The Rape Clause, Welfare, Needs and Resources..Some Thoughts

The Rape Clause, Welfare, Needs and Resources..Some Thoughts

I’ve been troubled by the recent political debate in Scotland over the rape clause. For those who may have missed it or are not in the UK, the ‘rape cause’ is a section of the UK welfare system bureaucracy which that requires women who were raped and subsequently conceived a child, to complete or have a form completed in order to access welfare payments in the form of child tax credits. Although some have take a different view, for many including women’s groups, NGOs, advisers, child campaigners and progressive politicians, it is self-evident that this policy is wrong. The debate has been particularly fierce in Scotland, and the Scottish Conservative Leader Ruth Davidson attacked for her support for the clause whilst all main political parties except the Tories in Scotland oppose it. 

The words I’ve seen used to describe the policy include: abhorrent, vile, inhumane, disgusting, ‘has no place in civilised society’. And I find myself in a place opposite to where I would normally be, disagreeing with people I normally agree with. Because, it is not self-evident to me that the policy is wrong, (but I certainly admit I may be wrong on this). I suspect it is the certainty of others that is bothering me about the issue, and what I see as muddled thinking about fairness. So, in this blog I want to offer a few tentative thoughts.

 

By Way Of Background 

I am not comfortable writing about a issue so serious as rape and using the debate around it to illustrate broader ideas about fairness. So let me say from the start, that clearly rape is an appalling crime, as much about power and humiliation as it is about sex. And hopefully regular readers will agree that I am a supporter of fairness, justice and opportunity, with at least some radical ideas, such as my ideas on a fair society, support for the poorest or ideas on basic income.

I should also make it clear that I oppose the Tories cutting of welfare payments, I think the coalition government freezes to benefits were a mistake, and I think the entire UK welfare system is in need of urgent reform with a much greater focus on the needs of the least well off.

The clause itself arose from a UK government decision to limit child tax credits to the first two children (note this is from a certain date and applies to new children conceived not retrospectively). In doing so, the UK government then introduced a series of exemptions to make the policy (as they saw it) fairer and more just. Those exceptions include multiple births, adoption and non-consensual conception.

So why on earth would I even pause in my condemnation of the clause, let alone question others on it? After all Kezia Dugdale was widely praised across the political spectrum (a rare thing) for her speech to the Scottish Parliament on the issue. Campaigners say it shames and humiliates rape victims, may set back their mental health in having to relive the experience, stigmatises and picks on victims and lower income families and doesn’t even save much money. After all the number of women with more than two children who are raped and then conceived will be relatively small and the costs of paying them low  (estimates are £20-75m per annum in Scotland) so this is seen as a new low from a despicable and heartless UK/Tory government, one in a long line of despicable, heartless and even evil decisions.

 

So Why Not Oppose the Clause? 

I’m one of the few non-Tories who isn’t immediately convinced  by the Dugdale speech, or the ‘rape clause ‘ campaign, or why it’s self-evident a 2 child limit for child tax credits is an egregious wrong. If people could bear with me, I want to try and strip out the emotion, and the labelling, to allow me to understand what the arguments are. As far as I can see there are six possible arguments which I list below. I’d like to pick them up one by one and offer a view on each. The possible arguments I can think of are:

1. The requirement for proof is in principle reprehensible?
2. The current or likely plans to implement the testing will be intrusive, humiliating or in some other way unacceptable when delivered?
3. The cap on two-children non-retrospectively in one element of the welfare system is unacceptable either in principle or because of its impacts on family or child wellbeing ?
4. The two-cap limit is just too low?
5. The principle of benefit caps is just wrong and any and all welfare has to be based on need?
6. Some other reason…?

 

Argument 1- The requirement for proof is in principle reprehensible

This is what is apparently self-evident to most. The argument is that even considering asking women who have been raped to ‘prove it’ is just wrong and sickening. I can certainly see why intuitively people would think so. My problem with this is that if we don’t do so, we are possibly opening up the system to fake claims, which although it may seem callous and wrong to even suggest may happen, is a possibility. And I would point out that for other parts of the system as I understand it, such as criminal injuries compensation, a more intrusive process is required. Now of course two wrongs don’t make a right and those who make argument 1 may simply be unaware of how other parts of the system operate or may not care. I suspect for many people even discussing this is just wrong and nothing I can write will change that, so if this is the reason for objecting to the rape clause I can obviously respect that, whilst I just disagree. In my view, rightly or wrongly, whilst we can and should boost the resources available for welfare, and while we can and should consider alternatives such as basic income schemes, whilst we have the current system, it is legitimate to consider in principle asking  for some form of evidence in order to support claims, no matter how sensitive. However I am talking about that in principle, rather than in practice so perhaps argument 2 is more compelling?

 

2. The current or likely plans to implement the testing will be intrusive, humiliating or in some other way unacceptable when delivered?

Advocates for women, those who are victims, those who provide support services have all argued that the current proposals are intrusive, and will set back the victims by forcing them to relieve the trauma. I am certainly not qualified to judge this and obviously respect the views of those who advocate for rape victims. If the evidence was compelling that the process proposed had this effect, then I think argument 2 becomes compelling. To date, I’ve not seen evidence from doctors or social workers that suggest the evidence is that. If it did, then yes, I think the proposed system should be changed. But note that argument 2 isn’t saying that asking for evidence is wrong in principle, just that it is wrong in practice. That means, presumably, that if you only object to the clause on practical grounds, you will be willing to support it if the current process can be changed in a way you find acceptable. If it isn’t possible to agree on and find such a system, then I agree the clause should be scrapped.

 

3. The cap on two-children non-retrospectively in one element of the welfare system is unacceptable either in principle or  because of its impacts on family or child wellbeing ?

This argument would make the claim that limiting welfare payments for children is just wrong in principle. Or that whilst in principle it might be ok, the impacts on families or child wellbeing in practice is unacceptable. I suspect many who feel strongly about arguments 1 and 2 also support argument 3.

Remember that the changes being introduced are not retrospective, so that we are not talking about a situation where current families with more than two children lose these benefits. The situation applies from April 2017 and for new children after that date, and excludes families where, for example, twins were born unexpectedly where two kids already exist.

For information, ONS stats tells us that currently about 15% of families have three or more kids– I don’t have the stats to hand on that breakdown by income decile but am willing to bet that on average poorer families have more kids.

If the policy was being applied retrospectively, I would be opposed to it as it would jeopardise the welfare of kids whose parents had legitimately made plans based upon an expected income level. Now, many advocates will no doubt claim that the removal of the freedom to have more than two children and have the state support that, will jeopardise those future kids’ welfare as well. I want to come back to that below.

But it seems a difficult to me to sustain an argument that a change which applies only to future decisions, and which is argued is just wrong in principle, is clearly wrong and nothing more needs to be said. Why is it wrong in principle? Why is it wrong that the state draws a line beyond which it will not support family decisions made with the knowledge of the rules on support? (Remember we’re setting aside child welfare for now). I suspect people think so because of the impact on children’s welfare or because of their views on fairness, which I tackle below.

4. The two-cap limit is just too low?

I have sympathy with this argument. If many families are already 2-child families, then a 2-child limit does not account well for unplanned pregnancies or loss of income through illness or redundancy, and the evidence is that immigration for the moment is increasing family size. It is on that basis possible to make an argument that a 2-child limit is discriminatory towards immigrants, and as I noted above, it seems likely to me that poorer family are likely to have more children. Indeed this is one of the main arguments made by Alison Thewliss, a leading campaigner on the issue :

“As of midnight last night, a two child limit on child tax credits and universal credit – which is tantamount to social engineering – came into force. It largely penalises families who are already in work, so this has very little to do with reducing the welfare bill but is, instead, an ideological attack on the lowest earning families in our society.”

So it seems to me, a more costly, but also fairer change, would be to make the limit at 3 children- though this would affect a much smaller number families and presumably saves the treasury much less cash, which is why it wasn’t proposed.

But hold on! We’re now a long way from angry rhetoric about policies being vile and disgusting aren’t we? We are now debating changes not in principle but in practice, accepting that the state has the right to limit welfare payments according to public rules, and are merely debating the detail of those rules aren’t we?

Not so fast. I think whilst the debate might be less emotive when talking about the level of the cap compared to the overall rape clause debate, there is still real anger about the change, reflected in Alison Thewlis’s comment quoted above. I think many on reflection might say that the rape clause, shocking as it is for them, is a symbol of the problems with the direction of UK welfare policy, that can be so warped and morally bankrupt as to come up with such obvious outrages and unfairnesses in the first place.

So we now need to discuss the final element of the possible arguments against this, argument 5. Here I struggle but will try and set out what I think as clearly as I can.

 

5. The principle of benefit caps is just wrong and any and all welfare has to be based on need

If readers have made it this far, my comments may have invited a mix of scorn, hostility, disbelief that a so-called liberal could be even debating these issues, and perhaps a sense that it is wrong for a man to be pontificating on issues like this. To re-iterate, I intend no disrespect to victims, or to women, or those whose expertise lies in supporting them. What I am trying to do is understand why people may feel so strongly about this issue, debate the arguments and offer my views.

In discussing argument 3, I set aside concerns about child welfare arising from the 2-child policy. I now want to consider them directly as part of a discussion about what fairness actually means.

There will always be limits to resources in society, no matter how wealthy or successful. A fair and just society is ideally one where people feel we are genuinely all in this together, that they have the resources, the opportunities and the support from society and government to achieve their ambitions. This includes a proper ‘insurance scheme’ to manage a range of risks that otherwise may overwhelm the individual. I previously blogged on this at length here and here and here:

Equality matters because ultimately, people need dignity and respect, they need the ability to execute their life plan, they need a sense of fairness in all of the rules and institutions and processes of society. ‘

So, we expect and need government to help us deliver a fair society, and we expect and need government to help us manage risks that may otherwise ruin our plans and render our lives worthless.

But note that in any genuinely fair society, we are not promising unlimited resources for any citizen. On the surface, it might seem to be the job of government to make sure its citizens are happy, that they have the resources they need and that their ambitions are met. Many people think that we need to equalise ‘welfare’ or ‘wellbeing’ or ‘success’ or equalise opportunity. But a bit of reflection will show that this is too shallow and glib.

Briefly, if someone has extravagant desires and wishes in order to deliver what (they say) is a happy or successful life, or maximise their welfare, are we as a society through government duty bound to meet those needs in delivering our duty of fairness? If the person in question wants a lifetime of free champagne and cigars and a mansion whilst not working, because he or she says this is he choice of life that will make them as happy as everyone else (and lets assume objective evidence of some kind supports their claim that they are indeed that sort of person that enjoys luxury and hates working), are we required to deliver that in the interests of fairness and equal welfare? No, obviously not, that would be absurd.

Equally, if we start out in society giving people equal resources but some deploy them to increase their skills, success and wealth, whilst others spend them on drinking, surf-boarding and gambling, are we required at a later date to take resources from the successful person and give it to the idler? Again, and for rather more complex reasons that I will set out another time, but which surely many would accept are intuitively right, the answer is no. Or at the very least, our decisions on fairness and redistribution need to take account of personal responsibility, whilst compensating for disability, lack of opportunity or other factors holding people back.

So, a brief examination of fairness and equality in a just society tells us that whilst we need to design society for fairness and for supporting people in their life plans, we are not required in the interests of fairness to meet their every whim, and to compensate later those whose life choices did not enable them to deliver the same level of success as someone who chose to work harder, spend more of their time and effort on material success and so on. These are not criticisms of the less successful or those who chose to idle away their lives- that is their choice and a liberal approach respects it, as long as it does no harm to others. But a liberal society based on fairness recognises limits, and once a just and acceptable level of resources has been distributed, expects the person involved to take special responsibility for their own life and its outcomes.

 

Ok, so what? 

Before I go any further, it is worth saying that this is a very brief version of arguments that readers will find in John Rawls’ works, and especially Ronald Dworkin in his work on Sovereign Virtue. If what I have briefly written here is unconvincing that is my fault and not theirs. Secondly, it is worth saying that of course we make special provision for those who have disabilities, in order to provide them with the means needed to live a life of meaning and purpose.

So why the extended diversion into the theory of equality? Because it should be clear that essential to a discussion of fairness and welfare, is a clearer understanding of need, and whether that need is ‘genuine’ or trivial, excessive or in some other way not justified. If we expect humans to take responsibility for their own lives, and do not owe them an unlimited transfer of state resources under conditions of plausible freedom, then we can begin to see that argument 5 (that a welfare cap is wrong in principle and that all payments need to be based on need), does itself need some explanation and qualification.

