SC/S5/17/5/A

SOCIAL SECURITY COMMITTEE

AGENDA

5th Meeting, 2017 (Session 5)

Thursday 9 March 2017

The Committee will meet at 9.00 am in the David Livingstone Room (CR6).

1. Decision on taking business in private: The Committee will decide whether to take items 5 and 6 in private.

2. Citizen's Income: The Committee will take evidence from—

Professor Donald Hirsch, Director, Centre for Research in Social Policy, Loughborough University;

Siobhan Mathers, Advisory Board member, Reform Scotland;

Annie Miller, Chair, Citizen’s Income Trust and Trustee, Citizen’s Basic Income Network in Scotland;

Howard Reed, Director, Landman Economics;

Anthony Painter, Director, Action and Research Centre, RSA.

3. Subordinate legislation: The Committee will take evidence on the Council Tax Reduction (Scotland) Amendment Regulations (SSI 2017/41) from—

Robin Haynes, Head of Council Tax, and Dave Sorensen, Statistician, Scottish Government.

4. Subordinate legislation: The Committee will consider the following negative instrument—

Council Tax Reduction (Scotland) Amendment Regulations 2017 (SSI 2017/41).

5. Committee debate: The Committee will consider whether it wishes to submit a request for a chamber debate.

SC/S5/17/5/A

6. Citizen's Income: The Committee will review the evidence heard earlier in the meeting.

Simon Watkins Clerk to the Social Security Committee Room TG.01 The Scottish Parliament Edinburgh Tel: 0131 348 5228 Email: [email protected] SC/S5/17/5/A

The papers for this meeting are as follows—

Agenda Item 2

Written Submissions SC/S5/17/5/1

SPICe Briefing SC/S5/17/5/2

Agenda Items 3 & 4

Note by the Clerk SC/S5/17/5/3

SPICe Briefing SC/S5/17/5/4

Agenda Item 5

PRIVATE PAPER SC/S5/17/5/5 (P)

SC/S5/17/5/1

Social Security Committee

5th Meeting, 2017 (Session 5), Thursday 9 March 2017

Citizen’s Income

Background

1. The Committee agreed previously to hold an evidence session to investigate the feasibility of introducing a citizen's income in Scotland.

Written Submissions

2. The witnesses appearing today (listed below) have submitted written evidence in advance (attached in Annexe A):

 Professor Donald Hirsch, Director, Centre for Research in Social Policy, Loughborough University;  Siobhan Mathers, Advisory Board member; Reform Scotland,  Annie Miller, Chair, Citizen’s Income Trust and Trustee, Citizen’s Basic Income Network in Scotland;  Howard Reed, Director, Landman Economics;  Anthony Painter, Director of the Action and Research Centre, RSA.

3. They were asked to include answers to the following questions in their submissions:

 What level of basic income is sufficient?  How would it be funded?  Could it work in Scotland based on the current devolved powers?

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Annexe A

Written submission from Professor Donald Hirsch

A Citizen’s Income in Scotland

3 February 2017

My paper, Could a Citizens Income Work?, addresses what it would mean to have a full citizen’s income in the UK today. It argues that it would certainly require two big things that we are not at present ready for as a society. One is higher marginal tax rates as part of a major increase in the role of the state in redistributing income. The other is an acceptance by the taxpaying public that income should be given to every citizen unconditionally. Public attitudes in the UK in recent years have become more resistant to paying or voting for tax.

People have also shown in surveys a hardening attitude towards giving money to working age people who do not work, and a perception that it is too easy to claim benefits, even at a time when conditionality has been increasing.

In order to think about a citizen’s income in somewhere like Scotland, it is useful to two issues:

- Is a fully fledged citizen’s income system desirable and feasible? - If so, could the adoption in Scotland of certain selected features of citizen’s income be a first step towards such a model?

1) Issues with a fully fledged citizen’s income (CI).

To provide an adequate basic income unconditionally for every citizen requires a huge restructuring of tax and benefit systems entailing a substantial degree of income redistribution.

