In the CLASS think tank paper that Howard Reed and I have written that reconsideres Beveridge's concept of idleness in a 21st century frameowrk we argue that:
Tax is, indisputably, the most important way in which any government intervenes inÂ an economy. This inevitably means that when considering how a government is toÂ tackle idleness, as is its duty, tax has to be taken into account. In our opinion there are two ways in which this has to be done. One is a macroeconomic considerationÂ which relates to how the tax system as a whole, the balance between tax andÂ spending, and the relationship between taxes, can be adjusted to tackle idleness.
Secondly, there is a micro-economic consideration of tax issues which looks at theÂ detailed design of the tax system to ensure that it does not, by itself, put obstacles inÂ the path of people working.
Our recommendations here are radical: we are committed to strong, progressiveÂ taxation. That means we believe that as income rises the proportion of the totalÂ income that a person pays in tax should rise as well. It is a principle of tax justice,Â usually described as vertical equity, that few would wish to dispute. However, theÂ UK tax system does not deliver vertical equity in a great many cases. It is our opinionÂ that this is best addressed by a complete redesign of the Income Tax, NationalÂ Insurance and benefits systems: nothing less will do if we are to tackle institutionalÂ impediments to idleness.
Our proposed system is based around two simple components:
1. Basic income payment â€“ Minimum Income Standard .Â All families would receive an unconditional, tax-free basic income paymentÂ that would be set at levels sufficient to alleviate poverty.
2. Unified Income Tax (UIT).Â The current Income Tax system and the entire National InsuranceÂ Contributions system would be replaced by a single Income Tax structureÂ which would be clear and progressive.
In 1942 Beveridge said the war provided a revolutionary moment and as he noted â€œaÂ revolutionary moment in the worldâ€™s history is a time for revolutions, not forÂ patchingâ€. We agree. The global recession is now providing another revolutionaryÂ moment in which new thinking is required and that is what we have sought to offerÂ in this paper.
The macro-economic arguments for reform are well known to readers of this blog. As we argue in the paper:
[BeveridgeÂ was quite sure that it was] not the role of the government to keep people in a state ofÂ idleness. He did not see that as responsible from a social viewpoint. Nor did he see itÂ as affordable. He saw it as the role of the state to ensure that there was opportunityÂ for gainful employment for those who wanted it. The cure to idleness was work, andÂ Beveridge believed that the role of the state was to make sure that work wasÂ available for all who wanted it.
We agree with that. WeÂ continue, arguing that Beveridge was a man of his time, that:
Keynesâ€™ logic was simple: he argued that if people were in work then, assuming theÂ economy was otherwise in a state where people would be unemployed, if theÂ government were to provide work for these people (either directly or throughÂ enabling their employment in the private sector, for example via subsidies toÂ employers) this would generate enough income to pay the taxes that would justifyÂ the spending required to ensure they were put to work in the first place. In effect, heÂ argued that there was a beneficial and virtuous circle where borrowing to putÂ people to work in turn created income on which tax was paid sufficient to repay theÂ borrowing undertaken. This was the core of his argument that there was a multiplierÂ effect in the economy.
We most especially agree when:
Idleness is caused by a lack of demand in the economy. Put straightforwardly thereÂ are resources available in the UK in the form of people who are trained and willingÂ to work that employers do not wish to put to use in any gainful way. We have a lowÂ minimum wage, and whilst just 4% of employees in the UK as a whole are on thatÂ minimum wage over 20% earn less than a living wage (defined as Â£8.30 an hour inÂ London and Â£7.20 elsewhere). There is no evidence that the introduction of theÂ National Minimum Wage in 1999, and subsequent increases in its value over theÂ next thirteen years, increased unemployment. Given that this is the case, it seemsÂ clear that in the vast majority of cases, people are not unemployed because theyÂ want to be; they are unemployed because there is insufficient work. In that case aÂ Social State for 2015 has to defeat idleness by creating work.
And it's for that reason that we argue for macroeconomic intervention to create work, and a reform of the tax andÂ benefitsÂ system to ensure it's attractive to all who want it, with progressive tax built in, which it isn't now.
That tax reform will be the subject of another blog.