Monday, September 15, 2008

A closer look Citizens Income

Those pesky libertarians love the idea of a citizens income, the basic idea is that you scrap all current benefits, tax credits, housing benefit etc and replace it with a single income guaranteed to all citizens. Another fan is Chris Dillow, a blogger who commands a fair deal of respect across the political spectrum. Often devoid from the discussion is the actual cost of implementing such a scheme, so I thought I'd try and crunch the numbers. This is all a bit "back of a fag packet" estimates from different places and such, but not a million miles off I'd reckon.

Let's start with a basic idea for a system, and make a few assumptions on the numbers. I'm assuming a UK population of 61 million, of this 80% are over the age of 16. I'm choosing an income level that should just about give a roof over your head and food on your table, so I'm going to say that Citizens Income will be £6,000 a year tax free for those over 16, £3,000 a year will be paid to the parents/guardians for those under 16.

On these calculations the cost of a citizens income before administration costs is £329.4 billion, £292.8bn for adults, £36.6bn for children. Quite expensive, but let's compare it with existing spend on this graph (courtesy of Labour Left Forum).

I'm assuming that this is "social protection" and therfore £161bn, therfore a Citizens income would cost over twice as much to implement, £168.4bn more in fact. If plonk this on top of the existing 587 million government spending we are left with a figure of 755.4 billion. As a percentage of GDP this is 54.7% (assuming a £1.38tn GDP), far higher than the current figure which is around 42.5%.

Of course, it will be argued at this point that a citizens income will be far easier to administer than the current myriad of benefits. Looking at the costs, the figure for DWP administration is around 6 billion based the following figures (source):
  • 402 million for the administration of child benefit
  • 1,083 million for the administration of the NI system
  • 241 million for the administration of disability benefits
  • 57 million for the administration of pensioner benefits
  • 2062 million for the administration of benefits to working age people
  • 2,160 million for corporate & shared services
On the assumption that a 75% cut in costs (£4.5 billion) could be achieved, this would give a total spend of £750.9 billion cutting state spending to 54.4%, a saving of 0.3% of GDP. In my book, not exactly a massive saving.

What I would conclude from all this is that a citizens income would require a massive increase in state spending. Far from shrinking the state it would lead to a massive increase in state spending. Further to this its worth pointing out the many issues a citizens income wouldn't address, for example care services would require a separate system. It also wouldn't take into account geographic variations in the cost of housing. What I would conclude from this is that at society's current level of wealth, a citizens income doesn't seem to be an especially viable option and is unlikely to give any massive gain to society.

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