Among various models of how this can work, the most coherent have suggested that the additional funding required should be paid for through an increase in income tax rates and an abolition of the personal allowance. Even with a CI set at the present Income Support rate for a single person of £73.10 a week, this is likely to require all income to be taxed at least at about 40%. It is crucial in this discussion to note that £73.10 is on any objective criteria far too little to live on, and my team’s research on a Minimum Income Standard suggests that a single person needs more than twice that amount. Funding an adequate citizens income could mean taking around half of everyone’s income in tax.

Yet even a 40% rate combined with the abolition of tax thresholds and national insurance contributions to pay for £73.10 a week would have very visible redistributive effects, not all of which would feel just. For example a single person

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would break even (with a more severe tax burden cancelling out the CI gain) earning just £10,000 a year, and someone working full time on the present minimum wage for over-25s would be £350 a year worse off – so some low income people would be helping to pay both for some families who would appear better off than themselves and for those who chose not to work. A simple system is bound to produce such apparent anomalies; the more you tinker to try to avoid them, the more you lose the simplicity.

The most obvious barrier to the very idea of a full citizens income as a goal is the public’s attitude to supporting people to live, and imposing no conditions to seek paid work. This requires society to accept that at least some people will choose not work if they are supported. Even if citizens income “experiments” show that say 90% of people given free money still choose to earn more, society’s willingness to pay an income to the 10% who do not will still be a crucial issue. (It is also worth noting that an experiment such as Finland’s that allows selected unemployed people to keep benefits unconditionally for two years do not really test what people would do under a full citizen’s income scheme. If such a scheme was funded through higher marginal tax rates and an abolition of tax allowances, incentives to work would be different from now.)

It is important to address these fundamental issues in thinking whether a citizen’s income system is an appropriate goal to move towards. It is no good, for example, to say that the severe tax effects of a CI can be dealt with by making a start with a very much more modest payment, which is not a full citizens income. This would introduce more not less complexity if combined with existing means testing systems, making it only worthwhile as a stepping stone to a full CI, not a permanent hybrid. The conditions that might make a large tax-funded redistribution unpalatable will not go away as a result of having such a hybrid in place, especially if its complexity failed to make voters fall in love with CI. A partial system may thus be a stepping stone, but only if we really believe that the obstacles to a full version will be overcome.

2). Is it feasible for Scotland to take some first steps towards a CI?

Scotland has gained some additional powers over taxation and some aspects of benefits and Universal Credit (UC). I am not an expert in the scope of these powers, so cannot comment in detail on what might be possible. However, some important considerations to take into account in thinking about the local schemes that have been suggested are:

- Whether Scotland has the power to vary conditionality in benefits/UC, in selected areas? - Whether Scotland has the power to vary the means-testing of benefits/UC against earnings, in selected areas? - What aspects of taxation could contribute to the funding of a CI in selected areas?

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All three of these questions involve issues affecting both the devolved powers of the Scottish Government and the necessity of it authorising changes to local areas – some reporting of proposals for CI in Glasgow and Fife has wrongly implied that councils could implement such policies on their own initiative.

Assuming that there is some scope to alter conditionality and means-testing around benefits/UC, one type of experimental policy that has commonalities with a full CI can be labelled “benefit run-on”. This policy, which is the main idea of experiments in Finland and in Dutch cities, entails allowing claimants of out of work benefits to continue receiving payments for a period, whether or not they work. Such a policy can help people with sporadic work to have a more stable baseline income and to avoid the burden of frequent dealing with the benefits administration, while improving work incentives by avoiding any reduction of benefit against earned income.

It is undoubtedly worthwhile to explore ways in which benefit run-ons can produce a more productive system of social security in times of precarious employment. Indeed, the UK government has already introduced certain measures that have been tolerant to changes of income over a period. The last Labour Government introduced a £25,000 a year disregard into the tax credit system affecting changes of earnings from one year to the next, so that if your earnings rose after you had been assessed at the start of the year, you did not incur an overpayment. (This has since been reduced to £2500). “Extended Housing Benefit Payments” have for some time allowed people entering work to continue to claim this means tested benefit for four weeks after they start earning. There is plenty of scope to extend this principle to make means-tested payments less sensitive to short-term changes in income.

