Why a basic income for Scotland would be better than a MIG

Basic Income Network Scotland (BINS) is a charity (SC046356) affiliated to the global organisation Basic Income Earth Network, whose successful annual international congress has just taken place on 18-21 August 2021, hosted remotely from Glasgow. We aim to educate the public about the desirability and feasibility of a basic income (UBI): ‘a periodic, uniform (except by age), cash payment unconditionally granted to all on an individual basis, without means test or behavioural requirement’. We view the proposed introduction of a Minimum Income Guarantee (MIG) as a potentially positive step which may pave the way for a UBI system even though it differs in many ways from what we regard as ideal. While seeing the proposal as positive, we are also concerned that any missteps or downsides in the introduction of the MIG will be perceived, rightly or not, as evidence against the introduction of a UBI scheme and for this reason we particularly wish to comment on aspects of the IPPR proposals that seem sub-optimal or even undesirable. Concerns about the structure of the proposed MIG We are concerned about the structure of the MIG programme proposed for such time as Scotland has greater devolved powers with respect to social security and taxation. The assessment unit In the proposed structure for the MIG, the unit chosen as the basis for assessing the appropriate income level has the most serious consequences for the welfare of some of the poorest and most vulnerable members of society. While the aim of MIG is to provide each individual with an income guarantee for him/herself and allow life choices on an individual basis the assessment process using the “household” predetermines such choices by aggregating the incomes of household members for assessment, before setting different (lower) levels of income for individuals as long as they stay in a household. Not only do the IPPR proposals differ from BINS’s preferred choice of basing the system on the individual, but the proposed assessment unit of ‘the household’, would be a significant departure from the couple-basis (with extra payments for dependent children), which is the current unit for most means-tested benefits (MTBs) in the UK. A clear definition of the household is crucial, and the leading academic economist particularly concerned with issues of social justice and the design of public policy, A.B. Atkinson, has identified four different ways of defining ’household’. Presumably in everyday language the ‘household’ would include as its members all those habitually in the same house, including grandparents, parents and grown-up children – and even any lodgers. However, the household as the basis for social security benefits has been very unpopular when tried, and is likely to be unmanageable. Assessment using this unit leaves the individual household member’s entitlement arbitrarily exposed to change through decisions or altered circumstances of other household members – e.g. lodgers coming and going, couples separating, teenagers leaving home. The household as unit would be a major departure from current policy. Since 1990-91, the income tax unit in the UK has been the individual and this appears a more appropriate basis for assessment. Even the current couple-basis creates serious problems for the poorer partner in a relationship. More than seven million people of working age in the UK have been classed by the ONS as ‘economically inactive’, of whom many will be (mainly women) caring for children, elders, sick family members and people with disabilities. It will include wives of husbands who are wealthy enough not to have to claim benefits, but these wives have no income of their own, and are not entitled to any of their husbands’ incomes, except in the event of separation due to divorce or death. Family Law merely requires that couples aliment (maintain) each other, but that does not extend to their having to provide an income for the poorer partner. This leaves these women trapped as financial dependents, unable to act as economic agents in their own right and exercise choice. They have no financial autonomy, power or control – one of the declared objectives of the MIG. Not basing the benefit unit on the individual has major implications for many poorer partners in those marriages, civil partnerships or other cohabitations, which will be obliged to make joint applications for benefits. They too are trapped in the role of ‘financial dependent’ and may have no independent source of income with which to feed themselves and their children, apart from Child Benefit in most cases but even that is open to abuse. It shields economic abuse from scrutiny and is an obstacle preventing partners from leaving an abusive relationship. Targeted benefits, stigmatisation and reputation of the system The MIG is targeted at lower-income people which is intrinsically very divisive, dividing the nation into those who are eligible for MIGs and those who are not. It has been claimed that targeted MTBs protect poor people, but in fact they segregate them, making it easier to identify and stigmatise, humiliate and exclude them. Poverty is not just about material deprivation, but is about these other experiences too. Claimants have often reported that they find the humiliation and rejection even more painful than trying to survive on the below-subsistence benefit payments of the UK Social Security system. The MIG system should be administered in such a way as to minimise the likelihood that a person is known to be a recipient or that the system is seen as a crutch for long-term “poor families.” Differentiation and policy interactions The IPPR recommendations carry forward various facets which arise from the current benefits system and serve other policy objectives. This is evident from the proposals on how levels of MIG cash payments would be differentiated. Choice of family arrangements. By single/couple. A partner in a couple will receive a lower payment, compared with a singleton. How much lower will depend on the income of the other partner (on the IPPR proposed approach) and, as noted, this may even result in no entitlement despite the poorer partner having neither income not assets in his/her name. This means that a poorer partner is not only a financial dependent but s/he can be discriminated against also via the amount of payment. It denies a couple the advantages of potential household economies of scale that could be enjoyed by two singletons sharing accommodation. It can put pressure on couples experiencing financial problems to break up their marriages, or for poorer partners to establish a separate “household” and thus could increase demand for single-adult accommodation. Other factors suggested for differentiation between individuals, couples and households inevitably lead to intrusive monitoring of relationships of poor people. By with or without children By first or subsequent children By in-work or work-less households We realise that the purpose of this differentiation is an attempt to relate the amounts of the MIG to the levels of Minimum Income Standards (MIS) recommended by focus groups each year. This is however misguided in the case of providing each individual in society with an income which is reliable, stable and guaranteed. While the recommended MIG levels are set at about 80% of the MIS levels, the wide variations in MIS level arising in the different multi-person situations assessed for MIS calculation mean that for individuals with similar needs there can be wide variation and instability in the amount this formula produces. Introducing yet more “safeguards” and differentiation for such situations increases the complexity of the payments, unnecessarily adding to the administration costs. Means testing income from work. It is suggested that MIG payments should be less for those able to work but who are not in paid employment. However, income that is received is to be means-tested and MIG payments tapered. This appears to be in addition to the means testing and taper regime for current MTBs, the NIC liability and the tax liability. For childless singles and couples in work, this appears to be comparable to a MTB with a 62% taper. Working couples with children and lone parents will have ‘a work allowance’ (like a monthly personal allowance?), of £297 and £594 per month respectively. These variations in effective tax rates further complicate the situation. The extra means-testing retains the inherent disincentives for work-for-pay that already form part of the current UK system. Means-testing usually involves higher effective rates of tax on lower incomes than on higher ones, which leads to a very unfair, regressive system. Unconditional and sanctions-free benefits We welcome the fact that the MIGs will be unconditional with no work tests, sanctions, limits or caps. This will have a positive effect on the financial security of recipients. Four challenges The Scottish Citizen’s Basic Income Feasibility Study identified four challenges to the implementation of a UBI. How well would the MIG proposal meet these challenges? 1. Do we have the necessary powers over the Social Security or tax systems to implement? 2. Could the MIG programme integrate with the current UK Social Security system? 3. How would a MIG scheme be financed without greater devolved powers over taxation? 4. Would the MIG programme have a negative effect on the labour market? And, could MIG address the inconsistencies across the tax and benefit systems in treating members as equal partners? To test their respective effects would compare the finalised MIG scheme with a similar, fully-specified BI scheme, using a computer–based micro-simulation tax and benefit model (TBM, with a dynamic labour supply function), assessing outcomes with regard to the reduction in individual poverty, reduction in individual inequality and the gross and net costs of each scheme.