If by need we meant the extravagant unnecessary claims of a person wedded to champagne and cigars, then clearly we do not need to pay them under a welfare system, and no one would suggest that we do. But buried in the assumptions of many that welfare caps are wrong in principle, is that the current welfare payments are indeed based on need, and that there is an objective ‘reasonable’ standard by which we can judge distribution.

That may be so, and some academics attempt to set such objective standards, based upon thinking such as minimum income needed for sizes of families to take a full part in society, or references to percentage income relative to a median income, or other bottom up calculations of consumption based on cost. I don’t mean to suggest that such calculations are wrong, or have no value.

But what I am trying to suggest that the concept of fairness in welfare is less simple than it seems,and that we need to think hard about what objective standard we are using in redistributing resources from one group to another. If we had no benefit cap, are we comfortable that it would be possible for a family on benefits to earn more than average wages, which in practice are more than most families earn because of the effect of high-earners? What about the infamous cases of families of 10 living at state largesse on incomes far in excess of ordinary people? Often progressives rightly hate the demonising of welfare scroungers, and in practice such cases are rare, but that’s beside the point- the average citizen is surely right to feel instinctively that something has gone wrong if such situations are allowed routinely.

Since we know from above that 85% of UK families have two children or less, and the current benefit cap is set to average earnings, there is prima facie a case to say that limiting transfers to other families so that their income does not rise above this, is fair.

Similarly, if we consider objective standards to be important in setting the level of welfare, and if the benefit cap allows families to earn the average wage of families across the UK, what is the problem with either a general or a two child cap? The argument runs that we do not have general responsibilities to fund unlimited desires of families or individuals, that capping transfers of income to limit those to that of the average is just the sort of objective standard we need, and that in that case the whole approach is fine.

Of course, things are not so straightforward. Let’s now reintroduce the needs of children. Children are just born into families and do not chose their life circumstances. It is not their fault, but they will surely suffer the consequences if they are born into a large family (say 5 children) whose income is capped at average family levels for those with 2 children. In this case our seemingly simple objective test of fairness- linking transfers to only allow for average earnings- appears wrong in the sense that children born to poorer families will potentially suffer. And alert readers will surely criticise me for suggest in one place that universal income including inalienable payments to children is a good idea, but that in another place arguing that a cap on welfare payments of 2 children is perfectly acceptable.

One further complication is that in one sense, it matters not a jot what the level of child tax credits are. After all, child benefit payment itself is not capped per child, and even if it was, it is the overall level of income that matters. None the less, the argument remains that larger poorer families may suffer under any plan to cap welfare. A simple way out is to promise higher wages via a higher national minimum wage, thus reducing the need for state support via income transfers. But of course, need is relative so its likely that any higher level of wages might also raise expectations of resources needed to take part in society, thus possibly eliminating some or all of the benefit of the higher national minimum wage. And anyway, whilst worthwhile in its own right, this route merely dodges the difficult question under discussion.

But yet again, do not parents owe some sort of debt to society, some sort of responsibility to the rest of us, to ensure that they limit the number of children to what they can afford? Isn’t that a basic responsibility we can all support? Well, on the surface yes, but what about unexpected changes to income or health that mean suddenly a large family can’t receive the income expected. What about all that talk about government owing a debt to its citizens to ensure that it insures for the risks that its citizens can’t manage on their own. And what about the dignity and life chances of children who did nothing to deserve the poorer life chances and circumstances they may be born into?

So, after an extended discussion, what to conclude?

 

Readers, I don’t know…

I confess these issues are beyond me at the moment. I started out with the contentious claim that maybe, maybe the rape clause might be justified or at least that it wasn’t as self-evident as people claimed, and that the issue was in at least some aspects an empirical not an ‘in principle’ matter. I moved on to discuss the theory behind fairness, and gave a brief (an therefore probably garbled) view of the issues around fairness, and the limits of our responsibilities to each other through state and government, given the need for people to take responsibility for their own lives and the consequences of that.

But whilst I think that ‘personal responsibility for life’ argument holds for adults, it is much more difficult to sustain for families who have needs that depend on the number of children they have. And so I am stuck.

On the one hand I’m clear that society does not owe a duty to meet the life plans of all of its citizens no matter how costly or thoughtless- instead it owes a duty to ensure that by some reasonable benchmark, people are provided with the support and resources and social resources to achieve their life plans. It seems plausible to me to argue that for people with no children, a benefit cap that ensures that they have no higher incomes when unemployed or unfit for work, than those working full time, is prima facie fair. This would of course exclude those with disability or other special needs. It seems fair to me because if they claim to have higher needs to support their maximum happiness, or welfare, or ‘success as a life-plan’, then the state can reasonably respond by saying it has taken steps to ensure that up to the average levels of income are available, and that no more are justified,with the implication that in this case the individuals needs are not justified, or at least it is not justified that other citizens (via the state and government) should support them.

On the other hand, children bear no responsibility for the life circumstances into which they are born, and should not be unfairly punished simply because thoughtless, or unlucky or unhealthy parents are deprived of welfare payments needed to ensure their children have the life they deserve and the resources they need.

So, for the moment, I can only summarise by saying I just don’t know from a theoretical perspective how to reconcile a conclusion about personal responsibility with an argument about need where children are concerned. It seems to me these sorts of discussions point to a fundamental problem with at least three things:

  • the intrusive complexity of the existing UK welfare system
  • the lack of rationale behind why we make payments in the way we do, and the subsequent emotive arguments that draw more on populism, polling and focus groups than theory, and don’t seem to be able to say what fairness and equality of resources actually means in a coherent way
  • the particular problems of trying to resolve the responsibilities of parents to society with the needs of the children born to them, within the content of a capped, rules based welfare approach.

For the moment, it seems to me that if we’re unsure, we should err on the side of the child. So, until I can work out my thoughts more clearly, I would either scrap the 2-child limit, or raise it to 3. Not very convincing I admit. Thanks for reading.

Steering Us Towards More Inclusive Growth…

Steering Us Towards More Inclusive Growth…

This week I want to say something about the idea of inclusive growth. I want to particularly draw on the excellent work of the RSA’s Inclusive Growth Commission  in doing so, but then go further.

Like many , I’ve always found the idea of endless economic growth to be problematic. As we know, economic activity takes place within a broader social system, which also is nested within a still broader natural system. I’ll leave the problems created for the environment by economic growth for another day. But clearly, within the system we have, a lack of economic growth can be a source of human misery because of the resulting impacts on incomes, jobs and overall consumption, government revenue and so on. This video from the Bank of England explains this quite nicely.

The problem though is that there has been a tendency to assume that economic growth is all we need for delivery of broader human goods, such as job security, empowerment, human health and wellbeing, and equality and reduction in poverty.

However modern Britain (not just Britain of course) tells us that strong economic growth can exist alongside rising inequality, poor health, low job security, discrimination, rising income disparities, poor skills, and a host of other societal ills.

So, as I wrote in an earlier blog on pay ratios, we need a package of measures for fairer work and more inclusive growth and I’d like to explore some of those ideas here.

Why Have We Arrived Here? 

So why have we arrived at a situation where we can have a strongly growing economy  but without some or all of the anticipated benefits of economic growth? Firstly, it’s worth saying that this isn’t exactly new- Fred Hirsch was writing about some of the problems with economic growth in the 1970s and many more have since.

Very simply put, I believe that as the political consensus began to accept the market and liberal economics as the best means to secure the advancement of social aims, we have ended up taking too shallow a view. We haven’t discriminated as well as we should have. We have tended to accept growth as a good thing, and then sought to redistribute the fruits of growth afterwards without looking at the quality of that growth and the problems it creates in achieving the growth. Often, and in addition, we’ve not made a very good case as to why economic growth matters, and we’ve taken too glib a view of issues of empowerment and identity that are clearly important to people, often suggesting they are holding back liberal trade and are relics of a time gone by. Arguably, this leads us to conditions ripe to be exploited by populists and even potentially underpins things such as Brexit. If people read and hear about how well the economy is doing, but can’t relate that to their own lives, it surely breeds a toxic mixture of cynicism, despair, disillusionment and anger.

I tried to show in my post on societal risks however that it is incumbent on governments to actively think through and manage the risks that its citizens face. Or, going back to first principles, that we need to look at the basic structures of society to ensure they are set up in a way that supports empowerment, dignity, the individual life plans that people make, and that sense that we are truly ‘all in it together’. Again from an earlier post:

‘Equality matters because ultimately, people need dignity and respect, they need the ability to execute their life plan, they need a sense of fairness in all of the rules and institutions and processes of society.’

Before I get down to details, I want to make it clear that I’m not talking about a ‘bolt-on’ to normal patterns of growth. Whilst it is good, for example,  to see a commitment from the Scottish Government to inclusive growth, I think there is a tendency for that commitment to be a series of additional costs added onto normal business as usual, and I think we need to go deeper than that.

 

The RSA and Inclusive Growth

As I mentioned at the start, the RSA’s Inclusive Growth Commission, which reported recently, has been examining these issues. The Commission’s job was to examine how inclusive growth could be achieved.   It sets out the challenges for the UK (with an admittedly English focus for solutions) very well, including the wide range of disparities in life chances, incomes, economic activity and skills across the regions, the worsening problem of in-work poverty, and the low spend on work programmes and skills that the UK makes compared to its competitors.

This diagram from the report illustrates the problem of in-work poverty:

The report itself is short and punchy and well worth a read, but it’s this key diagram that both informed and summarises a great deal of my own thinking:

 

In particular, the right hand side of the diagram is worth showing more clearly:

This sort of thinking ties in very well with a raft of traditional liberal policies and I’d like to comment on the ideas the RSA has put forward, before adding a few of my own.

Social Infrastructure Not exactly new thinking in many parts of Europe, but relatively new in the UK. It should be obvious that ‘pure’ economic growth policies are unbalanced if they ignore the needs of citizens. Chadwick and many more in the 19th century knew that. It should be obvious we need to support the human resources that make up the economy, ensure that working people have proper access to childcare, to mental health services and to the right mix of education, training and skills. But often we have assumed the market will provide, without making sure that everyone is included and without recognising that the more we spend on these preventative and facilitating services, the more our economy is likely to flourish. We have rushed into expanding University provision without always thinking through whether University is always the best option. We have shamefully neglected mental health provision, and acted like we mostly think community groups, activism and local pride are irrelevant to local economic dynamism. We too often act as if the loss of community ‘anchors’ such as post offices, pubs, small businesses and community halls is a necessary price of market or public service efficiency when they are clearly the bedrock of ensuring a truly local economy can function.

Thinking About Places and Decentralising Power It should be obvious but a central plan from London or Edinburgh doesn’t cut it today, if it ever did. We are too monochromatic and too centralised, and we lack resilience in our economic systems, our banking, our food provision and our retail offerings. We need to unleash the power of local people, of regional strengths, of previously disempowered and disillusioned people- the RSA is surely right to call for a fundamental reset in central-regional relationships. As the RSA rightly says we need minimum national standards but we must have local flexibility to decide on the best way to deliver those standards- no more massive, complex central plans for local democracy, for local economic functions or for pubic services reform. or at the very least, only when absolutely needed and not just because a new government or a new minister is in charge.

Just Being Smarter Too often the economic and the social policy communities don’t talk to each other. Too often social policy is seen as a cost, and economic policy as a wealth creator, when the reality is they both can be both. Too often grandiose regeneration plans don’t really involve local people, or aren’t tailored to local and regional distinctiveness or need. Too often infrastructure spend is just about large pieces of ‘kit’ with not enough recognition of the possibilities of procuring differently, of kick-starting self-sustaining changes during construction, or of supporting particular disadvantage groups through cleverer use of public (and private) funds. Too often Universities and colleges are not asked to take a more active local role, as large employers, providers of knowledge and skills and as potential community anchors of innovation and solidity in a changing world.

Measuring the Right Set of Things The RSA rightly calls for a much fuller basket of measures to understand and assess economic growth. Again this is not exactly  new (does anyone remember the 1999 sustainable development indicators?? ) but it is great to see- and I’ve reproduced the RSA’s proposed indicators below.

 

I agree with the RSA that a properly balanced picture of inclusive growth needs to understand much more than just GVA– it needs to try and understand the quality of jobs being created, the skills and training being attained by citizens, the patterns of income and any worrying disparities being created, and measures such as the strength and resilience of local communities, civic groups and local activists.