There is also scope for lightening conditionality, and for making means-testing less steep, all of which could be done within our present benefits system.

This does not however amount to a citizen’s income in its usual meaning. Importantly, benefit run-on only applies to people who have previously been claiming out of work benefits, and for a limited period, rather than for everybody. Under the experiment adopted in Finland, for example, if two colleagues are in jobs earning the same amount, one may not have been recently unemployed, and receive nothing from the state, while someone taking part in the experiment, having previously been unemployed, will get benefits alongside their wage. Under a CI system, both would be getting the same payment from the state.

In this context, Scottish experiments may potentially be seen as testing ideas for a benefits system that works better for users, which may not necessarily lead to a CI system. There is much that could be done in Universal Credit to capture some of the benefits of CI. Conditionality could be lightened (or indeed abolished).

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Means-tested withdrawal against earnings could be made less steep. Basic rates could be made more adequate. Many criticisms of UC have regarded the frugal way it has been introduced, rather than its underlying structure.

But there remains a crucial difference between basic income that is universal and benefits that depend on having low or no earnings. In both systems, when your earnings rise, some of the benefit accrues to the state – whether through increased taxes or reduced benefits. But in our present system, this happens faster when people first earn; or conversely, when people lose their jobs, their benefits from the state increase more sharply than just a reduction in income tax liability at the basic rate. Without this latter feature, providing adequate support for those who are not earning is hugely expensive. At any one level of taxation, the amount you can provide for people with nothing will be less generous under a citizen’s income than a more targeted system. The biggest risk of CI is that it leaves the most needy with income (and, potentially, services) that are wholly inadequate.

Written submission from Reform Scotland

21 December 2016

Reform Scotland is delighted to respond to the committee’s call for written and oral evidence on a citizen’s income being introduced in Scotland.

Reform Scotland published The Basic Income Guarantee in February 2016. That report can be read in full on our website and includes a detailed breakdown of how the policy could be introduced and one way of paying for it. This written submission summarises the report.

The current welfare system is confusing and ineffective The current welfare system is complicated both for claimants to navigate and for government to administer. Successive governments have added to and/or tinkered with it in pursuit of their particular policy objectives. It is made up of a lot of different benefits, some of which interact with others, some of which are to be devolved and some of which are being reformed. It has universal and means-tested elements. Its operation often involves extensive bureaucratic interference in people’s lives.

An effective work-related benefits system should do two things. Its first role is to provide financial security for those out of work –a safety net. Its second is equally important, to help and encourage those who can to re-join the workforce - a safety trampoline.

As set out in the graph below from the Citizen’s Income Trust, the current system fails the second test as it can often act as a disincentive to work.

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Graph 1: Minimum wage and Income Support / Jobseeker’s Allowance (graph from Citizen’s Income Trust)

Many people gain no financial benefit from returning to or increasing their work. This is the so-called welfare trap. How the combination of benefit withdrawal and tax affects individuals will vary due to factors such as eligibility, family structure etc. However, the impact is substantial. Why would people want to find a job or increase their working hours if they were to receive no financial gain? This inherent and long-standing problem with the current system is the principal reason for the Basic Income Guarantee.

A BIG idea – the Basic Income Guarantee Any system which actively discourages work, as the current system does, is in urgent need of an overhaul.

The current UK Government’s main policy in this area is Universal Credit which is intended to simplify payments when fully implemented. But the problem of the combination of tax and benefit withdrawal leads to high marginal tax rates faced by people on low incomes taking up or increasing their work would remain. Work does not pay.

Having looked at the possible options, Reform Scotland’s conclusion is that the best way to solve this fundamental problem is to introduce a Basic Income Guarantee. Each person would receive an income from the state which cannot be withdrawn or reduced. Any earnings on top are taxed but the Basic Income Guarantee is never withdrawn. So work always pays.

