My head-scratching over poverty has already produced a deep trench scrawped into my skull. But at least some of the facts are now becoming clearer.
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 earlier this week. But how to do it without punishing the deserving poor? That is the question.
Which is why the Citizens Basic Income (CBI) is so very seductive (for exposition see Wiki article). Instead of having all those impenetrably complex, administratively cumbersome, poverty-trapping, work-disincentivising welfare benefits, we just have a flat-rate Citizens Basic Income, paid to everyone. No means testing- you get it just by virtue of being a citizen. And if you can also earn money on top, that's great- there's no clawback, other than the income tax you pay on your earnings.
True, Mrs T reckons that with a guaranteed state income, layabouts would never work again (the Malibu Surfer effect). And the redoubtable Colonel worries that if the right accepts the principle of CBI, it's selling the pass on compulsory government redistribution. Good points, but most of us still follow S&M, Jarndyce, and Tim, and just want to know where we sign.
Can it really be that easy?
As always, we need to look at the numbers.
We're currently spending some £150bn pa on cash welfare (see Public Expenditure Statistical Analysis 2006 Table 3.6). So if instead of all that complex targeting, we simply divied it up equally among Britain's 48.5m adults, we'd get just over three grand apiece.
But to that we can add the money we'd save by abolishing income tax allowances, because under CBI all income except the CBI would be taxed. That currently totals about £65bn (see Budget Report Table A3.1), so adds a further £1,300 or so to CBI. Which means we're now on a CBI of getting on for £4,500 pa.
Some, such as S&M, would go further and abolish VAT exemptions for things like food and rent, plus Inheritance Tax allowances. Doing all that would take our CBI up to around £5,000 pa.
Not bad you think. That's £5 grand a year for every adult citizen, not means tested, and theirs to keep irrespective of any extra earnings. No poverty trap, no more costly admin disasters, no more jobs for personal tax advisors, and it wouldn't cost us a penny more.
Except of course, these days £5 grand ain't that much. For example, it would imply a cut of nearly a grand a year for a single pensioner currently on the government's minimum income guarantee (now called the Pension Guarantee Credit). And trust me, these people are not living in the lap of luxury as it is, let alone being made to pay 17.5% VAT on all their food, fuel, and rent.
So OK, you say, let's take pensioners out of the equation, and deal with them separately. Their work/leisure choices are limited, and it's not them we're really concerned about. In fact, we could call them the deserving poor.
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.
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)- and that's before taking account of our imposition of 17.5% VAT on food, fuel and rents.
Of course, we could easily increase these amounts- but only by increasing taxes to pay for it. For example, using HMT's tax ready reckoner, we could fund a doubling of the CBI to £9,000 pa by increasing the basic rate of income tax by... gulp....50p.
Also there's the problem that any increases in marginal tax rates to fund a higher CBI would seriously damage incentives. All the evidence suggests that increasing marginal tax rates for those further up the income scale is likely to damage overall economic performance far more than any benefit from increasing incentives to those currently caught in the poverty trap further down. So the net cost would be substantially higher than even HMT's static analysis suggests.
I really like the idea of the CBI.
Sadly, the sums don't seem to add up.