Finally, its great to see the RSA calling for a much more diverse, local and distinctive approach to banking. The UK is hugely reliant on a small number of large banks- it shouldn’t be, doesn’t have to be, and wasn’t always. Many successful countries, including in Europe, and the US, have much more diversified and locally and regionally focussed financial institutions. I agree with the RSA that diversity and greater decentralisation of the banking system is a key component of a more inclusive agenda. And of course with Blockchain...

 

What Else Might We Need? 

I think the RSA Commission has done a great job of setting out a chunky set of recommendations for people to consider. It is a report full of ideas, and I’ve certainly not mentioned all of them (for example the report also calls for a move away from the push to get more and more people to University, to a more discriminating approach that gives equal value to vocational education).

But I still don’t think the RSA’s work is the final word. So well else would I argue for? As usual dear reader, my words outrun your patience so let me be mercifully brief.

Firstly, I think we need to continue the path we are now on to increase the living wage, to ensure that work really does pay. We’ve made a start but we need to do much more. And as I argued before, I think there is a good case to go further and examine a Basic Income.

Secondly, we need to take action to cap pay and to set up a body to monitor it and report

Thirdly, we need another look at the opportunities for greater fairness in the tax system, to make sure that the tax system is fair, and is transparently so. Here I’d mention the ideas of the late Tony Atkinson, and ideas floated  in 2013 by the IFS

Fourthly I’d mention the new structure for companies that many are exploring- from social finance and community development companies, through to interesting ideas on the very nature of companies themselves- see here and here and here for example.

Fifthly, I’d mention the worker and community empowerment agenda- from including workers on company boards, to establishing greater incentives for people to establish cooperatives or mutual structures. These are not new ideas- Lloyd George’s Liberals were calling for such solutions in the 1920s and many other reformers have led the way, going back a long way , though I’d argue if anything since the 1990s the UK has gone backwards here. Sadly, we’ve never seriously gotten to grips with the ideas of Jo Grimond writing in the 1950s and 1960s. 

 

So, there it is- we need a broader, deeper and more thoughtful approach to economic growth. We do need more spending on public services, but we also need a more discriminating approach. In my view, only then can our economic system deliver what it should- freedom and opportunity for everyone. Thanks for reading.

 

 

Modern Life is Rubbish- Ten Ways That Poorer People Are Treated Unfairly In the UK

Modern Life is Rubbish- Ten Ways That Poorer People Are Treated Unfairly In the UK 

‘Em… Hang on a minute.’

 

I am conscious that, to date, many of my posts have been rather long, and rather abstract. So this time I wanted to say something more tangible- about how it seems to me that modern life in the UK is tilted towards unfairness if you are poor. Let me list 10 obvious ways, and then draw some conclusions.

Unfairness Number One- Energy Costs and Energy Transition

If you are poorer, you are more likely to have to use a pre-payment meter, which costs you more. You are also much more likely to be fuel poor, unable to heat your home properly, possibly suffering bad insulation, bad heating and more expense. And to add insult to injury, any taxes you pay or any surcharge on your bills to allow the much needed transition away from fossil fuels to low carbon and renewables, is unlikely to benefit you as lower income families don’t have the resources to hand to take advantage of subsidies home renewables.

 

Unfairness Number Two- Banking,Savings and Money 

The tendency is that poorer people will pay more for credit and loans, sometimes a lot more, and even if it is for basic services. This report from Save the Children  and this report explain in more detail- this table is from the Save the Children report:

Either because you don’t have the internet and/or can’t pay by direct debit, or your credit history is affected by poverty, or because you can’t afford large one off-purchases, if you are poor the evidence suggests you pay a lot more for big-ticket items. Oh, and your pay-as-you-go mobile service will be more expensive too. You may live in a less desirable area so you risk you’ll pay a lot more for insurance and car insurance too. Though action has been taken to cap the worst excesses of pay day lending, you’ll still end up with a much more poorer deal on credit and loans.

 

Unfairness Number Three- Access to Wealth and Investments 

Because you are poor, chances are you will have no or little savings and no or little wealth. That means that any returns you do make will be modest, whether that is on your savings account, modest private pension or dividends. You’ll likely not have a house of your own so the natural growth in housing value won’t accrue to you. Unlike rich people, you can’t afford investment advice to take advantage of complex investment opportunities. Even if you could, your small pot means you can’t compete with the much higher returns that people with capital secure.

 

Unfairness Number Four -Wealth and Your Start (and end!) in Life 

The last Labour government in the UK introduced Child Trust Funds, a form of asset based policies. 

It seems to me this was a great idea- it recognised that one glaring unfairness in life is that richer people often have more choices and do better because they have independent wealth, and that perhaps the state could start to rectify this with a savings based approach. Sadly, the coalition government scrapped the policy in 2010.

So, no only do some people start out with far more advantages in life, they can use their wealth and capital to secure even more advantage. Often the tax system rewards them- from higher rate tax relief on private pensions, to capital gains tax treatment, to (now much more generous) inheritance tax treatment. So, just so readers understand- not only do poorer people have no savings or wealth, but the tax system and lack of asset based policies mean any tax they do pay partly goes to subsidise tax reliefs for people who have way more wealth and opportunity. And the chances of a poorer person ever ‘catching up’ are very modest indeed.

 

Unfairness Number Five- Food Availability, Cost and Quality

Apparently food poverty affects 4 million people in the UK.

‘Food poverty is worse diet, worse access, worse health, higher percentage of income on food and less choice from a restricted range of foods.  Above all food poverty is about less or almost no consumption of fruit & vegetables’
Tim Lang, Professor of Food Policy at City University.

In a nutshell, if you’re poor your food costs you proportionately more, you have less choice, lower quality and worse health outcomes as a result.

Speaking of health…

Unfairness Number Six- Health Inequality

If you are poorer, you are far far more likely to be less healthy over the course of your life, to suffer higher burdens of diseases and to die younger. The gap between poorer people and richer people on health is wide and widening. In the interests of brevity I won’t dwell on this, but the statistics are shocking and unacceptable. 

Pioneering work in Scotland also shows how poverty affects your psychological well-being, with increased anxiety and negative physiological reactions.

Which reminds me, it’s also worse for you environmentally…

Unfairness Number Seven- Poorer Environment 

Dear reader, I don’t have the time to assemble the evidence I should here- perhaps you will accept my special pleading that as an ex-senior manager for a national environment agency, I do have some understanding in this area. For now, I’ll rely on a wikipedia definition of environmental inequality 

It has almost always been the case that the richest lived in better environmental conditions than the poorest and things have not really changed. Think how, in the days of really bad environments full of fumes, and odours and fogs, richer people lived upwind of the prevailing wind, or on raised ground. Sadly things have not changed as much as we might have hoped. If you are poorer, you are more likely to live next to a factory, to a noisy environment like a road, to live with poorer air and water quality, you’re less likely to live next to green space (in urban environments), you’re more likely to live in areas that flood, more likely to live next to incinerators or landfills, and more likely to have ‘disamenities’ such as graffiti, dog fouling, litter, vandalism and derelict land in your local environment.

 

Unfairness Number Eight– Access to Education

This blog is already rather link heavy, so let me just state that the evidence is that you are more likely to go to a poorer performing school if you are poorer, less likely to see a societal valuing of and governmental focus on your technical and vocational skills if that is your path you want to chose, more likely to incur the highest debts if you are a poorer student in Scotland, and much less likely to go to University if you are a poorer student anywhere in the UK. In Scotland if you are a poorer, older learner, you’ve also seen severe cut backs in part-time places for life long learning. Overall, in a modern economy and life-style where education is the key to many things, if you are poorer you’re less likely to be able to access it and its quality may be poorer.

 

Unfairness Number 9- Access to Legal Services 

A key means to play a full part in society is the ability to defend your reputation, access courts for family disputes or government maladministration, have the ability to right wrongs done to you, and take action the things that matter to you and your community. One might call that access to justice. Sadly, if you are poor, your access to legal advice and the courts is likely to be much worse than a rich person’s. And sadly, that ability seems to be declining. 

 

Unfairness Number 10- Differences in How The World of Work and Business Treats You

For many well off people, it seems self-evident to them that they need a stable environment, the ability to have a stable legal and governmental system to plan their investments around, and proper incentives to work and to keep a fair share of their income. For some reason though, that position is reversed for how we manage to treat poorer people- from punitive and ineffective welfare sanctions, to lack of workplace rights and security to zero-hours contracts, poorer people tend to form the bulk of the precariat.

 

Conclusions

When I started to think about this, I must admit that initially I thought about just pre-payment meters. But as my list shows, everything from the cost of your energy, to the quality of your food, to your mental health and life expectancy, and onto your access to legal services, education and stable work, is most likely worse if you are poorer.

Now, some on the right of politics may response by saying ‘look, it’s to be expected, no one wants to see poorer people do less well, but its to be expected- resources in life are a function of ability and the just rewards of the market and we should accept that and mitigate where we can’

Sorry, I reject that view for two reasons. Firstly, as I set out in my blog on societal risks, I believe that some of these risks are entirely foreseeable, a result of systematic problems, poor policy and lack of planning. I believe government has a duty to do something about them. As I said in that blog:

We are searching for things that the state owes an obligation to its citizens to address, across the full range of socio-structural, socio-technological and socio-cultural risks discussed above.

We are searching for things where the state has made decisions between options, and those decisions have consequences for individuals. We are looking for decisions and risks that violate basic rights, and where something can be done about that. We are excluding on the whole individual decisions where a choice was made and it didn’t work out. We are particularly looking for those risks that, absent substantial wealth and resources, it is difficult for an individual to foresee, to manage via self-help alone, and where reasonable efforts are  or have been already made by the citizen to address the risk.’

I think every one of those ‘unfairnesses’ that I list above fall into the risk categories I mention.

More fundamentally, I’m back to the basic structure of society and the principles of a fair and just liberal society. In my blog on this I set out principles to judge such a society, the most challenging of which is the Rawlsian difference principle:

‘Principle 2- Social and economic inequalities are to be arranged so that they are both:

(a) to the greatest benefit of the least advantaged, consistent with the just savings principle, and

(b)attached to offices and positions open to all under conditions of fair equality of opportunity.’

I don’t think anyone could read through that list of unfairness towards the poorer members of society and pretend that we are meeting this test. So, we need to do better- it’s a fundamental test of our claim to be a decent society and we are currently failing it. As ever, thanks for reading

Basic Income Part 2- How Much Would It Cost?

Basic Income Part 2- How Much Would It Cost?

In the first part of this two part post, I discussed what basic income is, why it might be a good idea, and how some of the many objections to it can, I think, be overcome.

In this post, I want to say something on the costs, and what level of Basic Income (BI) might be possible, and some of the implications of that. I also want to pick up a few more points that I should have made first time around.

 

Firstly, A Confession

I probably should have realised earlier that my plan to comment on and model the costs of a BI in a simple way were not realistic. That’s because  to set realistic BI goals, not only do you need evidence of market and individual responses to the BI level but you need to:

– understand the current benefits and social protection system in some detail
– understand the current tax system in some detail
– understand household/ family patterns of income and expenditure in some detail
– understand work on living wage and minimum income standards
– understand the broader labour market

So in what follows, I have done my best but lack the information (and ability!) to do more than make some very basic points. My own pretty basic spreadsheet is here:

Basic Income Calculations Feb 2017

And that draws heavily from particularly a single report from the IFS that provides an overview of the benefits system. I also get my numbers on the tax side of the discussion from the RSA BI report that I quoted from last time (1).

So, feel free to challenge the numbers but I drew some comfort from arriving in my own simple way at roughly the same numbers as the RSA.

 

How Much Does the Benefits System Currently Cost and Which Parts Are Relevant to BI?

I draw my numbers for the benefits system costs from the afore mentioned IFS report (2, Table 3.1). It’s worth saying that these numbers are before the full introduction of Universal Credit. I think it makes sense to use these numbers for two reasons:

– the new UC system is still being implemented and numbers for it are hard to come by

– the older system is more familiar to most, and handily splits the types of support needed by type of recipient.

The IFSr report  (2) summarises the current system  here:

(for those whose eyes are struggling, its Table 3.1!)(note that this is far from being all types of social protection expenditure).

Very broadly, including all types of recognised social  tax and benefit spending (but excluding some forms of social protection such as social care), then the costs of the UK benefit system in 2015-16 were roughly £211 billion. With about 64m citizens in the UK, that gives a starting point on average of £3291 if we just divide one number by the other.We could call this a ‘smearing across all’ option.

But as in Part 1, I think it’s clear that we can’t just sweep away all benefits and provide a general sum- people who are sick, disabled and older, and who experience varying housing costs, need to be treated differently.