There are other benefits. It would be simpler than the current system, and so should permit lower administration costs and less intrusion in peoples’ lives. Each person is treated as an individual as opposed to part of a household. As a result, people would be treated equally irrespective of gender, while marriage or cohabitation would not be subsidised or penalised.

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The calculations Reform Scotland has tried to keep the written submission to the page limit. Whilst this limits our ability to offer a detailed explanation about how we feel the policy can be funded, the full explanation can be read in our report online. The following is simply one example of how a Basic Income could be funded:

We have used proposals from the Scottish Greens as the basis for the financial workings, setting the Basic Income Guarantee at £100 per week per adult and £50 per week per child. (For simplicity we have left the state pension covering pensioners for the time being)

Reform Scotland acknowledges this policy has a cost, but considers that it would be offset in the long run by the policy’s considerable benefits.

According to the Scottish Government, 17% of Scotland’s 5.33 million population were under 16, with 65% aged between 16 and 64.1 As a result, the cost of implementing the Basic Income Guarantee in Scotland would be £20.4 billion p.a. (£18 billion for the adult component and £2.4 billion for the child component)

 Scrapping certain benefits which would be replaced by the Basic Income would save about £3.6 billion in Scotland.  Ending the personal allowance would generate about £5.2 billion in Scotland.  Merging NI & Income Tax: o Taxing the 2.46 million taxpayers who don’t currently pay National Insurance on earnings under £8,000 would generate roughly £2.36 billion. o Abolishing the upper earnings limit would generate roughly £1.65 billion.  Increasing tax: The IFS report, ‘Taxing an Independent Scotland’,2 suggests that a 1 per cent increase to all rates of income tax in Scotland could raise £430 million. An additional 1 per cent on the personal allowance level would raise £261million. As a result, an additional one per cent on all earned income would raise about £691 million in Scotland. Increasing Income Tax by 8p, therefore, would generate £5.53billion in Scotland.

Although there is still a shortfall of about £2 billion for Scotland, this represents only about 10% of the cost of the policy.

These assumptions exclude the economic benefit - including revenue increases - associated with the extra employment likely to arise as a consequence of ending the current system’s structural disincentives to enter the workforce. Further, they do

1 http://www.gov.scot/Topics/People/Equality/Equalities/PopulationMigration

2 http://www.ifs.org.uk/bns/bn141.pdf

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not take into account the savings associated with ending the current ‘policing’ of the work activities of those in receipt of benefits which is bureaucratic and costly.

So, while the calculations shown above imply that a Basic Income Guarantee would cost more, there are strong arguments to suggest that it would lead to changed behaviour and a bigger workforce. We don’t believe that these shortfalls are insurmountable and, therefore, we believe that delivery of this policy is achievable.

Effects of a Basic Income The following table illustrates the consequences of introducing a Basic Income on a range of earners. It is worth remembering that these figures do not include the child level of Basic Income to which parents from all income households would be entitled. Two children would increase a household’s income by £5,200 per year (in contrast to the £1,600 only certain households currently receive in child benefit).

Effects of a Basic Income on individual tax incomes Current Current net Proposed net Total income Difference income pay3 pay including basic income £5,000 £5,000 £3,000 £8,200 £3,200 £12,000 £11,247.20 £7,200 £12,400 £1,152.80 £15,000 £13,287.20 £9,000 £14,200 £912.80 £20,000 £16,687.20 £12,000 £17,200 £512.80 £26,000 £20,767.20 £15,600 £20,800 £32.80 £30,000 £23,487.20 £18,000 £23,200 -£287.20 £35,000 £26,886.20 £21,000 £26,200 -£686.20 £50,000 £36,326.20 £28,400 £33,600 -£2,726.20 £100,000 £65,326.20 £48,400 £53,600 -£11,726.20

As the Basic Income is an individual payment, in contrast to current household benefits, the benefits of a Basic Income would actually be felt by more people. For example, a household where one partner earns £60,000 a year, would go from a net pay of £42,126 to £37,554, a reduction of about £4,500 once the Basic Income was taken into account. However, if that was within a household with three children and only one working person, the household income would actually increase. The stay- at-home parent would go from zero to an annual income of £5,200, and there would also be £7,800 per year for the three children, an increase from the zero child benefit that would currently be received. As a result, the household would be better off by about £8,400.

