Friday, December 01, 2006

Wat price the CBI

The estimable Wat Tyler has a look at the Citizen's Basic Income and concludes that it doesn't add up. Now, normally, I agree with Master Tyler, but in this case I think that he has made some basic errors.
We free market types are pretty much agreed how we can improve our health and education services: restructure the whole shebang around choice and competition, and get rid of the politicos. Likewise, we largely agree that with local policing and tougher penalties we'd get a grip on criminal justice.

But welfare reform finds us much less certain, and much less agreed. Of course, we all want to end the waste and the dependency culture, as detailed so clearly in Reform's excellent report [PDF] earlier this week. But how to do it without punishing the deserving poor? That is the question.

Indeed it is, but Master Tyler decides to answer that question without assuming any of the other reforms tha we horrible free market types would like to see. He assumes the current Welfare Bill as £150 billion per annum (although, as far as I can see from the data—Public Expenditure Statistical Analysis 2006 Table 3.6 [PDF]—it is actually £170 billion. Am I missing something?) and tries to get that alone to pay for the CBI. It is pretty difficult to do, though Wat does make a decent stab at it.

However, although he acknowledges that the lack of manpower (or should that be "personpower") required to administer the CBI, he does not take this into account in his calculations. This is, as far as I am concerned, a major problem. So what to do?

Wat does remove pensioners from the equation, for the moment.
The people we're really interested in are the undeserving poor—the ones who should be out at work earning their own money instead of staying at home drinking, smoking, watching Trisha, and having loads of kids that we have to pay for.

One of the things that I love about the CBI is that we do not have to pay for their kids (apart from their schooling). The CBI would itself discourage the birth of children amongst the poor; as they will receive no benefits for having them, there is a major incentive not to get up the duff without a decent means of support. This would also discourage one-parent families, since two lots of the CBI would provide a far better standard of living than one (and we all know that two can live as cheaply as one, eh?).
Re-run the arithmetic. Taking out pensioners removes £65bn pension spend from the numerator, and 9.5 million OAPs from the denominator, giving a new lower CBI of £4,500 pa.

£4,500 pa is not a lot of money. It's 25% less than the £6,000 pa currently received as cash benefits by Britain's poorest 20% (see this ONS analysis Table 16a [PDF])—and that's before taking account of our imposition of 17.5% VAT on food, fuel and rents.

Bearing in mind that Wat has lobbed more VAT on in order to squeeze the CBI into the current welfare spend, but the low benefits are a feature, not a bug.

The whole point is that, whilst the CBI does not trap people in poverty through marginal tax rates, it also does not provide enough to live on for any length of time. It also encourages saving against the day when one might actually have to survive on the CBI whilst inbetween jobs.

So, how much would the CBI cost? Well, according to this little article on literacy (which is shocking enough in itself), there are roughly 50 million people in England, of which 40 million are over 16 (I will include pensioners in this calculation). We'll apply those proportions to our total population of roughly 60 million, which gives us 48 million who are eligible for the CBI. We will now assume a rate of £100 a week (though I am reluctant to suggest it, because of the administrative cost implications, one suspects that some element of regionalisation in payments might be needed).

Anyway, £100 x 52 = £5,200 a year. It's not a fortune, but it does allow some kind of survival and, vitally, it also goes some way to equalising the balance of power between employer and employee. You can resign from your shitty job and still know that you can pay the rent at the end of the month.

£5,200 x 48 million = £249.6 billion. So, the CBI, as sketched out here, would cost roughly £250 billion per year.

Is this affordable? Well, the answer is yes; government spending has increased from about £350 billion in 1997 to about £550 billion today: are we saying that all of that increase is absolutely necessary? I would say not.

But the main problem with the CBI as posited here, is that it would require some kind of changeover period. People would have to be informed that they had better start saving, especially those with children; some pension provision would have to be made for those who were no longer working (those who were still active would have to get a private pension plan fairly sharpish). Private health insurance would have to be purchased as some of the money would inevitably come from the NHS.

Of course, were I benign dictator of the UK, a whole host of other changes would come about, not least a reform of the NHS, as I detailed here and the privatisation of schools (and funded through a voucher system).

It is a thorny problem, but I do believe that the CBI makes sense from all sorts of different perspectives. But it will require people to start acting like human beings, rather than the zombie primitives that some have been reduced to by their reliance on the Welfare State.

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