AIDAN SKINNER on a truly radical policy initiative

The party of grafters, Ed Miliband described us. In government we brought in some measures to support people in work, such as the minimum wage. We didn’t do much to reverse the decline in union power, and we should have – the UK has some of the weakest employee protection in Europe and an unhelpful and unproductive long hours culture. But that’s for another piece. In this one, I want to focus on people who aren’t in work.

The group of people who can’t work is bigger  than you’d think: it’s not just those with long term illnesses or disabilities, the old and children. It’s also people who live in places where there just aren’t jobs. Owen Jones’ book Chavs highlights the way that council estates have a lack of jobs designed into them.  They are often poorly served by public transport and have only a few shops to offer local employment. There aren’t many council houses available, they only go to the most needy so only those with the highest needs live there. This compounds cultural issues with entrepreneurship, lack of available start up finance and the huge unemployment rates start to make more sense.

It’s not a moral failing on their part. They’re not lazy. They don’t need beaten with a stick. They can’t be encouraged to take jobs that don’t exist.

Instead of chasing the three per cent of people falsely claiming JSA by making life even more unpleasant for the other 97 per cent, we should be designing unemployment out of their lives. Building mixed developments with businesses premises and privately owned and rented housing alongside council and housing association stock so people live and work in mixed communities will have a lot of benefits beyond reducing the welfare bill.

But once those jobs are available people need to be able to take them.  That’s something that the welfare system as it’s currently structured actively prevents. If you’ve been claiming, say, job seekers allowance, housing and council tax benefit for a while, you probably don’t have much in the way of savings. If you take a temporary job, all your benefits stop immediately. If that job finishes, it takes a while for your claims to be processed again. A week with literally no money coming in is unbelievably dull. Two weeks is worse. By the third week things get interesting in very bad ways. And that’s if you’re on your own. It’s not surprising that many people don’t feel they can take that sort of risk if they’re supporting a family or partner.

If they decide to take the risk, then the effective tax rates they face as benefits are withdrawn can be punitive and oddly shaped with lots of cliffs, cut offs, dips and troughs. It’s confusing for people and it requires a lot of assessment – assessments which are often stressful, intrusive and, if you’re unlucky enough to be on ESA and have to deal with ATOS Origin, occasionally humiliating. The assessments themselves can worsen conditions and, particularly where mental health issues and other “invisible” problems are concerned,  woefully inaccurate.

The means testing also disconnects people from the welfare state, it perpetuates a “them” and “us” idea that undermines the very concept. Ed Miliband was right about that too.

So, what’s to be done? The universal credit that Iain Duncan-Smith is bringing in is a good idea in theory, but seems like it’s being mangled and bungled in the current legislation. So let’s go further.

The idea of a Basic Income, or Citizens Income, has been around since the first world war (Bertrand Russell was a fan) and has been claimed at various times by economists on the Right like Milton Friedman (who tend to call it a Negative Income Tax) as well as those on the Left like JK Galbraith (who call it a Minimum Income Guarantee).

The idea is to replace the current income tax allowances and benefits like job seekers allowance, income support, housing benefit, tax credits, pensions etc. with a single payment from the government that you get whether you’re in work or not. That would be added to for things like child or disability benefit and carers allowances, but paid consistently and without means testing.

For example – and these are just numbers picked from the air – everyone would get a basic payment of £6000 a year and an extra £3000 for each child. When they earned a wage, they’d pay tax on the whole amount earned, possibly at a higher basic rate than currently in recognition of the direct payment from government. People would be able to take jobs when they were available and not worry about the bureaucratic problems of reapplying for benefits when the job finishes – a particular issue with the “flexible” labour force that’s being created, dependent on agency and temporary workers.

Because it’s universal everyone would have a similar stake in the welfare state, strengthening the idea and supporting people without stigmatising them (far more benefits that people are entitled to are unclaimed than the amount that is lost to fraud under the current system). There might be a small additional cost to the state in terms of payments, but that would easily be offset by the reduced administration costs, let alone the additional tax revenue generated by people who currently want to work but find themselves trapped on benefits.

It’s also easier to adjust the balance between the tax take and payments, and the cost is easier to predict and control. Any change in payments affects everyone, reducing the likelihood that politicians will use the benefits system as a football as happens all too frequently.

At the macroeconomic level it offers government some interesting, and potentially highly effective, new fiscal levers. Consumer spending falling away? Increase the payment, everyone sees an increase in income but it goes disproportionately to the less well off who are the ones who are most likely to spend it. Want to reduce income inequality? Increase the tax rate and the allowance by the same amount.

It clearly needs worked out in somewhat more rigour than I’ve done so here, but it’s workable. It’s been trialled on a small scale in a few places, and has had hugely positive effects. But it addresses the structural problems with the benefits system, it empowers people and strengthens our ties to each other. It’s bold, it’s Labour, and that’s when we’re at our best, right?

UPDATE: Aidan would like to acknowledge that the Citizen’s Income was included in the Scottish Greens’ 2010 General Election manifesto.

Aidan Skinner is a member of the Labour Party trying to stay involved. He’s professionally involved in developing Open Source software and enjoys arguing on the internet. Complaints to @aidanskinner on Twitter.