The Table above highlights the impact on individual tax income, not household income, because a Basic Income shifts from a household basis to an individual one. However, even those individuals in the higher tax bands may or may not be better

3 http://www.uktaxcalculators.co.uk/

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off depending on their personal circumstances. Due to the complexities of the many other benefits that would still be available as well as the numerous types of households, it would be impossible to cover every scenario. However, the table below illustrates a couple of additional specific suggestions which assume recipients receive no government benefits other than child benefit (where applicable) and show a wider number of households would be better off.

Some examples of households who would benefit from a Basic Income Scenario Current net pay Proposed net pay Difference (+ child benefit including Basic where applicable) income Two parent family, £53,772.40 pay + £42,000 net pay, + +£2,038.80 each earning £35,000 £1,788.80 child £10,400 adult basic per year, with two benefit =£55,561.20 income and £5,200 children child basic income =£57,600 Two parent family, £58,813.40 net pay, £44,357.20 net pay + +£1,143.80 one earning £60,000 no child benefit £10,400 adult basic one earning £20,000, income and £5,200 with two children child basic income = £59,957.20 One parent £30,287.20 net pay £24,000 net pay + +£2,324 household earning + £1,788.80 child £5,200 adult basic £40,000 with two benefit = £32,076 income and £5,200 children child basic income = £34,400 Two parent £65,326.20 net pay, £48,400 net pay + +£1,273.80 household, one no child benefit £10,400 adult basic parent earning income and £7,800 £100,000, one parent child basic income = not working, with £66,600 three children

It is important to remember that a number of benefits, such as Employment & Support Allowance (which is aimed at the sick and disabled) and Housing Benefit are not included. Therefore, households which include those with disabilities or carers, for example, would still receive additional income and they would not be subject to any benefit cap.

Implementation At present, even with the new welfare powers being devolved to the Scottish Parliament, the Scottish Government on its own could not introduce a Basic Income Guarantee. This is because the benefits to be devolved are not work-related and address other forms of hardship. However, such a reform could be enacted in partnership with the UK Government, whether as a policy just for Scotland; as a pilot for the whole of the UK or as part of reform across the whole of the UK

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In any case, the current patchwork of devolution throughout the UK is likely to change over time and so Scotland may gain further welfare powers. As part of its Devolution Plus proposals, Reform Scotland argued that the majority of benefits should be devolved to the Scottish Parliament. It makes sense to bring together the policy areas associated with alleviating poverty, such as social inclusion and housing, with benefit provision that remains reserved. Devolution of welfare has already happened in Northern Ireland where the Northern Ireland Executive has been responsible for social security, pensions and child benefit since 1998. However, Northern Ireland’s Executive does not have the fiscal powers necessary to raise the money it spends in this or any other area. So all that is really devolved is administration, with real power remaining at Westminster.

That is why Reform Scotland has consistently argued that effective, transparent and accountable government requires devolved administrations being able to raise and control most of the money that they spend.

Clearly, if any government, at Westminster or Holyrood, is going to implement a Basic Income Guarantee it would need to examine a range of different options and might want to consider pilot schemes, as have been considered in other jurisdictions.

So, regardless of where the bulk of responsibility for welfare policy rests – Westminster or Holyrood – Reform Scotland is advancing the Basic Income Guarantee to replace the current work-related benefits system.

Siobhan Mathers Reform Scotland Advisory Board member and co-author of The Basic Income Guarantee

Written submission from Annie Miller, Chair of Citizen’s Income Trust, (www.citizensincome.org), and Trustee of Citizen’s Basic Income Network Scotland (www.cbin.scot)

PRELIMINARIES

Definition: A Basic Income (BI) is defined as being: based on the individual, universal to a defined population, not means-tested, non-selective (except by age), unconditional and delivered regularly and automatically to those who qualify.