So, in my basic spreadsheet calcs, I considered two options. Option 1 excludes pensions and housing benefits, removing respectively £98bn and £24bn of spending from the £211 billion sum that could be used for a BI scheme, but also reducing the number of people receiving it from 64m to roughly 51.8m (i.e. excluding pensioners only). Option 2 does the same but also excludes special payments for maternity/paternity, disability, winter fuel payments and free TV licences. Most of those latter items are quite small but the exclusion for disability and sickness is large.

Under these two options, Option 1 allows about £92bn to be used to fund a BI, whereas Option 2 allows only £45bn. Not surprisingly, both options reduce the BI that could be provided from the ‘smear across all’ figure of £3291, to respectively £1772, and £875 per annum.

Keep reading because this is only half the calculation but I think it does highlight a few points:

-there is a big difference between just assuming the entire benefit system spend can go to a BI, and what happens if you then assume some people and recipients will have differentiated needs.

– if we exclude pensions, then a large spend is removed, with quite a large recipient base removed as well (but with spend removal proportionately larger than recipient removal)

– if we start to remove politically popular smaller benefits such as free TV licences, the effect is modest. However accepting that pregnant women and new fathers have different needs seems a no brainer and changes the picture very little, and is also a modest impact so seems to make sense

– However under Option 2 the exclusion of a further £41bn for sick and disabled people makes quite a difference, as I make the assumption that they receive both current payments and the BI. That seems a fair assumption to me, but I lack the data to confirm it.

Clearly, if we stopped here, the BI figure is low and the game ‘looks a bogey’ as they say.

 

We Need To Include Tax Changes as Well

I confess from here on, and with time constraints, I’ve had to fall back on the numbers quoted in the RSA report ((1), page 25 Table 3).

Table 3: Savings from benefits, tax reliefs and allowances34

Policy

Cost (£bn)

Child Benefit and Child Tax Credits

34

Working age benefits (Income Support, JSA, etc)

27

Working Tax Credits

7

Administrative savings and Tax Credits written off

10

Student grants and loans written off

3

Personal allowances (income tax)

68

Primary threshold and self-employed reliefs (NI)

23

State Retirement Pension, SERPS, S2P, Pension Credit, and MIG

90

Higher rate tax relief on pension contributions

10

Total

272

Note(s): Savings based on 2012-13 rates.

I have simply taken (some of) the tax changes proposed there and assumed they are correct and incorporated them into my ‘model’. These changes are to remove personal allowances entirely, to remove NI reliefs and thresholds, and to remove higher rate tax relief on pension contributions. These provide a handy £107 billion to go towards funding a BI. When that figure is added to my two options (i.e. £107+ either £92bn or £45bn), then the BI rate becomes £3836 under option 1 and £2940 under option 2. In passing I should say I assume a 75% administrative savings at DWP rather than the quite conservative 50% that the RSA use.

Again, there may well be basic errors and distorting assumptions in my simple arithmetic – do let me know if you spot them!

For what it’s worth, UK GDP is around £1900 billion, and current benefits and tax spend is around 11-12% of GDP, or around 30% of total government expenditure. Therefore each 1% of GDP diverted via tax to governance spending raises  around £19 billion.

Current UK expenditure by type is here: (taken from Budget 2016 report (3)

The point of showing this is that I couldn’t see an easy way to raise the BI level substantially- to have a BI of £7000 means there is a ‘gap’ to fill of c£210 billion or 11% of GDP compared to my two options. To create a BI of £12,000 appears to need a further £469 billion or 24% of GDP. I don’t see either of those propositions being realistic, ever. What I mean is that regardless of the need to phase in or generate citizen support, that those levels of GDP allocated to a BI are simply unrealistic, distorting and would surely distract from other needs.

But perhaps I am missing something?

I also lack the data to work out what further changes can be applied to the tax system to create scope for further increases to the BI. No doubt, some will argue that taxes need to go up further and that seems sensible. See for example this from Malcolm Torry on alternative means of creating a BI.

But each 1p income tax rise raises somewhere between £5-10 billion  p.a only, and even to raise the BI by a further £1000 a year would seem to require £50-65 billion-  a very large tax increase indeed. It seems to me, that if such a tax rise were feasible, I’d want to consider a much broader range of things as candidates for the extra cash- including new housing, new low carbon infrastructure, additional health and particularly mental health spending, and education including perhaps free tuition again.

So, I leave my basic calculations on Basic Income here!

 

The Link To A Decent Standard of Living? 

I realised in the course of these simple sums that I was approaching the problem by considering what could be funded, rather than what was needed. What I also needed to consider is the extent to which a BI at these levels made any difference to living standards or in providing a better safety net. After all, this is one of the claimed benefits for a BI.

In writing this, I drew upon a few reports on the Living Wage, the calculation of the Living Wage and its relationship to the Minimum Income Standard that underpins the Living Wage calculation.

The key table I draw on for reaching conclusions is this one:

 

In a nutshell, it seems to me that the BI levels I discussed above are very similar to current benefit rates (with the possible exception of sickness and disability benefits being paid on top). Because I exclude pensions, and because I lack the dynamic model to test things, it is hard to conclude other than that the BI at the level above does not significantly impact on a citizens contribution to having a decent standard of living. There are other benefits, but assuming that a  BI allows for a minimum income standard to be met, at a level of £2900-3800 a year, won’t match up with the MIS calculations.
I may be wrong on the contribution to living standards,and others may want to show me why. Nonetheless, it seems to me that a BI of c £3000 would be an excellent thing to have, for the reasons outlined in Part I, but that as I also said in Part I, we need to look to a much wider range of interventions to get us to the basic level of security and dignity that a society based on liberal principles should look for.
Briefly on why exclude pensions? Partly because older people are likely to have higher needs so it makes sense to separate that out. Partly because, intuitively, it makes sense to me to go more slowly, and consider folding in the pensions system in due course. I also think that this element of ‘pay as you go’ contribution works reasonably well, and is accepted, so why change it? With a fair wind, the new Single Tier pension should address a lot of previous pensions anomalies.

 

 

Other Issues

 

As ever, I’ve gone on too long and won’t win any prizes for brevity. But before I sum up, I did want to mention a few other points that perhaps I should have covered in Part I.

One the importance of the pilots, I want to re-emphaise that we really need to understand in some detail, and in a real world way, how people will react to the scheme. To take just one example, the Working Tax Credit (WTC) created a strange incentive whereby marginal benefit losses were much lower if you worked 16 hours rather than 15 hours. Result? Lots of people working 16 hours and not 14 hours a week, regardless of whether that suited them or was socially sensible.

Secondly, and perhaps controversially, is the issue of whether a BI should be limited in some way to only applying to a certain number of children? On the one hand, purists might say ‘absolutely not’ since the whole purpose of a BI is to be unconditional and non-withdrawable. Additionally, if we don’t provide a BI to families with large numbers of children, we risk the future of those children. On the other hand, it seems there would be nothing to stop, under a BI scheme, a family to have 8 children, with no thought to how to manage, and scoop up £25,000 from the state, with no requirement to work for doing so. This is a tricky one and I don’t have the answer. Perhaps, perhaps, the way forward is to limit payments of BI to no more than 3 children?

Thirdly, the BI allows the removal of the current absurd anomaly in the Child Benefit payment system, where a supposedly universal benefit is now means tested. But because of the daftness of our system, those who have a single higher earner in the family but a lower overall income, lose child benefit whereas those two earning split, do not. It is this sort of ridiculous unfairness that a BI can solve.

Fourthly, the more I dig into the UK benefits system, the more detail I find. Things such as passported benefits, Council Tax relief and so on, are also very important but I’ve not seen BI reports considering them, or how they should be treated. Any takers?

Finally, the current benefits system relies on a passporting system- that is, if you are eligible for certain benefits, you are automatically eligible for things such as free dental checks, free eye car, free school means, disabled parking schemes  and so on. More here. These are really important benefits and any BI would have to consider how to minimise administration if they were to be retained separately. Or perhaps they are folded into the BI scheme? I don’t have numbers to hand on the costs of such benefits.

 

Conclusions 

 

I’ve gone on far too long over two posts so time to summarise. To repeat from Part 1, I think there are clear benefits to a BI

– it gives greater choices and fosters human dignity, especially for those on lower incomes

– it is easier to administer

– there could be substantial admin savings from having a less complex welfare system

– it has potential to promote entrepreneurial citizens’ action

– it provides a much stronger safety net (depending on level of income set)
– it will greatly reduce waste and fraud as it’s very hard to claim fraudulently
– a BI scheme faces the future in terms of automation
– can be phased in

I stand by those claims-but with some caveats. Firstly, it seems to me that it is perfectly feasible to introduce a BI at around £2900-£3800 per annum. Secondly, it seems to me that further changes to the tax system might allow that to be raised a little further.

However, I can’t see a way to generate the very large BI payments that some call for, and I think at these levels it is clear that BI is only one component of an integrated approach to modern, fair work. As I said in Part I, it seems to me

‘… that BI needs to be part of a wider package of fair work which includes things like pay ratios, higher taxes, how we tax wealth and capital, and worker empowerment.’

My work in preparing Part 2 simply confirms that. We need to think more radically about wages, fairness, pay and empowerment in our system of work.

I also think we need to consider a wider range of UK benefits in future designs for a UK BI, such as the passported benefits or Council Tax reduction.

But, overall I am excited about BI schemes, and convinced, that done well, they really can make a difference. Thanks for reading.

 

Notes

 

(1)  The Royal Society of Arts Creative citizen, creative state: The principled and pragmatic case for a Universal Basic Income 2015

(2) Institute for Fiscal Studies A Survey of the UK Benefits System IFS Briefing Note BN13 2016 Accessed at https://www.ifs.org.uk/bns/bn13.pdf

(3) HM Treasury Budget 2016 report, accessed at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508193/HMT_Budget_2016_Web_Accessible.pdf

(4) Centre for Research in Social Policy Loughborough University accessed at http://www.lboro.ac.uk/research/crsp/mis/results/

 

Basic Income Part I- Why Consider It?

 

Basic Income Part I- Why Consider It? 

‘There shall be paid to every person, when arrived at the age of twenty-one years, the sum of fifteen pounds sterling, as a compensation in part, for the loss of his or her natural inheritance, by the introduction of the system of landed property. And also, the sum of ten pounds per annum, during life, to every person now living, of the age of fifty years, and to all others as they shall arrive at that age’– Thomas Paine 

What Is Basic Income? Is Basic Income a good idea? Is it feasibility? Is it affordable?

There is much talk of the possibilities of setting up a basic income for citizens and I wanted to take the chance to set out my own early thoughts. This is such a large topic that I can’t hope to cover all the bases but I do want to make a contribution. I’ll draw on the already vast literature on this and try and add my own contribution. In this blog, I’ll focus on the what and the why, returning in part two to look more closely at costs and the wider issues a basic income raises.

I am in-principle a supporter of Basic Income, but I recognise that there are practicalities and costs to consider, and that on its own, it is far from a ‘magic bullet’.

It’s worth saying that, although there is a lot of thinking and activity now happening on this, that the idea is not new with support going back in Europe to the civic republicans of Concorcet and Paine (quoted above) but taking a longer view, the first Caliph Abu Bakr (albeit for controlling his newly acquired lands!) introduced some form of basic income.

 

What Is A Basic Income?

Put simply, a Basic Income (BI) or Citizens Income or guaranteed basic income is a payment by the state to its citizens which is (largely) unconditional and is paid regardless of earnings. The key points are that normally the income is unconditional, with minimal conditions attached, and that it applies to all citizens (with minimal conditions on that too).

I’ll come back to proposals on the correct level in part 2, but a very good report from the RSA (1) proposes a level around £3600 per annum for the UK for example. A recent Swiss referendum, which included a lively campaign with gold coins dumped in  square as above(!), rejected a proposal to introduce a much higher income of around £2,000 per month.

A few seconds spent googling tells us more but I found this note from the RSA and this video to be a useful starting point. You can also find more here and here and here . And even more here .

More substantially I found Malcolm Torry’s ‘Money for Everyone’ book (2) to be very useful.

 

Why On Earth Would the State Give Free Money Away?

 

 

There is plenty of differing arguments about the reasons for a BI but they are generally of three types:

(1) Increasingly the nature of work is changing with evidence of greater anxiety and stress in the lower reaches of the workforce,rising inequality and some evidence of unfair or dehumanising practice. A BI set at a proper level would free up citizens to chose work that they really wanted, as opposed to work that they had to take, particularly for those with lower incomes and who currently have less choices.

