and the impossibility of ever making income tax entirely fair (the better off would always have recourse to more sophisticated systems of tax avoidance). Simplifying the tax system to sales tax would eliminate, at a single stroke, the associated huge bureaucracy of intervention and imposition by the state on people’s lives caused by income tax.

Sales tax, based on consumption, is much easier to collect, is arguably fairer, and is much less intrusive. The more you consume, the more you pay. It can be further refined so that crucial items such as staple forms of food are not taxed and, at the other end of the scale, luxury items such as expensive fuel-guzzling cars are highly taxed. In these and other ways it is especially well suited to become the chief tax-raising instrument of an emerging green economy.

Phasing out income tax would eliminate a vast network of state intrusion into individual lives. The entire section of the Inland Revenue which is dedicated to income tax would be disbanded in gradual phases (as various strands of income tax were phased out) and its well-educated personnel relocated to the productive sector.

Mirroring these major savings in the public sector, in the private sector the whole system of income tax assessment and tax avoidance would also become redundant. The tax avoidance sector’s ingenious and well-educated workers (accountants, lawyers, tax advisers etc.) would be gradually relocated to more productive forms of employment.

The individual’s work in self-assessment of tax would also be phased out, saving a significant number of hours in each person’s life for more productive work.

As income tax is phased out, sales taxes should be gradually increased to take up the shortfall.

I believe this reform of the tax system would place us within sight of the reform which is mentioned above, a universal minimum income for every adult above the age of 18. This minimum income should not be set out in equalitarian terms, as a fraction of the average income, but as the minimum required to relieve a person of basic material want. Let us say, for the sake of argument, it was set at £12,000 per person per year.

Paid automatically in weekly or monthly instalments, this would be a benefit which would be extremely easy to administer, and supersede many other complex welfare benefits. It would radically streamline the bureaucracy and relocate a further section of that bureaucracy to productive occupations.

Baseline and Meridian

What would be the consequences to its recipients? The first would be an absolute elimination of poverty. The only people who would live in poverty would be those who, for their own reasons, would prefer to do so.

The second would be an extraordinary and unprecedented liberation of individual creativity. Each of us with a secret dream of setting up his or her own business would not be put off by the threat of poverty if it failed. We could fall back on our universal minimum income.

The majority of us are not rhino-skinned entrepreneurs who are willing to look personal failure and bankruptcy in the eye and risk everything for an enterprising idea. Most of us are driven by fear — fear of risk, fear of failing our family and dependents, fear of falling into personal destitution. It is this large majority whose behaviour would be positively affected in powerful and subtle ways by being sure of a safety net against poverty. I believe one of the consequences of universal minimum income would be a revolutionary stimulation of entrepreneurial and business activity.

Perhaps equally significantly, there would be a huge increase in voluntary activity of all kinds. If people wished to dedicate their lives to helping others, for low wages or no pay at all, they could now do so.

This reform would give a major acceleration to the evolution of the Big Society, to a society rooted in community action and mutual help.

Another consequence of a universal minimum income would be the absolute elimination of unemployment. With a universal minimum income, you could construct your own ‘job’ entirely as you wished. If you wished to help the elderly you could do so. If you wished to volunteer to pick up litter in public places, you could do so. Anyone who was not employed, in a paid or unpaid capacity, would be unemployed for private or voluntary reasons.

In another area — artistic, cultural and intellectual creativity — it is likely that universal minimum income would have a far more profound effect than any bureaucratic top-down means of disbursing patronage such as the Arts Council. Anyone who was willing to bear the discipline of living on a low income could survive while writing that novel, play or screenplay, composing that pop song or musical or operetta, painting those paintings or researching that intellectual magnum opus. Universal minimum income, in other words, would provide the equivalent of any number of creative scholarships or grants for those sincerely motivated to make use of it.

Finally, a universal minimum income would be entirely consistent with a powerful, dynamic free market economy in which entrepreneurs would not have to pay a penny of income tax, or waste a moment of their lives in the attempt to reduce the burden of income tax. It would liberate commercial activity, attract entrepreneurs and commercial organisations from overseas, and generate a modern economy capable of competing on level terms with the emerging economies of Asia and South America.

2. Testing the consequences of universal minimum income

The assumptions behind a universal minimum income can be tested empirically with a large enough scientific sample. The following question could be settled unambiguously. Would the absence of poverty make people lazy and complacent, or liberate them to pursue their own personal dreams and ambitions?