Why the contribution is important

While we commend the IPPR Scotland for the benefit and funding suggestions put forward for the fiscal year 2022-23, based on the existing powers devolved to the Scottish Government, we raise some important issues. The MIG differs from current Means tested benefits in two important ways which we welcome: they would not be conditional on work tests, sanctions, limits or caps, and the amounts would be far more generous than the well-below subsistence level of the current UK Social Assistance system. This should help it to avoid some of the pitfalls associated with the UK’s Universal Credit system. However, the proposed MIG would still have adverse effects, and struggle to meet the 4 challenges established in the Citizen’s Basic Income Feasibility Study Steering Group report: 1. Scotland does not have the necessary powers over the Social Security or tax systems to implement either a BI or a MIG programme, this needs recognised as it does not represent an advantage of MIG over BI. 2. The IPPR Scotland report indicates briefly on page 27 how the MIG programme could integrate with the current UK Social Security system. But it is likely to have similar or worse difficulties to those facing the integration of a BI programme, on account of the resultant two-layer means-testing system. 3. We identify that there is no proposal by ippr on how to finance a MIG scheme, beyond indicating a need for greater devolved powers over taxation than currently, again a criticism levelled at a UBI scheme applies equally to MIG. 4. Would the MIG programme have a negative effect on the labour market? Recipients will be affected both by the unearned income effects of a MIG programme, and by the price effects of the new effective tax rates, which will change the net wage rates facing them. The different MIGs for in-work and workless households will have a major divisive effect on the population. The effective tax rates according to different in-work household configurations will present a complex set of incentives. The 62% taper of the proposed MIG scheme could have a larger negative effect on the labour supply decisions of low-income people than the potential income tax rates used to finance a BI scheme. Also, Scotland should be taking this opportunity to discard the social security model based on the household, and adopt one based on equal partners as already applies in the tax system. While cooperation and agreement would be required from the UK Government - particularly the Department of Works and Pensions and HMRC, with support from the Treasury - to implement a MIG programme as proposed, several of these limitations of the proposed scheme could be minimised. BINS could welcome an unconditional, individual-based, targeted and means-tested, but otherwise uniform (except by age) MIG as a potential stepping stone towards an eventual comprehensive basic income system for Scotland. The submission from BINS is based on extensive research and reviews of literature and experiments elsewhere - see https://cbin.scot/ and https://basicincome.org/. Our evidence base includes Citizen’s Basic Income Feasibility Study Steering Group (2020) "Assessing the Feasibility of Citizen’s Basic Income Pilots in Scotland: Final Report", available via https://basicincome.scot/, and ‘Neither Universal nor Creditable: A report on Universal Credit by the Citizen’s Basic Income Trust’, (16 February 2020), available via www.citizensincome.org , see ‘Research and Analysis’.

by BasicIncomeNetworkScotland on September 16, 2021 at 02:41PM

Current Rating

Average rating: 0.0
Based on: 0 votes