Often a related argument is that in a world expected to see a rapid ‘Rise of the Robots’ over the next 30 years, we need to find ways to both protect vulnerable workers from automation, and to prevent a disastrous collapse in demand in the economy as jobs disappear. The argument runs like this: automation and robots are advancing rapidly- up to 50% of all jobs will be threatened; we need to find alternative ways to ensure people have jobs and income not just for their own dignity and self-worth, but because consumer spending is essential to keeping the economy moving so that no jobs= no incomes=no spending=no demand=no investment or production or services and so on.

A further related point is that BI advocates claim that as a society we simply don’t recognise, value or reward unpaid activity sufficiently well. Things such as volunteering, neighbourhood support, caring and a host of others could be freed up to focus on things that benefit society, with those doing such things free by their BI to do more.

Also included in this batch of arguments is that at a time of greater change, insecurity and anxiety, a BI generates a stronger safety net.

(2) Our (UK) welfare system is too complex, too arbitrary  and too harsh. There are ample horror stories about harshness, petty detail  and incompetence in the UK welfare system. Putting aside arguments over political motives and morality, one can argument that for three reasons the current ever increasing complexity of the welfare system is wrong and needs changed

– firstly, the system penalises low income people who face crazy marginal tax rates of 70% plus at certain largely arbitrary income thresholds and this acts as a harsh, unfair and punitive disincentive to take certain types of work

See for example this graph of marginal tax rates from the aforementioned RSA report:

 

– secondly, the cost of writing the complex rules, enforcing them, checking and waste and fraud is huge and both frustrating and largely without economic value. A BI scheme would be much simpler, more cheaper to administer and virtually eliminate fraud as its unconditionality means its extremely easy to check for compliance and extremely hard to defraud

– thirdly, a BI system would eliminate one type of state overreach- whereas at present bureaucrats are empowered to require very long forms to be filled out asking all kinds of detailed questions about a citizen’s business- their income, who they live with, where and how they work, if they have kids and so on, but a BI eliminates all that (up to a point anyway)

(3) A BI scheme would force companies paying lower wages for boring, repetitive and soulless jobs to compete for workers who would now have real choices if the work does not appeal. Companies may have to pay more, improve conditions or autonomy or simply be nicer to their workers. As a related bonus, it may be that BI encourages entrepreneurship across private, public, third sector and social enterprise as peoples’ creative energies are freed up when their basic needs are covered.

 

Proponents of BI also point out that a BI scheme could be phased in over time, over place and according to age or type of income scheme.

 

So, to summarise the stated or proposed benefits of BI:

– it gives greater choices and fosters human dignity, especially for those on lower incomes
– it is easier to administer

– there could be substantial admin savings from having a less complex welfare system

– it has potential to promote entrepreneurial citizens’ action

– it provides a much stronger safety net (depending on level of income set)
–  it will greatly reduce waste and fraud as it’s very hard to claim fraudulently
– a BI scheme faces the future in terms of automation
– can be phased in

Plenty of other people have listed their thoughts on the pros and cons, for example here and here. The Brookings Institute gives its 3 reasons here

 

Great! Free Cash! Let’s Do It Right? 

Not so fast- not surprisingly given the enormous change in theory and practice that such a policy would require, plenty of people have raised plenty of objections. I may have missed some, but let me list the main objections and then say why I think most are mistaken, some require more evidence, and some are simply turn on your view of humanity itself.

Three of the biggest ones can be summarised like this ‘A BI would be morally corrupting of the will to work, and ruinously expensive, and destroy the freedom and rights of the rich’. Dear reader, I’ll deal with two of those in a moment, and defer the costs issue to Part 2 of this blog.

 

The Common Objections

Objection 1- It Will Destroy the Impulse to Work

This is a common objection- that providing a BI at any sort of non-trivial level will destroy people’s incentive to work, rendering them work-shy fops lying around boozing and watching TV. Or more seriously, that the nature of humans, or at least poorer humans,  means that absent strong incentives or penalties, people will take the path of least resistance. Or put another way, a BI scheme is unfair as it rewards the workshy and penalises the worker. Or that people need the structure and ‘whip’ provided by a strong welfare state.

Whether you think this is true depends on why you think people work, what makes people tick, and ultimately on your view of humans and their motivation, ethics and psychology. I note in passing the odd thinking that suggests that poorer people need penalties to make them work, but that any penalty at all is considered a disincentive for the rich to work, and that apparently, rich people need incentives to work and poor people need penalties.

For me, I do not think for a moment that there won’t be some people who do indeed chose not to work and laze around. However I am of the view that the vast majority of people want to work and make a contribution, that the BI has the potential to increase work activity by removing penalties and disincentives like the high marginal rates we saw above. I think that a BI would be one of the clearest possible demonstrations that we are indeed, ‘all in this together’ and give people confidence and the ability to try new things, to experiment and to even do unpaid work for a while, confident that no one can take their BI away. I think that BI is an excellent example of the state recognising and valuing the need for people to follow their life plans, and maintain a sense of dignity and equality.

As for fairness, I’m sorry you’ll need to explain to me why providing a BI that allows for a basic level of dignity is unfair, when we currently have a societal system where those born rich live longer, are happier and have more opportunities simply because of their circumstances of birth. I honestly think a BI has the potential to strengthen societal bonds and by creating a more equal society, has the potential to strengthen democracy too.

 

Objection 2 This Is State Overreach on a Massive Scale, Penalising the Rich for Being Successful 

It’s pretty clear that a BI will cost money if it is to make a difference, and that the rich will have to pay for it. There, I said it.

But in a world where recently, pay for the highest earners and wealth is rocketing along with inequality, then I’m afraid that I think things like  BI are the price of a decent society (you can see my thinking on inequality and on the principles for a liberal society here and here ). So, for the reasons I advanced in my earlier blogs, a BI is a key means of fulfilling the fairness test in society, not a perversion of it.

 

Objection 3- A BI is An Egregious Example of Dead-Weight Costs- We Need to Target Limited Resources!

This objection is trying to say that normally, our state interventions want to avoid ‘dead-weight’ costs- that is costs and payments for things that would have happened anyway. In other words, why pay rich people a Basic Income when they don’t need it, which is what you have to if the system is to be unconditional?

Actually, this is easily answered- we tilt the tax and benefits system to ensure that richer people pay more tax, and make adjustments so that they don’t see an increase in income overall. Simples.

Objection 4- It’s Just Too Complex to Try 

Actually this objection has some merits- this is a huge change and we would need to proceed with caution. That is why in practice, so many proposals for BI schemes start at a local level and with pilots. We do want to have a rigorous before and after evaluation. We do want to understand what savings can be made administratively, or how local pay rates changed, the impact on business and employment, which differing rates of BI have what impacts, the interactions of BI with the remaining parts of the social protection system, how BI affects the housing market, and most importantly, how people in receipt of BI chose to behave and whether it actually makes a difference.

But these are just reasons to experiment and to pilot, at sufficient scale to draw lessons, not reasons not to do it. The most promising proposals look at a locality,a city or a rural environment, and evidence from all three would be important.

Objection 5- Companies Will Take Advantage and Lower Wages 

There is clearly some risk that left to their own devices, at least some companies who knew that citizens were about to receive a BI would act to (overtly or covertly) lower wages or other benefits as a chance to make a free buck. Now in locations with no minimum wage, that is a serious issue. However in the UK at least, we have a minimum wage, and we simply need to keep an eye on company behaviour and act accordingly. It is clear to me that BI would merely be one part of an overage package of ‘fair and empowering modern work’ – and this is another issue I’ll return to in due course. Meantime, we ask the Low Pay Commission to keep an eye on the issue.

 

Objection 6- Immigrants Will Take Advantage 

Given our current lively debate on immigration, some people would have a real fear that a generous UK BI, for example, would encourage even more immigration to the UK and that this would be an outrageous burden on good honest UK tax payers.

In reply, we can note that either outside the EU we will be free to control immigration as we see fit. Or, if my preference to remain in the EU ever comes to pass, we can look at ways to ensure that the definition of UK citizen is tight enough to ensure that abuse is minimised. I don’t know what the right level is, but we could for example  introduce a rule into our BI that only those citizens born in the UK or children of those born in the UK are automatically entitled, and that other people would either have to become UK citizens and live here, or have to be working for a defined period first (5 years? 10 years?) to qualify. We can also introduce a rule that ex-patriats are not entitled to the payment. I suspect this could raise some issues should we remain in the EU, but the basic point that this can be fairly easily addressed stands.

 

Objection 7- A BI Destroys the Link Between Benefits and What Has Been Paid Into the System

I think two replies are possible to this objection. The objection is based on a feeling that, actually, our social protection system should be based on payments that reflect how much people have paid into the system, and personal payments adjusted accordingly. And further, that it is unfair that someone who has not paid in much or anything, should receive the same rights as someone who has spent a lifetime working. And that with falling support for the welfare system, we need to go back to where we started in the 1940s, where welfare was a form of pooled collective insurance, not a means of redistribution.

Up to a point, I am sympathetic to these ideas when we are talking about the standard welfare approach- and the importance of the so-called contributory principle. Policy makers and people are looking for ways to make the system fairer and to reclaim that sense of ownership of welfare that originally made it so popular. But as this article discusses, actually we need to think more creatively about how to give people a stake in the system, and I think BI does that far better than trying to return to the original ideas of Beverage.

It’s also worth noting that a pretty small fraction (less than 15%) of the welfare system now relies on contributions to determine payments.

So, my response is that (a) we need a better means of securing support for the welfare/social protection system and that is exactly what BI gives us and that (b) look the link is already broken so let’s not pretend our current system links contributions and payments very closely anyway.

 

Objection 8 Some Low Income People Will Lose Out and/or Basic Income is Too Blunt a Tool

A final objection I want to consider is a very real one, which has two parts. Firstly, people worry that those currently in receipt of welfare or other social protection payments will lose out if the BI is set at too low a level.

The second objection is that people are very diverse- with a vast range of ages, needs, circumstances, geography and expectations. On that basis, a BI which starts out with the intent of empowering people and their choices simply ends up straightjacketing them. Or that in order to account for variances in need, the BI would need to be set so low as to make no difference, and with supplements needed, or at a level so high to cover all cases that the costs would be ruinous.

The sorts of things people have in mind are families with kids with some working and some not, or the vast variation in housing costs across the UK, or the varying needs of disabled or sick people, or the needs of carers etc.

This is a serious objection and the reply comes in two parts. Firstly, the transition to a new system from the old will indeed likely create winners and losers and hard cases, and that these will need careful management and transitional arrangements. At one level that is simply the stuff of policy design and government. So, one could say, noted, and move on.

That’s a bit glib though so a second response is to say yes, this is an issue but point to work from the BI network or the RSA looking at exactly those issues and findings ways to manage them. See this table for example:

 

The second objection is really important and one that shows that, whilst important, BI on its own is not a single answer. I think is is indeed the case that despite being able to remove large swathes of the current welfare system and its accompanying administration, that we would need at least 3 types of additional payments:-

– public pensions would need to remain (though depending on the level of BI even this might not be true over time)

– payments for disabilities or other physical or mental health or special circumstances which mean that life is more costly for some citizens, would need to be retained.

– Housing costs vary so substantially across the country that a standard element for housing built into the BI simply wouldn’t work, so we will continue to need a housing payment system

So, any BI in the short-term would likely need to be accompanied by pensions, special payments for circumstances outwith personal control, and housing. But over time, we may be able to merge BI with pensions. And we should note that special payments are a relatively small proportion of the total social protection system (c17%). And finally, our whole approach to housing needs to change, which may over time render direct housing payments a less important element of the system.

So, this is a good objection and we need to concede that any BI could not replace the entire social protection system, but I’d argue it could do a tremendous amount meantime.

 

A Word on Conditions 

The aim of BI is to keep conditions as simple as possible. As I mentioned above, we do need to write in some conditions on who qualifies as a citizen, to give us the best chance of securing public support.

I would argue that there is a further opportunity that could be built into BI however. I think there is a clear case to use citizens BI payments as of right, but to add in a responsibility as well. That responsibility would come in the form of a requirement to participate in democracy. In its simplest form, this could be just a requirement to ensure that if you want to receive a BI, you must be on the electoral register. Or slightly more ambitiously, if you want to receive BI you need to vote in at least 80% of all elections over a defined period. I think people would grumble but I think that most would choose to comply, if nothing else for the large incentive! If we did insist on voting as an actual requirement to receive BI, I’d suggest we’d need to add in a need for ‘none of the above’ style options.

