Sort Out the Welfare Mess

by .
Originally published in Social Stock Exchange

“Everyone should be allowed to live their lives the way they want, as long as they don’t offend that of others.” So says Elina Lepomäki. She’s the former research director of Libera – a Finnish liberal think-tank – and currently an MP in Finland’s parliament. Libera says thatit’s an “unaffiliated think tank that supports and advances individual liberty, free enterprise, free markets and a free society.” And it has a proposal that might help the UK sort out its welfare mess – rather apposite in the week that the Chancellor, George Osborne, came in for furious protests against his Budget plans to cut £1 billion from personal independence payments (PIPs) for disabled people.

Libera published in 2013 a detailed analysis of what’s gone wrong with Finland’s welfare state, why reform is needed, and – most important – came up with proposed solutions. A version in English is available here. First, the problem: “Many of the Welfare State 1.0 institutions – such as social welfare and health care, education and taxation – were established during the Old Normal and on its terms…Faced with conditions created by the New Normal, the old systems plunged into an acute crisis. Version 2.0 needs to be built on different premises.” Then, the answer: Libera proposes providing an Unconditional Basic Income (UBI) to all Finnish citizens. Do away with most of the cumbersome bureaucracy (and the costs) of administering the welfare state, eliminate the fractious debates over ‘welfare scroungers’ – and incentivise individual creativity, savings and investments, and liberate individual choices.

Original article published here.

Libera’s recommendation is a system of state-funded individual welfare accounts, called the Life Account, which would record the charges paid and benefits received over one’s lifetime. A basic income of €600 could be withdrawn every month, independent of the account balance. All withdrawals from the account would be subject to income tax. The Life Account would have a flat tax structure and voluntary individual contributions to finance social transfers to people of working age. If the account balance is positive at the end of the account life cycle, the holder will keep what’s left. Any negative balance will be written off. Libera argues that the Life Account would incentivise work, studies and entrepreneurship. It would encourage saving and investment by permitting the transfer of part of one’s income into the account before taxes.

In the post-1945 era, welfare states were built on the certainty of future security; that economic growth would be the same tomorrow as it was yesterday. But the lingering financial turmoil, the digital revolution, the steadily ageing population, and widespread low productivity are all conspiring to wreck that certainty. Governments are being squeezed between ever-increasing welfare demands, and a stagnant tax-revenue base from which to meet those demands. More people in-and-out of work, the prospect of the robotic revolution doing away with swathes of previous human employment, the push-me/pull-you demands on government – the old model of a social contract is clearly breaking down under such pressures. So far the UK’s policymakers in government have tinkered with this structural problem, which all too often gets reduced to a left-wing v. right-wing tussle. The Living Wage idea in the UK is an old-economy solution: it satisfies no-one, making little real difference to those receiving it, and faces strong resistance from many small and medium-sized employers who see it eroding their already thin margins.

Solving the ‘too many demands, not enough tax revenues’ dilemma needs some radically innovative thinking; such thinking is readily available, not just in Finland. In the UK, the RSA has published its own argument for the UBI, calling it “a wedge of freedom” because “the choices [the UBI recipient] makes are based on their own agency rather than the state or, indeed, an employer…Basic Income is an old idea, advocated across the philosophical spectrum which could answer the needs of this time. Neither the current system nor a ‘contributory’ alternative meets today’s needs to the same extent: simplicity and clarity; properly supporting the lives of people, communities and families; enabling people to adapt to rapid technological change; and spreading the ability of people to develop and realise their creativity.”

Original article published here.

The UBI idea is even gaining interest in the US, where tackling poverty costs around $1 trillion every year, paid by a variety of 126 federal, state and local anti-poverty programmes. Andy Stern, former president of the US Service Employees International Union, has a book coming out in June called Raising the Floor: How a Universal Basic Income Can Renew Our Economy and Rebuild the American Dream. Stern argues that the US government should provide a universal basic income (UBI) of $1,000 a month to every US citizen. Switzerland is this year to hold holding a referendum on UBI; pilot projects on forms of UBI are being conducted in the Netherlands and Canada. UBI might sound mad, but it deserves a closer look. In the UK we can’t even agree what percentage of public spending goes to welfare, whether it’s 25% or 57%. Maybe it’s time we cut through this Gordian knot by introducing the UBI, set at a level that the country could afford. At the very least, it would remove the psychologically damaging stigma for all those currently existing on ‘welfare’. At best, it would do much more than that.

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