The principle of universal minimum income is based upon a particular view of human beings, one which assumes that they are striving, energetic, socially responsible, and happiest in helping themselves and helping others.

An alternative view is that humans are weak, lazy, selfish, and incapable of organising their own lives. This, it seems to me, is a view which is shared by certain traditionalist conservatives who believe in patronage and also by traditional state leftists (who believe that human beings can only function by being constantly directed, or patronised, by the state).

There are empirical means of testing these two opposing views of humanity. One of the most interesting is the set of experiments which removes traffic signs and other official directives from our streets. The more optimistic view is that human beings will tend to take advantage of the freedoms of reduced traffic directions and behave actively, intelligently and responsibly in exploiting their new freedoms. The pessimistic view assumes that unless human beings are directed by signs, traffic lights and other official commands their behaviour will deteriorate into a destructive chaos of selfish behaviour, increased rates of accidents and interrupted traffic flow.

Welcome to Nebraska

 

Whenever the experiment in reducing traffic signs has been carried out, in whatever nation or culture, the results indicate unambiguously a major reduction in accidents and smoother, more efficient traffic flows. In other words, wherever the optimistic view of human beings as active, rational and socially responsible is tested empirically on a repeatable, scientific basis against the pessimistic view, the optimistic view wins out.

I believe the assumption that a universal minimum income will liberate human energies and energise social responsibilities can be similarly tested. How then can we examine closely whether people are liberated, or become slobs, when given the equivalent of a universal minimum income?

The experiment should be a large enough random sample of, say, 1000 people, who would be given the equivalent of a universal minimum income for three full years. There would be clear evidence at the end of this period as to whether the effect of universal minimum income is constructive or destructive.

I predict that even if 1000 people are chosen randomly, the results will be unambiguously in favour of the view that the granting of universal minimum income liberated the recipients, expanded their opportunities and horizons, increased their earning power, made them more active and enthusiastic citizens, and that there will be relatively few destructive effects.

I also predict that the annual yearly increase in tax return from those who receive universal minimum income will, in the third year, exceed the annual universal minimum income. The Treasury, in other words, would make a tax profit from universal minimum income after a certain number of years. This is a clear empirical prediction and therefore a testable outcome.

Some of the proposed benefits of the universal minimum income are likely to develop through the interaction with others in the same community who are in a similar situation. Universal minimum income would be even more effective in a social environment in which receipt of such a fund was considered both a privilege and carried with it a responsibility to make the best of that privilege. In such a community, groups of people are likely to form to pursue common objectives, and to encourage one another. The experiment would have even greater validity therefore if an organic community were chosen to study — such as a university college, a small rural village, an appropriately sized business or simply a community based on a given postcode. A radical way of identifying such a community would be to subject postal districts to a lottery.

I predict the beneficial effects — through mutual help and cooperation — will be even greater than in the case of 1000 entirely separate individuals.

Saving is for wimps!  I have a plan for affordable housing.

The central core of the experiment (How do people behave when the threat of material poverty is abolished? Are they liberated or do they become slobs?) would be highly stimulating and entertaining to the general public. Accordingly, the experiment might be combined with appropriate television coverage over the 3-year period, perhaps in a long-term commercial entertainment programme, which in turn could defray some of the costs of the experiment.

Such television coverage would also acquaint the public with the central principles of universal minimum income, and give them an interest in the outcome.

The cost of the experiment (granting £12,000 per year to 1000 individuals over 3 years) would be £36 million.

Some further £12 million should be spent on thorough scientific collation and evaluation of the data. The collection and collation of data should be given to a reputable scientific organisation, of which the most appropriate would be this country’s own Royal Society, whose founding principles are predicated on the objective analysis of empirical data.

This would raise the total cost of the experiment to £48 million. I submit this is a relatively small amount to pay (for example, less than the cost of one super-large lottery payout to a single individual) for potentially one of the most important and illuminating social experiments in human history.

3. Setting up a Treasury model

A further means of assessing the effects of universal minimum income would be a Treasury model.

It is proposed that the Treasury should set up a model which looked closely at the key elements of this proposed new economy. The chief constituents would be:

(a)  The major source of Treasury income would be graduated sales taxes.