 

To Conclude Part I

 

To summarise so far. I think BI is a potentially really strong idea with plenty of benefits. I think most of the objections I listed above can be overcome. I accept that we would need to start slowly and carefully with pilots, and move to a fuller system over time once we understand the issues better. I also agreed with those who say that, initially at least, things like pensions, housing and social payments for individual circumstances will need to be retained.

I argue that BI meets my tests for the principles of a liberal society, and that whilst it clearly is a means of distributing income and wealth, it is a necessary one. BI can’t replace all of the welfare system however.

I also feel that BI needs to be part of a wider package of fair work which includes things like pay ratios, higher taxes, how we tax wealth and capital, and worker empowerment. This is a wider debate about the future of work, and for another day.

However, if you have made it this far you’ll have noticed that costs and levels of payment have yet to be covered. I’ll return to that in Part II of this blog piece. Thanks for reading.

 

 

Notes

(1) The Royal Society of Arts Creative citizen, creative state: The principled and pragmatic case for a Universal Basic Income 2015

(2) Malcolm Torry  Money for Everyone Policy Press ISBN 878-1-44731-125-6

(3) The Royal Society of Arts accessed at https://www.thersa.org/discover/publications-and-articles/rsa-blogs/2015/12/in-support-of-a-universal-basic-income–introducing-the-rsa-basic-income-model#comments-section

 

 

 

Pay Ratios, Inequality and Fairness…

Pay Ratios, Inequality and Fairness…

‘For people to retain faith in capitalism and free markets, big business must earn and keep the trust and confidence of their customers, employees and the wider public. For many ordinary working people – who work hard and have paid into the system all their lives – it’s not always clear that business is playing by the same rules as they are..’

Even Mr Corbyn is Right Sometimes…

I’ve little time for Jeremy Corbyn but just occasionally his instincts are right- as when he recently raised the idea of pay controls for the highly paid.

Now of course the random way he presented it and the lack of nuance made it an easy target but I was surprised and disappointed how quickly people dismissed the idea. Either its apparently ‘just bonkers’, or won’t work, or is bad politics or all of the above.

But I don’t think it is. Yes, we need more than just a cap on pay ratios to address rising inequality and the rising inequality of power that comes with it. Yes, noted that rich people have other sources of income than salaries- including dividends, capital gains and rental income. Yes, the politics may be hard- but I suspect that’s more to do with how our perspective has narrowed after too much centralism over the last 30 years. We can be just too easily led by a consensus that slowly narrows our view.

A Little Background and Some Graphs…

In the 1960s the ratio of a CEO’s pay to that of the average worker was around 20:1, rising to around 40:1 in the 1970s. What is it now? Around 147:1 in the UK and still rising, much higher in the US. There is no convincing evidence that such massive increases of pay, so that a FTSE 100 boss earns £5.5m a year, is really linked to the brilliance or the insight or the output or the outcomes for the company. Instead we have reports like this.

 

 

For example, this diagram below shows executive pay plotted against Total Shareholder Returns (TSR). If pay drove performance then you’d expect to see a bunching around a line or curve- but looks pretty random relationship to me.

 

 

What Has The UK Done?

Now the UK to be fair has a decent set of corporate governance arrangements in place, as part of a well established rule of law, clear corporate governance codes and steadily increasing transparency.

The Liberal Democrat Business Secretary Vince Cable introduced reforms in 2013 that including a binding vote on the pay policies of listed companies, and an advisory non-binding vote on individual pay, as well as increasing transparency requirements e.g. here 

When becoming Prime Minister, Teresa May promised further reforms to consider how to give stakeholders more of a say on pay, consider measures to connect to employee, customer and supplier voice, and consider extending requirements from public to larger private companies.

This is all set out in a worthy but rather modest Green Paper.

After the usual rather nice civil service summary of the issues, including this understated point:

CEO pay increases have shown some signs of restraint in recent years. The median 2016 increase so far for FTSE100 CEOs is c.2% (the same as the median increase in 2015), and less than 1% for the top 3013. This comes after very big gains since 1998, however, with a median pay package for FTSE100 CEOs in 2016 of £4.3m. Such high levels of pay may feed a public perception that the top end of the corporate world has become disconnected from the experiences of ordinary working people.’

…the paper duly sets out a few incremental improvements to consider. But there are not enough- reading this from the High Pay Centre gives the statistics. Indeed the white paper quotes polling data suggesting how strongly the public supports action on high pay.

(For example, Opinium research for PWC’s ‘Time to Listen’ paper published in June 2016 found that two-thirds of respondents believe executive pay is too high; and in a YouGov poll for CIPD in Sept 2015, only 14% of respondents agreed that CEO pay is good value for investors) (1) 

But it isn’t just a case of soaking in righteous outrage at fat cats. The paper fails because it considers executive pay to be the concern of owners, shareholders and direct stakeholders like workers, suppliers and customers.

All very well, but consider again the quote at the start of this post:

For people to retain faith in capitalism and free markets, big business must earn and keep the trust and confidence of their customers, employees and the wider public. For many ordinary working people – who work hard and have paid into the system all their lives – it’s not always clear that business is playing by the same rules as they are..’

The quote is actually from Mrs May at the start of the Green Paper. Reading it, it is crystal clear that executive pay is a problem for society, not just individual businesses. There have always been examples on pay restraint based on values, such as the Quakers, or from leading edge companies (John Lewis cap pay at 75:1, Lloyds at 65:1) but this is a systemic problem and requires a public/state led systemic response.

Not the Only Answer But…

Now, on its own a pay ratio cap won’t of course solve inequality but it certainly won’t make it worse. As I’ve written elsewhere:

‘Equality matters because ultimately, people need dignity and respect, they need the ability to execute their life plan, they need a sense of fairness in all of the rules and institutions and processes of society…it is fundamentally whether I feel I am an equal citizen of equal worth, with all the dignity, freedom and ability to execute my life plan that I expect.’

“Are you comfortable with your executive salary?”

Pay ratio caps would be a clear sign that we are all actually part of something collective. For the public sector, where we really want a sense of service, rather than leaders driven by money, we can start with a ratio of 20:1, giving top public servants a handy £200,000+ salary. In the private sector, we can start with publicly listed companies and those  enjoying limited liability and go for a target of 40:1 over time. If you want a higher reward, either don’t work for the public sector or use forms of unlimited liability, with their higher rewards but higher risks.

Oh! It It Just Too Hard or Impractical…

Why not? Well the objections are: it will destroy commerce and business; it’s too hard politically; we won’t be able to compete or attract top talent; it won’t achieve its aims; it will be too easy to avoid.

As I mentioned above, the polls however suggest that there is an argument to be won here.

My responses- it won’t destroy business- we lived with these ratios in the 1970s and were fine.

It is hard politically but given the urgency of addressing the problems of disconnect and inequality we face then a bit of Kennedy-like ‘doing it because it is hard’ seems appropriate.

More seriously, much lower pay levels would indeed drive away many from the public sector or listed companies or those enjoying limited liability. But having met many of those running the big companies, I see no evidence we couldn’t replace them with equally competent people at lower salaries. As for achieving its aims- coupled with other measures it would, and remember, the central aim is to show solidarity, rebuild trust and give people that sense of fairness and equality we so obviously lack at the moment. Avoidance- well we may drive a move towards non-salary reward but other measures can be considered- capital gains reforms, taxing gains on capital and income at the same level above a threshold, wealth taxes etc.

One thing people always seem to forget is both the crucial role of the public sector in creating wealth, and the enormous benefits we allow companies and their owners and leaders to have by allowing limited liability and a legal persona. We have always expected duties on companies in return, and a pay ratio cap would merely be the latest.

As the Green Paper dutifully reports:

‘The United States, France, Sweden, Belgium, Switzerland, Australia and the Netherlands, for example, have all recently introduced, or are actively considering, new measures to strengthen shareholder rights over executive pay and increase public transparency.’

Part of a Broader Agenda …

“If CEO pay packets aren’t a problem… why doesn’t everyone get one?”

If pay ratios on their own don’t do the job, then what else do we need to consider. Well, greater transparency is a must, including in future much more detail on beneficial ownership of companies and land, as Dr Cable mentioned in his speech I linked to above. A great old liberal policy, and one that certain Labour thinkers also considered, is to require worker representation on boards, or to promote cooperatives and mutuals for their socially beneficial impacts.

In order to properly assess what the policy should be, remove the politics once agreed, and provide a firm evidence base, then we should adapt the current Low Pay Commission to take on a remit for advising on and regulating high-pay as well. We’ll have to overcome the Goldman Sachs problem but let’s be honest- we have more things to worry back with that ‘great vampire squid wrapped around the face of humanity‘ than just pay ratios

Finally, the ever-excellent Matthew Taylor CEO of the RSA, is reviewing the future of work for the government and we need to consider the possible role for basic income schemes on our fairness ideas.

In time we may want to consider either a high pay actual cap (100:1?) and tax breaks for those companies making progress, or faster progress towards our 40:1 goal.

 

 

Practical Steps…

‘Does my bonus look big in this?’

So, to summarise:

  • we create a Pay Commission, modelled on the Low Pay Commission but with a remit to create and maintain a high-pay ratios cap system
  • We restrict public sector pay ratios to a maximum of 20:1
  • Over time, we create pay ratios of 40:1 for those listed companies and companies enjoying limited liability
  • We continue to explore a broader agenda on the role of companies in the twenty-first century, how to empower workers and stakeholders
  • We keep pushing on transparency, in this area and on beneficial ownership, tax avoidance and a range of other harms that businesses can cause us.

And once more, why all this? Because unequal societies do worse than more equal ones, because equality and equal status is vital for the dignity of what it means to be human, and because as I set out in my post on the basic principles for a liberal society:

‘Principle 2- Social and economic inequalities are to be arranged so that they are both:

(a) to the greatest benefit of the least advantaged, consistent with the just savings principle..’

I don’t pretend it would be easy- but to make the basic structure of society fairer and more equal, then it seems to me it’s a vital reform…

 

Notes

(1) Quoted in Corporate Governance Report Green Paper November 2016 Department for Business, Energy and Industrial Strategy

 

 

 

 

 

Public Thinking As It Should Be- A Tribute to Tony Atkinson

Public Thinking As It Should Be- A Tribute to Tony Atkinson 

“I don’t care who writes a nation’s laws – or crafts its advanced treatises – if I can write its economics textbooks,”Paul Samuelson,Economics: An Introductory Analysis, 1948

This post I want to take a break from the rather abstract thoughts posted so far, to pay my own brief tribute to a wonderful man Tony Atkinson, who died earlier this month. I didn’t know Mr Atkinson in person but by common agreement he was a giant in his chosen field of academic economics, namely the study of inequality and poverty. Other tributes are here and here.

Not only did he shape the field of poverty and inequality studies with his research, his ability to communicate and his ideas, he also led a series of institutions and approaches that, with for example Thomas Piketty, now shape our discussions of these issues. And he cared about and wanted to solve the issue of poverty, not just research it.

Towards the end of his long career, Mr Atkinson published a work on Inequality that I would highly recommend- ‘Inequality- What Can Be Done?’(1)

The book is not only an excellent primer in how inequality is actually measured, but also how it has changed over the last 50 years, in the UK but in other countries. Most of interest may be the solutions that are offered, born of a life-times thinking about the issues.

You can see him speaking about these ideas here and here 

 

What Did He Call For? 

I won’t comment on these proposals, other than to say this- if we are serious about inequality then these sorts of ideas are what we must debate, and work out how to progress. I would also say they fit very well with the principles I was writing about earlier and that such strong action is justified given the inimical effects of inequality.

 

The 15 Proposals from Tony Atkinson’s ‘Inequality – What can be done?’

Proposal 1: The direction of technological change should be an explicit concern of policy-makers, encouraging innovation in a form that increases the employability of workers and emphasises the human dimension of service provision.

Proposal 2: Public policy should aim at a proper balance of power among stakeholders, and to this end should

  • (a) introduce an explicitly distributional dimension into competition policy;
  • (b) ensure a legal framework that allows trade unions to represent workers on level terms; and
  • (c) establish, where it does not already exist, a Social and Economic Council involving the social partners and other nongovernmental bodies.

Proposal 3: The government should adopt an explicit target for preventing and reducing unemployment and underpin this ambition by offering guaranteed public employment at the minimum wage to those who seek it.

Proposal 4: There should be a national pay policy, consisting of two elements: a statutory minimum wage set at a living wage, and a code of practice for pay above the minimum, agreed as part of a “national conversation” involving the Social and Economic Council.

