About The Economic View

Tuesday 3 February 2015

Greens U-Turn On Their One Good Policy Proposal, The 'Citizens Income'


The Economic View is left feeling disappointed after the Greens’ U-turn on their proposed ‘citizen’s income’ of £72 per week yesterday. It’s a real shame that a policy with such forceful underlying economic logic and potential cross-party political appeal has been ditched.  Unlike much of the Greens’ agenda, the idea of a basic income is actually good economics, and figures from across the political spectrum have supported such a policy in the past - including Milton Friedman, Friedrich Hayek and John Stuart Mill; none known for occupying the same political territory as the Greens.  Unfortunately, sensible policies do not always come with persuasive advocates, and Natalie Bennett, leader of the Green Party, is a case in point.  For those unsure of this, type into Google, ‘Natalie Bennett roasted by Andrew Neil on the Sunday Politics’, or some such similar search, and you’ll see what The Economic View is talking about.

‘But’, I hear you ask, ‘What’s so special about the basic income anyway?  What’s the economic justification behind the idea?’  Well, I’m glad you asked!


Firstly, contrary to what you might initially think, the basic income improves incentives to work, at least in comparison to our current welfare system.  While some see it as a free hand-out that will only encourage idleness as people opt to receive their government cheque each work and not work, this isn’t the full story.  No modern welfare system can eliminate this problem completely, but the basic income is an improvement on our current, complex and convoluted welfare system.  Our present system means that many on benefits face an effective marginal rate of tax that is stratospheric, or even negative, as the double whammy of starting to pay tax just as benefits are withdrawn leaves many worse off by going back into work.  This benefits trap locks many into a life on the dole; they’re better off on benefits.  While the current Conservative government has taken some steps to ameliorate this situation with the universal credit, the bureaucracy and administration needed to introduce this reform have turned the proposal into a farce.  

The Greens’ presentation of the basic income made the policy seem like a far-fetched, unaffordable proposal.  In fact, replacing our current, complicated mish-mash of a welfare system with the basic income would not be unaffordable.  Scrapping all means tested benefits would save roughly £272 billion per year.  This is not to mention the money that would be saved on administration and fraud costs.  With a basic income, the opportunity for fraud disappears.  Stories of able-bodied scroungers defrauding the state and receiving disability benefits in the Daily Mail would cease.

So, a British political party proposes a change to the welfare system that is widely supported by many economists of all political stripes as being an effective and - crucially - simple way to organise the system.  A proposal that could provide a social safety net for all, while also improving incentives to work and ensuring nobody gets caught in the benefits trap ever again.  Yet, the policy is quickly ditched.  Why?  As is often the case in public policy, just because a policy is economically sound, does not mean that it will be politically popular.  Presentation of ideas matters too, and unfortunately the basic income's advocate was Natalie Bennett.

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