(b)  Income tax would be phased out and the income tax collection element of the public sector would be completely redeployed to the more productive sector.

(c)  The wholesale streamlining of the state sector and major redeployment of current state employees to the productive sector.

The vector which the model should consider most closely is the amount of sales tax on different categories which would be necessary to balance the books regarding income and outgoings.

The percentage of sales tax on products and services should be highly variant, from relatively low levels on staple foods, for example, to levels exceeding say 100% on luxury items such as large, expensive cars.

I submit that almost any level of sales tax would not alter the inherent dynamism of an economy which would benefit from zero income tax. The incentives that would give to industry, and the extraordinary attraction of such an economy to international entrepreneurs, commerce and foreign capital investment, would add further dynamism to the economy.

British House of Commons across the Thames

The Treasury model should also build in some further subtleties of the proposed system. For example, suppose that the better-off elements of the population merely used their universal minimum income to purchase luxury items, such as a new car. That might be considered to be one of the disadvantages of the system. On the other hand, if the car (or other luxury item) had a sales tax of 100%, the Treasury would immediately receive back some 50% of the outlay on universal minimum income to that person. Furthermore, purchase of that extra car or other luxury item would generate employment, and therefore income, much of which would be spent on taxable items, so that the majority of outlay would be received back in sales taxes.

The Treasury model should also attempt a realistic assessment of the proportion of universal minimum income outlay which it is likely to receive back through sales taxes.

For what it is worth, I also believe property should be considered an appropriate subject for sales tax. It seems to me it is widely agreed that in Britain property speculation soaks up too large a proportion of the energies of the populus compared with other forms of commercial behaviour. A 5-10% sales tax on property sales might reduce the process of speculation for speculation’s sake, generate major income for the Treasury, and reflect social energies back towards more productive work.

These are merely two examples of the potential effectiveness and scope of the proposed sales tax model.

4. De-stigmatising welfare provision

Attempting to assess the social consequences of a universal minimum income requires political imagination of a high order. One remarkable consequence is likely to be the almost complete dissolution of cultural divisions between those who live on welfare and those who work.

Iain Duncan Smith’s groundbreaking work on rationalising and unifying welfare provision has had to take account of the fact that one of the great divisions in the community is between families who live on relatively small incomes, but are hardworking and self-disciplined, and other families who appear to have become acclimatised to living more or less permanently on welfare.

A number of studies have demonstrated that long-term welfare dependency is associated with a sense of hopelessness regarding future job prospects, and a variety of associated social consequences — a high rate of serious medical depression, drug dependence, moonlighting, and even various forms of extra-legal or criminal activity aimed at increasing income without jeopardising existing welfare benefits.

Through shifting economic incentives, Duncan Smith’s reforms are aimed at helping those caught in a self-perpetuating welfare trap into productive work.

A universal minimum income would further dissolve this social division and help to bring those previously habituated to living solely on welfare into the wider society.

One of the most welcome Duncan Smith advances is that individuals should not lose so much of their welfare benefits if they work. Until now this has acted as an important disincentive to actively seeking work, sealing individuals into welfare dependency. I submit that universal minimum income develops the breakdown of such barriers a great deal further. There would be no loss whatever of universal minimum income if individuals decided to actively seek work, and therefore an even greater incentive to add to their existing universal minimum income by legitimate means.

As a matter of principle, everyone would receive universal minimum income, from those currently out of work to the monarch. One of the greatest potential benefits of universal minimum income is that it would dissolve at many subtle levels the division between those who live on welfare from those in work. In addition, it would support the individual in any efforts to help himself or herself and create a culture in which that person is likely to encourage others in a similar position, not least by example. Every attempt, however small, on the part of a welfare dependent to add to his or her universal minimum income would bring that individual closer to the mainstream of hardworking individuals.

Finally, obtaining full welfare benefits from a currently complex system requires significant motivation, persistence and applied intelligence. Some people are much better at obtaining complex benefits than others. This in turn introduces large elements of unfairness into the conventional benefits system. Many people — the most vulnerable of all — are not capable of going through the often complex process of obtaining benefits, and slip through the existing welfare system. It is this class of people, the real social underclass, which a properly administered universal minimum income, payable on simple proof of identity, would catch and support.