Proposal 5: The government should offer via national savings bonds a guaranteed positive real rate of interest on savings, with a maximum holding per person.

Proposal 6: There should be a capital endowment (minimum inheritance) paid to all at adulthood.

Proposal 7: A public Investment Authority should be created, operating a sovereign wealth fund with the aim of building up the net worth of the state by holding investments in companies and in property.

Proposal 8: We should return to a more progressive rate structure for the personal income tax, with marginal rates of tax increasing by ranges of taxable income, up to a top rate of 65 per cent, accompanied by a broadening of the tax base.

Proposal 9: The government should introduce into the personal income tax an Earned Income Discount, limited to the first band of earnings.

Proposal 10: Receipts of inheritance and gifts inter vivos should be taxed under a progressive lifetime capital receipts tax.

Proposal 11: There should be a proportional, or progressive, property tax based on up-to-date property assessments.

Proposal 12: Child Benefit should be paid for all children at a substantial rate and should be taxed as income.

Proposal 13: A participation income should be introduced at a national level, complementing existing social protection, with the prospect of an EU-wide child basic income.

Proposal 14 (alternative to 13): There should be a renewal of social insurance, raising the level of benefits and extending their coverage.

Proposal 15: Rich countries should raise their target for Official Development Assistance to 1 per cent of Gross National Income.

 

 

Sometimes the Perfect Sky Is Torn…

Sometimes the Perfect Sky is Torn- Liberal Principles for a Fair, Equal, Peaceful, Sustainable and Just Society..

‘I’m wide awake and I can see the perfect sky is torn…’

This week I want to develop my thinking on the building blocks of a liberal society a little further. I’ve argued previously we need a fifth age of liberalism, and that freedom and equality are fundamental parts of that society.

All very well but pretty abstract stuff, so can we begin to take it down a notch and be more specific about the sorts of principles that should inform the design of a liberal society?

Here is my first attempt, with no doubt gasps of horror from proper political philosophers about the merging together of quite distinct philosophical ideas and traditions. If you want a little more theory and a summary of some of the liberal debates, try here. [For what its worth  and to the degree it makes sense I’m a Rawlsian liberal, believing in the importance of negative, positive and republican liberty, and taking a largely pluralist, political liberalism approach and tending towards a state-centred approach which is comfortable to work pragmatically with non-liberal groups but intolerant of intolerance.]

 

What Principles for Society Should We Adopt?

My first two principles come straight from John Rawls and his Theory of Justice (here I’m using the formulation quoted in Samuel Freedman (1))

Principle 1- Each person has an equal claim to a fully adequate scheme of equal basic rights and liberties, which scheme is compatible with the same scheme for all; and in this scheme the equal political liberties, and only those liberties, are to be guaranteed their fair value.  (Freedman p45)

As Freedman says ‘The main idea of the first principle is that there are certain basic rights and freedoms of the person that are more important than others, and that are needed to characterise the moral idea of free and equal persons. ..He mentions five sets of basic liberties: liberty of conscience and freedom of thought; freedom of association; equal political liberties; the rights and liberties that protect the integrity and freedom of the person; and finally the rights and liberties of the rule of law..’

Quite a lot packed into this first principle and rather wordy, but I touched on much of this in my earlier post on liberty. If you prefer, the Universal declaration on human rights promulgates these rights in more detail.

Moving on, Freedman (p87) gives a version from John Rawls’ Theory of Justice of his famous difference principle as part of Principle 2:

Principle 2- Social and economic inequalities are to be arranged so that they are both:

(a) to the greatest benefit of the least advantaged, consistent with the just savings principle, and

(b)attached to offices and positions open to all under conditions of fair equality of opportunity.

Now there is is a huge amount of radical impact implied in those rather dry words- not surprisingly they have been subjected to ferocious debate over the last 40 years.

As I understand what Rawls wanted to say, firstly he said that his two principles in his Theory of Justice were in lexicographical order i.e. Principle 1 should be considered first and then and only then Principle 2. Secondly, Principle 2 means that we should organise our society and economic systems to make sure that they are to the greatest advantage of the least well off. Instead of standard economic efficiency, where someone can lose out as long as one or more gain, in a society as envisaged by Rawls (and me!) we should try at the basic structure level to make sure that societies and economies are arranged to make sure the least well off benefit to the maximum possible. Note that inequalities are permitted in this vision, but only to the extent that the outcome for individuals at the bottom is the best possible.

You can see right away how radical that is, and how far we are from achieving it. Rawls has many complex arguments for why this is true, which I won’t deal with here, but do try and read Theory of Justice or reflect on the ‘original position argument’ as a starting point.

Notice though that this difference principle is constrained by the ‘just savings principle’ .Quite what Rawls meant by this is open to debate but I take it to mean that, in arranging today’s society to take care of the least advantaged, we should also think across generations, and ensure we are saving enough human, social, economic and environmental capital to allow future generations to meet their needs. So, unlike the claims of say, (as I understand him) Jonathan Glover, we do not owe an absolute duty to the poor if that means future prosperity is jeopardised. What this means in practice of course is open to debate.

Finally, the second principle demands equal opportunities to the positions, offices and political opportunities of society and that professions and careers are open to all. This carries two meanings- the straightforwardly formal equality of opportunity where everyone has the right to stand for parliament or join a club or pursue a career, and not banned or prevented because they are a woman, black, disabled, Jewish etc. However the principle means much more than that, and takes into its breadth the need for actual ability to pursue these opportunities, and not be prevented by lack of education, opportunity, wealth, confidence and so on. Again, contentious territory but the overall meaning is clear.

 

Building on These Two Fundamental Principles..

Ok now what? Are we any further forward? I would say we are, because once you begin to reflect on the principles and how to embody them in a state and a society, quite a lot seems to fall out from them right away.

If we are to have respect for liberty, then we need formal equality of citizens and so any states that have a two-tier (or more) approach to humanity are out- no slaves, no bans on women working etc. Secondly, the second principle means we need formal equality before the law, and very likely need laws to ban discrimination based on race, gender, sexuality and so on.

Thirdly, the radical nature of the difference principle will surely mean we need to intervene using state power to change the outcome of the distributive function of the free market (assuming we have a capitalist state- a big assumption and yet another thing I want to return to in due course). In practice that means pre-distribution, taxation, redistribution and lots more. These are interventions in ways that change the patterns of income, wealth and property distribution and resources, and which would have been anathema to many ‘second age ‘ liberals. But that need to intervene, alongside the need for formal rights for citizens of equality of treatment, surely implies a clear need for a rule of law- both so that people know what the rules of society are, and also that the rules will be fairly and publicly enforced according to known processes.

However there is more- I would argue then that such fundamental interventions, imply certain normative approaches and rules, but that given the winds of societal and political change, we need to ensure protection for their rights and processes in a written constitution based on human rights and embodying liberty, equality and the rule of law. Put another away, use of state power to control economic and social power implies a need to limit and circumscribe that power in a way all can see, understand and support. And that implies a clear written constitution to ensure such rights and approaches.

I would go further and suggest that a society based on these two principles also implies a democracy- the ability of citizens to elect their governments, change them as needed and delegate some of the complex decision making to government in an agreed way, based on clear norms and rules. Of course, we may want to supplement our representative democracy with participative or direct democracy but I will let that pass for the moment. But I simply do not see how Principles 1 and 2 can be met in a society which is a theocracy, a dictatorship, a communist society of forced collectivism, an authoritarian state, a oligarchy or other self-selecting group of leaders etc.

So, I would argue that Principles 1 and 2 imply a third principle, namely

Principle 3- In order to cement the requirements of the principles of liberty and equality in society we need a democratic  society based on the rule of law with formal human rights and equal rights embedded in a written constitution. 

Absent a written constitution and formal human rights, our decision making risks becoming unstable, with important decisions subject to too much heat-of-the- moment political decision making, too much political or public pressure on the judiciary and too high a risk of popularist approaches replacing long-standing principles.

Such a principle should also help ensure the ‘tyranny of the minority’ is avoided, give us all clarity on how important political or constitutional questions are to be decided, provide greater context for our hard pressed judges, and ensure the legal and constitutional protection of minorities.

 

Are You Still Going On?

If this was the 1970s, we might stop here. But the debates have continued to move, and we now know that our stewardship of the environment is reaching crisis point. As I deal with this in my day job, you’ll have to excuse me if I just assert that we have a set of interlocking crises of climate change, air pollution, water pollution and scarcity, resource shortages, marine degradation and many others- all caused by a combination of rising population, rising economic activity and consumption, opportunities transmitted by technological change, and a failure to value environmental services properly. It’s clear that with, for example, climate change, that we are locking in changes that will take 100,000 years to disappear, and are effectively both robbing future generations of the value and common store of nature, and also reducing their opportunities to enjoy what the natural world gives us- resources, ecosystem systems, enjoyment and aesthetic value and so on.

So, a further principle is:

Principle 4 Society should ensure that it properly values the natural world, embeds natural  value within its scientific  cultural, economic and social systems, protects nature in its own right and as a source of value for current and future generations, and acts as a effective and thoughtful steward of natural resources

If we return to the need to ensure equality and manage our resources for the poorest, and to ensure liberty for all then a further insight follows. It is clear that as I wrote in an earlier blog on equality, that too much inequality is bad for lots of reasons- fundamentally because it attacks the ability of people to really be free, to pursue their own life plan, and to realise their full sense of value as a human being.

It’s equally clear from the history of bad states that too much power concentrated in state hands can be dangerous, as can too much power vested in a powerful and rich few. There has always therefore been a strong liberal desire to ensure freedom and to build equality by giving power to people at the lowest level commensurate with efficiency and the delivery of overall societal outcomes. This freedom from constraint, freedom to pursue opportunity and freedom from malign embedded power is taken to mean a need to disperse power politically and to disperse it geographically. Highly centralised, monochrome states or so-called ‘corporatism’ is out, pluralistic democratic systems at multiple levels and with power spread across what Burke also referred to  as little platoons, are in. This leads me to my Principle 5:

Principle 5 The basic structure of society should be designed such that power is dispersed politically at multiple levels and across multiple geographical areas, consistent with the achievement of other principles and goals

Finally, I could not finish without saying something about peace, and international relations. I’m aware of course that in all of this, there are many more experts out there and much more that can be said. None the less, it seems to me that any liberal society must surely be able to peacefully co-exist with other societies, whilst recognising that many states and peoples in the modern world are at various stages of development, and that some toil under systems that we may find repugnant, immoral or simply mistaken (for me that list includes dictators, big men politicians, authoritarian liberal states, theocracies and others). Building on (copying!) the ideas in Rawls’ Law of the Peoples as discussed in Freedman (1), I tentatively suggest the follow starting point as a principle for how we might think about peaceful coexistence in a sometimes dangerous, horrifying world:

Principle 6- Society should respect the freedom and independence of other peoples, observe treaties and undertakings, observe a duty of non-intervention, wage war only in self defence or in defence of other peoples unjustly attacked, honour international human rights, and observe just restrictions when waging war (Freedman p427)

A lot in that rather squashed together principle I agree, but I’d like to add one more related one

Principle 7- Society should come to the assistance of burdened or other peoples living under unfavourable conditions that prevent them having a just or decent political or social regime  (Freedman p427). 

But Wait! There’s Even More…

As the corny adverts say, there is more to say. If you can remember back as far as the start of this post, I had a quote from, Natalie Imbruglia. Why???

Well, my intention was to make a point that sometimes things don’t go well, and we need (despite our best plans) the protection and nourishment of the state, alongside our friends and family and our resources from our own plans. This is an area where I often differ sharply from my right-wing friends, and from those who have never seen or experienced poverty or despair or illness or any other number of social ills. I have been lucky so far in life- I have not had to endure serious setbacks of those kinds, but I have seen them up close in several years of voluntary work, and the supercilious, almost flippant way in which certain conservative thinkers or wealthy people dismiss these outcomes as a result of  bad character, poor skills or work shyness, is just wrong. It seems clear to me that any decent society, based on the principles above, should come to the aid of its citizens when things go wrong. Indeed that it explicitly what Principle 2 is all about. I will say more about this in a future post but for the moment I want to make it explicit.

When things do go wrong, when they go from bad to worse, and when the perfect sky is torn, then we need to know and be guaranteed we will be looked after. My thinking here is heavily influenced by Thomas Meyer’s ‘The Theory of Social Democracy (2)(see especially  p29ff) So my final principle is this:

Principle 8- Society and its government must ensure a fair and effective management of social risks so that risks imposed by society on its citizens, arising from social-technological risks, or failure to act on foreseeable collective risks, are managed and that effective protection systems are in place.

