Select Committee on Work and Pensions Written Evidence

Memorandum submitted by Citizen's Income Trust

  This submission:

  1.  Describes a Citizen's Income and outlines the contribution which the implementation of a Citizen's Income would make to the simplification of the benefits system, to employment incentives, and to tackling poverty.

  2.  Describes how a Citizen's Income would work.

  3.  Describes six fundamental changes which a Citizen's Income would represent.

  4.  Shows how a Citizen's Income would integrate the tax and benefits systems.

  5.  Show how a Citizen's Income scheme could pay for itself.

  6.  Discusses transitional arrangements.

  7.  And contains brief notes on housing costs.


  The Basic Income Research Group (BIRG) was set up in 1984 to promote debate on the feasibility and desirability of a Citizen's Income. BIRG was renamed the Citizen's Income Trust in 1992.

  The Citizen's Income Trust is not a pressure group, nor is it aligned to any political party. It publishes a regular Newsletter, maintains a website and a library, responds to requests for information, and undertakes research projects directly related to its aims. The Trust is a registered charity, and is affiliated to BIEN (The Basic Income Earth Network: formerly the Basic Income European Network), which it helped to form.

  The Citizen's Income Trust is a registered charity, No 328198, and it has a website at


  1.1  A Citizen's Income (CI) is an unconditional, automatic and nonwithdrawable payment to each individual as a right of citizenship.

  1.2  (A Citizen's Income is sometimes called a Basic Income (BI), a Universal Grant, or a Universal Benefit).

  1.3  A Citizen's Income scheme would phase out as many reliefs and allowances against personal income tax and as many existing state financed cash benefits as possible and replace them with a CI paid automatically to every man, woman and child.

  1.4  A Citizen's Income will be simple and efficient and will be:

    —  Affordable within current revenue and expenditure constraints, ie revenue neutral.

    —  Easy to understand. A CI is a universal entitlement based on citizenship that is non-contributory, non-means tested and non-taxable.

    —  Cheap to administer and to automate.

  1.5  The CI attack on poverty is three pronged. It will:

    —  End the poverty and unemployment traps, hence boosting employment.

    —  Be a safety net from which no citizen is excluded.

    —  Be a platform on which all citizens are free to build.

  1.6  A CI scheme will encourage individual freedom and responsibility and help to:

    —  Bring about social cohesion. Everybody is entitled to the same Citizen's Income and everybody pays tax on all other income.

    —  End perverse incentives that discourage work, marriage and savings.


  2.1  A CI scheme would co-ordinate the tax and benefits systems. A single government agency would credit the CIs automatically and recoup them via income tax levied on all income rather than running separate systems of means testing, benefit withdrawal and taxation. Instead of different rules for claimants and taxpayers, everybody would be treated alike.

  2.2  Automatic payments.  Each week or each month, every legal resident would automatically be credited with the CI appropriate to his or her age. For most adults this could be done through the banking system; for children it could be done through the bank accounts of their parents. For adults without bank accounts special provisions would be necessary. CI supplements would be paid to older people and those with chronic disabilities, but there would be no differences on account of gender or marital status, nor on account of work status, contribution record or living arrangements.

  2.3  Tax-free and without means-test.  The CIs would be tax-free and without a means test, but tax would be payable on all, or almost all, other income. This is necessary in order to finance the scheme. The rate of tax would depend on the CI amounts. The higher the CI, the higher the tax rate.

  2.4  A new, comprehensive income tax.  There are various ways of funding a Citizen's Income. The particular scheme discussed in this booklet assumes that the CI will be paid for by removing tax allowances and reliefs and reducing means-tested and contributory benefits. In addition, income tax and employees' National Insurance contributions would be merged into a new income tax.

  2.5  It is appropriate to establish the viability of a Citizen's Income funded by income tax, but a CI could also be part of a wider tax reform package including, for example, a land value tax and/or a carbon tax.


  3.1  The basis of entitlement becomes citizenship, subject to a minimum period of legal residency in the UK. Every citizen would have a small independent income, whether or not they are in paid employment.

  3.2  The individual is the tax/benefits unit.  The CI would be paid to individuals, not families or households. Unlike the existing benefits system, CI is symmetrical between men and women and between married, cohabiting and single. Marriage and cohabitation are neither subsidised nor penalised.

  3.3  The Citizen's Income is not withdrawn as earnings and other income rises, nor is it reduced by owning assets. The CI would be a base on which to build without having to report to officials every minor change in earnings or household composition. Simultaneously benefits fraud would be reduced significantly. Work and savings of all types would be encouraged.

  3.4  The availability-for-work rule would be abolished.  Under the current system, young people in education or training and unemployed people who study or train for more than a few hours a week forfeit most benefits. With a CI this would not happen. School attendance, further and higher education, voluntary work, vocational training and re-training would all be facilitated.

  3.5  Access to a CI would be easy and unconditional. Instead of the current maze of regulations, often resulting in perverse incentives, everybody would know their entitlement and their obligations. Take-up, as with Child Benefit (currently the only form of Citizen's Income in the UK), would be nearly 100%.

