A Liberal Solution to Welfare? A Negative Income Tax

It is obvious that the UK’s welfare system is in dire need of reform. Currently, it consists of a large, unwieldy, confusing mishmash of various benefits, and as a system is difficult to navigate and almost impossible to understand. In addition to this, benefits in Britain are neither particularly generous nor conducive to helping people find work and move up the social ladder.

It should come as no surprise that the Liberal Democrats advocated basic income way back in the 80s and 90s. British liberalism was the champion of the welfare state under Beveridge, and the legacy of this reached its peak in the Attlee government, which took much inspiration from John Maynard Keynes, a Liberal peer. But the state of our welfare system has been in deterioration for decades, and we are now left with a costly system that does little to benefit those who find themselves in poverty. The economic downsides to this are obvious, but we must not ignore the social costs; those on benefits are demonised as scroungers, lazy, undesirable, and workshy, and by allowing the system and its negative consequences to flourish, we do nothing to challenge entrenched notions of class, or to improve social mobility.

So what would a better system of welfare look like? It would consist of as few taxes and payments as possible, be easy to navigate, and contain no ‘welfare cliffs’ where an increase in earnings leads to a loss in real terms as benefits are cut. A negative income tax, or basic income, ticks these boxes. It is a scaled payment, given to all residents who earn below a certain salary, as a means of topping up their income to a level sufficient to live off. As people earn more money, their payments are scaled back, but they are scaled back less than the amount of the pay increase, so that getting a raise or a higher-paying job will never result in less money in their pockets. Once one’s earnings reach a threshold level, these payments stop, and they begin paying income tax and NI (which would be merged in an ideal world), and become net contributors to the system.

The perks of the system seem obvious – the state no longer gives with one hand and takes away with the other, costs to the Treasury are reduced as the process becomes streamlined, and there’s no arduous process to convince the authorities that you are sufficiently impoverished; it’s based solely off income. There are a number of ways in which it could be implemented, and these are open questions – do we scale it based on personal income, household income, should it be set by region, postcode, etc. but these are questions that could be solved via a working group and consultations with economists.

A negative income tax would streamline the benefits system, remove the invasive and paternalistic elements of the current welfare system, and due to its flexibility, would not be a heavy-handed instrument that would leave people behind. It has the effect of empowering the people of this country, removing the stigma attached to receiving benefits, and allowing people to get on with their lives. For these reasons, I believe it is a distinctly liberal policy that this party, and particularly its youth wing, should be advocating.

 

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3 thoughts on “A Liberal Solution to Welfare? A Negative Income Tax

  1. Isn’t this just universal credit done properly then? It is just properly funded and has a higher maximum salary.

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