Possibly this principle is a little obscure-but as usual I have gone on far too long so let me return to it in future, and just finish by saying that the risks that globalisation poses to its citizens, or a failure to plan for the rise of robots on citizen’s incomes, or the well known risks of ill-heath, ageing or disease, are examples of what I mean of the sorts of risks to be collectively managed.

So there we have it, a list of the sorts of principles I think a modern, fair , equal, just, sustainable and peaceful society should be based on. I’d love to hear if you agree, or disagree….

Those Principles Again 

Principle 1- Each person has an equal claim to a fully adequate scheme of equal basic rights and liberties, which scheme is compatible with the same scheme for all; and in this scheme the equal political liberties,and only those liberties, are to be guaranteed their fair value.

Principle 2- Social and economic inequalities are to be arranged so that they are both:

(a) to the greatest benefit of the least advantaged, consistent with the just savings principle, and

(b)attached to offices and positions open to all under conditions of fair equality of opportunity.

Principle 3- In order to cement the requirements of the principles of liberty and equality in society we need a democratic  society based on the rule of law with formal human rights and equal rights embedded in a written constitution. 

Principle 4 Society should ensure that it properly values the natural world, embeds natural  value within its scientific  cultural, economic and social systems, protects nature in its own right and as a source of value for current and future generations, and acts as a effective and thoughtful steward of natural resources

Principle 5 The basic structure of society should be designed such that power is dispersed politically at multiple levels and across multiple geographical areas, consistent with the achievement of other principles and goals

Principle 6- Society should respect the freedom and independence of other peoples, observe treaties and undertakings, observe a duty of non-intervention, wage war only in self defence or in defence of other peoples unjustly attacked, honour international human rights, observe just restrictions when waging war

Principle 7- Society should come to the assistance of burdened or other peoples living under unfavourable conditions that prevent them having a just or decent political or social regime  

Principle 8- Society and its government must ensure a fair and effective management of social risks so that risks imposed by society on its citizens, arising from social-technological risks, or failure to act on foreseeable collective risks, are managed and that effective protection systems are in place.

 

Notes

(1) Samuel Freedman ‘Rawls’ Routledge ISBN 978-0-415-30109-1

(2) Thomas Meyer ‘The Theory of Social Democracy’ Polity ISBN 978-0-7456-4113-3

Equality Matters, Inequality is Bad…

Equality Matters, Inequality is Bad…

 

Recap…

Welcome to any new readers of Liberalism5, a blog where over time I hope to set our new ideas for liberalism. This is just my fourth blog, and I am still setting out the foundation of ideas to inform principles to inform policies and thinking. So bear with me…

To recap, so far I have suggested that, having had roughly four ages of liberalism, we need a fifth. I have hinted at why we need a new age, but will return to that in due course. I’ve set out the importance to a liberal of people having the basic freedoms required to choose their own path through life, the ability to chose for themselves, to have a life plan, even when this means in practice poorer outcomes for them and less rational choices.

I’ve suggested that a liberal analysis of 2016 suggests both that people are being too pessimistic, and also that conversely they are not worried enough. I’ve said that to really attack vested interest, to promote freedom and opportunity we need to look at the basic structures of society (1) , following John Rawls and his thinking.

And finally, at the end of my last post, I suggested that,contra what many believe, for liberalism of the sort I believe in, equality matters hugely, and just as much (if not more) than freedom/liberty. In this post I want to try and set out why.

Here is an early hint- when George Osbourne suggested that we were all in this together, many people reacted with a mixture of laughter, anger, disgust and resentment. But why? Why didn’t that happen (largely) when Churchill suggested something similar in the midst of war?

We Live In An Unequal World…

People know that we live in an unequal world, where some people have much more income, wealth and power than others, both within societies and across societies, between nations and across continents. But many don’t realise just how unequal things are. This video explains the position for the US and this for the UK . It seems to me both tell an important story about how little people appreciate the true position regarding wealth and inequality. That’s an important finding I think and one I will return to eventually.

An Oxfam report from 2016 suggested that just 62 people own as much wealth as half the world. Most poorer people have no wealth at all. Most middle income people have some combination of modest savings, wealth from their house, and a pension. However many rich people rely on capital rather than income from salaries. This capital includes housing and property, stocks and shares, government and corporate bonds, rents, dividend income and so on.

Shares of income and wealth for the top 10%, top 1% and top 0.1% have been rising steadily since the 1980s, though with differences in exactly how these play out across countries. Thomas Piketty in his fascinating Capital in the Twenty First Century (2) , points out that the number of billionaires has risen from 140 in 1987 to 1400 in 2013, an increase by a factor of 10. This translates to 5 billionaires per 100 million adults in 1987 but 30 per 100 million in 2013 (p433).

In popular criticism, we attack the 1% (see here for example). However we would sometimes be better to look at the 0.1% and above to see the real astonishing an frankly immoral increases happening.

Piketty also talks in fractions of percentiles, where the inequality and growth in wealth is even more astonishing. The richest twenty-fifth millionth of the world’s population, about 150 adults in the 1980s, and 225 in the early 2010s, has increased in average wealth from $1.5 billion in 1987 to an average of $15billion in 2013, a growth rate 6.3% per annum above inflation. If we then consider the wealthiest one-hundredth million of the world’s population, 30 people or so in the 1980s and 45 in the early 2010s, Piketty reports their average wealth has grown from just over $3 billion in 1987 to almost $35 billion, a growth rate of 6.8% per annum above inflation (p434).

However we look at it, inequality of wealth and income has been rising, and rising fast since the 1980s and we are approaching levels of inequality last seen in the 1880s. At the very highest income and wealth levels of society, these people (especially the super- or mega-rich) are seeing a growth in their fortunes that is simply astonishing.

 

A Conservative Response- Honestly, So What? You’re Just Jealous…

Now an obvious response to all this is, er, so what? Why does it matter that some people are much richer than others? Why does it matter that there is some statistical measure of inequality that is getting worse. Why don’t we celebrate success and stop whining? After all, this very blog started by pointing out how well the world is doing in many areas of measurement, compared to history. If society has been less equal in the past but overall less wealthy, but we’re doing better now, we should be happy shouldn’t we? This is just typical hand-ringing, liberal/lefty nonsense isn’t it?

I have some sympathy. At first sight, too many progressive thinkers are too concerned with redistribution, with public spending and with their next piece of legislation or policy making, to worry about the dirty business of creating wealth and success, or how to change the system. They should think harder, as the much mocked Ed Miliband tried to do with his comments on pre-distribution. (Pre- distribution, Wikipedia, Accessed 14th January 2017). (3)

But sorry, conservative thinkers, you are just wrong. Inequality does matter. Equality is important. Peter Mandelson (remember him?) now admits he was wrong to say he was ‘intensely relaxed’ about people getting filthy rich’. 

But why so?

 

Why Equality Matters Hugely, Inequality Is Bad and We Need to Change

Many others have written on this so I will state my case using the great work of others. Firstly we know on pure economic grounds that societies that have large patterns of inequality of wealth and income tend to do worse economically in the long run. Joseph Stiglitz, the nobel-prize winning economist, writes on this in his 2012 book The Price of Inequality. (Wikipedia The Price of Inequality accessed 14th January 2017)(4) . Another nobel-prize winning economist Paul Krugman considers inequality a defining (economic) issue.  The basic point seems to be that wealth distributed more widely is more likely to drive economic growth, jobs, incomes and productivity, than a very unequal distribution.

Along with population growth and technological change, equality is important historically for economic performance. At least, I’d argue history teaches us this lesson- the dead hand of absolutism, dictatorship and feudalism all tended to produce less growth in economic wealth than more equal societies (except when they stole others’ wealth through war!)

But the reasons why equality matters and inequality is bad go much further. Wilkinson and Pickett in their famous book The Spirit Level (5) take a canter through actual societal outcomes- happiness, health, educational attainment, crime and so on, and clearly find that more equal societies do better than unequal ones. Now their findings are controversial and its not always clear to them as statisticians what the underlying reasons  for their fundings are, but I find their number crunching compelling. They updated their 2009 thinking a little more here.

But there is yet more, dear reader. So far when discussing inequality I have talked about income and wealth only. There is much more to life than money and wealth of course. But wealth is an excellent proxy for power in our current society and so a further insidious effect of rising inequality is political and systematic.

When we allow a handful of people at the top so much wealth, we hand them power to influence all kinds of things, unless we work damn hard to put in place controls and restrictions. We see this in the UK and the US with the power of a few to set the tone for much of our media- what our newspapers say, what our TV screens show us- but also how our political parties think and are influenced. We see it in the hidden funding behind think thanks, too often explicitly or (more dangerously) having honestly held opinion but in thrall to ‘obvious’ limits on political choices or citizen led changes.

The power of think tanks, lobbying and cultural messages from the media is very strong, and with too much of that left in the hands of the rich and powerful, our public discourse, our political and tax and public spending choices, and our very thinking risk being distorted. Distorted away from choices for the common good, and towards narrower choices that advance or at least protect vested interests of the rich and the powerful.

A further bad effect of inequality comes from the disconnect of the very rich, and ‘ordinary’ people of society. In a reasonably equal society, the top 1% and the average person may actually interact and know each other- going to the same schools, using the same hospitals, occupying the same physical and even mental spaces. But with the levels of inequality we see now, the very rich tend to split off from the rest of us- and when you add in the effects of wealth on power and politics and public choices as above, this separation is bad to the point of dangerous. It is a cultural, a physical and a mental separation that signals danger and all the ills of rentier behaviour.

So, to sum up- inequality is bad for the economy, bad for societal outcomes we care about, bad for the political process, and even threatens the basic fabric of society by divorcing the very rich and powerful from the rest of society.

But there is one more thing I want to discuss, more important than any of this.

 

Equality is Fundamental to Human Dignity and Agency

I suppose we could just about live with all of the bad effects above. After all, an unequal society can conceivably still create more average wealth than a more equal one, even given the distortions, the poorer outcomes from being less equal and the corrosive effects of separation. After all -this is one of the conservative arguments from above that I have yet to address.

This argument can be summarised as ‘a rising tide raises all boats’– better to be poor in a rich society than equal in a poorer one.

But sorry- Wilkinson and Pickett are able to show that this often isn’t the case.

But the objection goes deeper than a statistical objection based on outcomes. It does to the heart of what it is to be human, and to be a social being, and to have the freedom to pursue your own life plan. Equality matters because ultimately, people need dignity and respect, they need the ability to execute their life plan, they need a sense of fairness in all of the rules and institutions and processes of society. Too often rich people fail to understand that basic fact about poorer people. But people are people, regardless of income and resources.

When people don’t have that (dignity and access to resources), as clearly many feel they do not at the moment, we get the reaction to Osbourne I mentioned at the start of this post. We see cynicism and resignation, we see chaotic families descending into despair and abuse and fatalism. We see turning away from political processes, or a turn to nationalism, popularism or worse. A lack of what people call agency has been shown to drive all kinds of negative impacts on health, on life choices, on life expectancy and on wellbeing.

So, it is not just the absolute wealth that I have that matters (beyond a minimum) as per the conservative argument- it is fundamentally whether I feel I am an equal citizen of equal worth, with all the dignity, freedom and ability to execute my life plan that I expect.

It is this fusion of freedom with equality which is distinctively liberal I believe. It is this combination which is fundamentally radical, and drives (or should drive) changes to how we structure society. Both John Rawls and equally Ronald Dworkin have written extensively on this and what it means.

It was a lack of appreciation of this by Blair and Mandelson, despite their many achievements, that I believe ultimately corroded people’s faith in them. It is why, for example, the SNP are  to this observer, merely synthetic progressives really seeking a change in constitutional arrangements whilst leaving many other aspects of the system intact. Because as soon as you accept this need for fundamental liberty and equality, you need to accept the need for radical change.

It is this radical change that I want to turn to as the blog develops further. Thanks for reading.

Notes

(1) Standard Encyclopaedia of Philosophy John Rawls accessed 14th January 2017 https://plato.stanford.edu/entries/rawls/

(2) Thomas Piketty Capital in the Twenty First Century Belknap Harvard ISBN 978-0-674-43000-4

(3) ‘Pre-distribution’, Wikipedia, Accessed 14th January 2017

(4) ‘The Price of Inequality’, Wikipedia, Accessed 14th January 2017

(5) Richard Wilkinson Kate Pickett The Spirit Level Penguin ISBN 978-0241954294