Fair Incomes and Welfare Reform

One of the simplest ways of understanding what is wrong with the current welfare system and why current efforts to reform it will continue to fail is to consider this question:

Do we want to ensure that nobody has to endure absolute poverty?

There may be a few extremists who will say no to this - they are happy to see their fellow citizens die in poverty, but their views should be discounted. Almost everybody from Right to Left actually agrees that we do not want to live in a society where anyone would be left without support.

So does that mean we have a guaranteed minimum income?

Well we do, and we don't.

Our current benefit system - for all its craziness, complexity and poor design - does attempt to provide a minimum income - through the Income Support system. We will (almost) always get something if the system's rules say that we are entitled, but these rules are designed so that this are right is conditional upon our poverty. This is how poverty traps work:

You can get x, but only if you are poor enough.

The current welfare system is an incoherent compromise and it reflects a point of indecision in the body politic. We don't want poverty; but we don't want to guarantee the end of poverty. We feel uneasy: Can we afford it? Do we trust each others to make the necessary contributions? Do we trust ourselves not to abuse the system? And so we continue with a crazy system that gives millions a pitiful income and at the price of robbing them of the natural incentives to contribute, earn, save and grow their own families. In a way we are all caught in a collective poverty trap - unwilling to trust each other, unable to move forward together - we guarantee social insecurity, fear and the waste of human talent.

But we can spring the poverty trap by moving away from conditional rights and towards universal rights. If instead of making a minimum income conditional upon poverty we make it unconditional - universal.

It is as if each citizen were to say to each other:

Let us each pay a fair amount in taxes, and guarantee to each other a fair minimum income; using this we can each of us build our own life and make the best use of our own talents.

In practice we could make this shift by (a) merging tax and benefits into one system and (b) creating a guaranteed minimum income for all which then acts as the threshold at which we begin to pay taxes.

I describe these ideas in more detail in a joint policy paper with The Centre for Welfare Reform and the University of Birmingham:

Fair Income Policy Paper

I am not the first to make these arguments. In fact societies have, from ancient times, constantly attempted to achieve the right balance between income security and personal freedom. The system of Jubilees, part of the Jewish tradition of social justice, had exactly this function. No one could be cast into the slavery of poverty for ever - there was always the potential for redemption and the chance to build afresh because land that was lost through differences in trade, luck or talent would be returned to the family every fifty years.

The current UK government has at least realised that the current benefit system does penalise the poor through high taxes (dressed up as benefit reduction rates) but unfortunately it is unwilling to take the next logical step and to create a universal system of income security. Instead it is attempting to devise a complex new tax regime for those on the edge of the benefit system - which will leave some people better off and some people worse off. Given that we already live in the third most unequal developed society it seems that increased poverty for some is a price we should not be willing to pay.

Ultimately there are only two ways to reduce poverty traps either (1) to push some people deeper into poverty or (2) to lift everyone out of poverty together. The government has quietly set about the first strategy. Surely it's time to consider the second approach - the only sane and moral solution.