  3.6  Benefit increases would be linked to earnings increases or to GDP rather than to inflation.  To index the CI slower than this would merely store up problems for the future. Whilst all citizens would benefit from a more generous level of the CI there would be an equal and opposite pressure against income tax rises to fund it. So two basic variables—the CI level and the income tax rate required to fund it—will be inherently linked and stable.


4.1  The current system

  4.1.1  Putting housing related benefits to one side, in 2006 the net income of a single earner aged 25 or over after income tax, National Insurance, income support/jobseeker's allowance and working tax credits was as follows:

Chart 1

  4.1.2  The chart clearly reveals the benefit trap. As earned income rises, benefits fall and, for someone earning the National Minimum Wage (currently £5.35 per hour), net income only begins to rise when they are employed for 16 hours a week. If this single adult then starts working 40 rather than 16 hours, his or her gross income increases by £128 per week, but his or her net income increases by only £65 per week—having suffered £34 in income tax and National Insurance Contributions and lost £29 in Working Tax Credits. The increase in net income is only 51% of gross income, so there is a "marginal deduction rate" or "withdrawal rate" of 49%. For many family types, withdrawal rates are 85% of earned income up to nearly £400 per week; and for some family types and some earnings ranges the withdrawal rate is higher than 95%.

4.2  A CI proposal

  4.2.1  The relatively uncontroversial CI scheme proposed here assumes the following rates of Citizen's Income:

Table 1

Weekly CI, £

0 to 18
2006-07 IS/JSA rate for 16-17 year olds
19 to 24
2006-07 IS/JSA rate for 18-24 year olds
25 to 64
2006-07 IS/JSA rate for 19-59 year olds
65 and over
2006-07 Pensions Credit rate

Chart 2

  4.2.2  Overlapping the two charts shows that the system will increase work incentives at most levels of income:

Chart 3

  4.2.3  For simplicity, we shall assume a flat rate of tax on earned income of 33% (22% income tax plus 11% Employee's National Insurance Contributions), although a somewhat higher rate might be necessary on higher earnings. Rates of 22% would continue for pensioners and of 20% for unearned income.


  5.1  The approximate total cost of the benefits and tax reliefs and allowances that would be replaced is as follows:

Table 2

Social security spending
£107 bn
(Appendix 1)
Tax reliefs and allowances
£94 bn
(Appendix 2)
DWP running costs
£6 bn
(DWP 2006-07 budget)
HMRC (Tax Credit administration)
£1 bn
(Annual Report 2005-06)
£208 bn

Table 3

  The total cost of the CI scheme proposed here is as follows:

Population survey 2006
Citizen's Income
Per week

0 to 18
£25 bn
19 to 24
£11 bn
25 to 64
£94 bn
65 and over
£59 bn
£189 bn
Running costs (1%)
£2 bn
£191 bn

  5.2  The £17 billion saving assumes that tax relief for pension contributions is restricted to 22% at source, the same as the rate of income tax deducted from pensions in payment. Pension income is not subject to NI, so additional NI rebates and reliefs are unnecessary. The £17 billion figure also assumes that existing SERPS/second state pension commitments will continue to be honoured. Some of the savings would be required for transitional measures (Section 6).

  5.3  Running costs are estimated at 1%, which is the approximate cost of administering Child Benefit (non-contributory, non-means tested, and non-taxable). No estimate has been included for the additional tax receipts that will result from the ending of the poverty and unemployment traps and the resulting increase in employment and economic activity.

  5.4  That the UK can afford a Citizen's Income scheme is illustrated by the fact that GDP per head in 2005 was £20,338 pa = £391.12 pw (Source: UK National Accounts, 2006, table 1.5, item IHXT)

  5.5  (The Citizen's Income Trust is still working on the detailed costings of the illustrative scheme contained in this submission, and might at a later date suggest minor revisions).


  6.1  There will be clear winners under the CI system proposed here, in particular:

    —  Single earners on low or fluctuating incomes.

    —  Students.

    —  Families with children on low to average earnings.

    —  Pensioners with small savings and pensioner couples.

  6.2  It is also clear that if the CI scheme were adopted outright then in the short-term we shall need to retain a residual means-tested system for:

    —  single mothers with no earned income who receive no maintenance from the absent father; and

    —  long-term Incapacity benefit claimants and long-term unemployed and a residual contributory system for women under 65 while they remain eligible for state pensions.

  6.3  There will be an initial cost of redundancy packages for civil servants at HM Revenue and Customs and at the Department for Work and Pensions.

  6.4  The CI scheme outlined here ignores the fact that some residents have not been in the UK long enough to qualify, and it also ignores pensioners living abroad who receive a state retirement pension. Both of these should be covered largely by reciprocal arrangements with other countries, but a net liability may remain.


  7.1  The CI scheme outlined so far has ignored housing and council tax benefits, which cost around £19 billion annually. The additional cost of the below-market rents in the social rented sector (compared to market rents) is around £15 billion per annum.

  7.2  We are aware that housing-related benefits need radical reform, but we believe that to be a separate debate and not directly related to the implementation of a Citizen's Income

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Prepared 26 July 2007