5. Universal minimum income considered as an alternative to quantitative easing

As a means of economic regulation, and staving off future economic crises, universal minimum income cuts out the middle-man, the banks, and channels investment funds directly to the people. The economy would be stimulated from the base up, rather than the top down. Increasing the basic level of universal minimum income is potentially a far better, and vastly fairer, means of stimulating the economy than quantitative easing.

On a macro-economic level, as a means of preventing or reducing future economic crises, instead of vast top-down public “investment” of taxpayer’s money in failed banks, who often remain extremely unwilling to invest in individual people or small enterprises, direct investment in individual people through universal minimum income cuts out the middle-man — the banks — and channels investment funds directly to the citizens.

There is no need to establish universal minimum income in one move. It can be phased in gradually over time, according to the economic circumstances pertaining. The government could “set” the strategic direction of building up a universal minimum income system, and add to it piece by piece over a protracted period as economic opportunity allows.

Once universal minimum income is established, small incremental increases would stimulate the economy from the base up rather than from the top down. Quite apart from all the powerful and subtle social benefits and changes in behaviour that it is likely to generate in the wider population, it is a more effective, and vastly fairer, means of regulating the economy than current methods of quantitative easing.

6. Summary

Universal minimum income operates on a number of different levels. It radically simplifies welfare provision. At the same time it promises to significantly alter an individual’s attitude to calculated risk, and thus to energise both the economy and civil society. On a macro-economic level, it is a more effective and fairer means of stimulating the economy by investing in the individual citizen than top-down quantitative easing through banks.

In summarising these various benefits, I submit that universal minimum income would generate a radical simplification in the entire process of welfare provision. Further fine-tuning of welfare provision for special cases would be based on universal minimum income.

It would also provide a fine-meshed safety net to prevent every citizen from falling into poverty. This would free the populace from inhibitions regarding potential failure, and liberate significant numbers to pursue their ambitions and dreams. The stimulus this would give to the economy would not be temporary but permanent and continuing.

When this is combined with the proposed elimination of income tax in favour of sales tax, lifting the tax ceiling on achievement, the resulting society could rival the economic dynamism of major developing economies such as China or India.

The ultimate goal of such reform would be a society which combined the most effective, fine-mesh welfare system ever seen with one of the most dynamic and responsive modern economies in the modern world.

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References (3)

References allow you to track sources for this article, as well as articles that were written in response to this article.
  • Related
    Warwick Collins (born 14 December 1948) is a British novelist, screenwriter, yacht designer, and evolutionary theorist. Collins was born in Johannesburg to English-speaking parents. His father, Robin Collins, was a novelist who wrote under the nom-de-plume Robin Cranford. Robin Collins's novels were written from a liberal perspective and one of them, My City Fears Tomorrow, was banned by the South African apartheid regime.
  • Related
    In these remarkably fluid political times, when our major political parties are each in the process of redefining themselves, I should like to propose an alternative radical vision of a society other than the conventional one which is based on equality.
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Reader Comments (3)

Brilliant, so that puts a stick in the pudding for dear old Galley Knight (Not sure of the spelling), who pursued the view that income tax was the fairest way to collect revenue. So when do you get into a government think tank?

A logical and well laid out expose of the way forward...so where from this point do you travel, my wandering philosopher, you surely know that simplicity is going to be viewed as radical, and where do the people in our society who "lead", and who have been the portenders of all economical rationality find the correct piece of the dessert in which to bury their heads.
I know you do not have to follow the advice of "stand and be counted", your forthright views are there for the taking, and would it be so, for their inseption as well. Guy

February 7, 2011 | Unregistered CommenterGuy

Guy, many thanks for your kind comments. Most of us assume that effective welfare and economic dynamism are opposed principles. You can have a low tax "tiger" economy or a Scandinavian level of welfare provision, but not both. Perhaps that isn't the case.

The key question is

How do people behave when freed from fear of poverty -- do they become complacent or does it liberate them to pursue their ambitions?

If the proposed social experiment demonstrates that it liberates them, and enhances their enterprise and productivity, it could presage a new social era of highly effective welfare and economic dynamism.

I just wish the coalition government would do the experiment! Warwick

February 9, 2011 | Unregistered CommenterWarwick Collins

I just started a petition for the unconditional basic income on the White House
petitions site, We the People.
Will you sign it? http://wh.gov/4Jl

Tanja

October 2, 2011 | Unregistered CommenterTanja

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