It would be expected to cover only basic needs: food; alcohol and tobacco; clothing; household goods, insurance and other services; fuel and other housing costs; personal goods and services; travel costs; and social and cultural participation (see Minimum Income Standards, 2016, Budget Summaries 2008-16). It would not be a life of luxury.

A means-tested Housing Benefit system and a needs-based Disability Benefits system would have to be retained as parallel but separate systems, giving payments in addition to the BIs. Childcare provision would also be separate.

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Objectives: a BI scheme could help to fulfil the following objectives:  To value individuals for their own sakes, giving them financial privacy and autonomy; financial independence emancipates and empowers adults, giving them more control over their lives, especially over the use of their time.  To prevent, or at least reduce, income poverty, and to provide financial security; to grant the right not to be destitute; to increase wellbeing, security, health, and educational opportunities, to help everyone to develop to their full potential.  To redistribute income and heal our divided society, eventually helping to create a more united and inclusive society.  To restore the incentive to work-for-pay provided by the wage rate, by ending means-tested benefits (MTBs) and their high marginal deduction rates; especially helpful for self-employed workers and small businesses; to reduce unequal power relationships, and grant the power to say no to drudge work at rock bottom wages, and choose a better work-life balance. The labour market scene in the future is uncertain, but a BI scheme would work well for most possibilities.  To simplify the administration of the social security system, reducing the time- consuming personal effort needed and the stress experienced when applying for benefits currently, thus reducing the risk of errors and fraud; and eventually to make the system more transparent and accountable.

WHAT LEVEL OF BASIC INCOME IS SUFFICIENT?

The UK has incorporated the official EU poverty benchmark into the Child Poverty Act 2010. It is defined as ‘0.6 of median equivalised household income’. The DWP’s Households Below Average Incomes, 2016 edition, page 3 gives figures for 2014-15. Two versions are published – one for Before Housing Costs have been deducted (BHC) and the other for After Housing Costs have been deducted (AHC). The latter is the relevant one for BI schemes in Scotland/UK at present, given the wide variation in house prices and rents resulting from the last four decades of UK housing policy.

In 2014-15, 0.6 of median income (AHC) for a couple was £242.40 pw. The first and second adults in a household are given weights of 0.58 and 0.42 respectively, corresponding to £140.59 pw and £101.81pw. Other adults in a household and children aged 0-13 are given weights of 0.42 and 0.20 (£48.48 pw) respectively. None of the current main income-replacement MTBs for working age adults (Income Support (IS), Jobseeker’s Allowance (JSA), Employment and Support Allowance (ESA) or Universal Credit (UC)) meet this standard.

A proposed alternative to the EU official poverty benchmark is based on the mean gross income of men, women and children. In 2015 in Scotland, this was £20,461 (£392.40 pw) (SNAP, 2016: Table I). This standard would be as follows: for BHC, where a housing cost element is included in the BI, a full BI would be 0.50 of the mean, for pensioners (aged 65 or over) and the primary caregiver or Parent with Care (PwC) of a dependent child (aged 0-15); a partial BI for other working age adults would be 0.40; and children would receive 0.20 of this mean. When circumstances preclude a housing cost element from being part of the BI, the AHC

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standard would be 0.40, 0.32 and 0.16, currently yielding £157.00, £125.60 and £62.80 pw respectively. This system indexes the BIs to the prosperity of society.

Stage 1 could be achieved by embedding BIs within the current social security system. The BIs would count as income against the MTBs to which a recipient might be entitled. If the BIs match the current income-replacement MTBs, then former recipients would be lifted out of the current MTB system and its humiliating, stressful, despair-invoking complexities.

Stage 2 would increase the BI for working age adults (aged 16-64).

Stage 3 would increase it further to match the official EU poverty benchmark or its alternative version. The EU poverty benchmark is the Gold Standard to which the Scottish Government should aspire. When this has been achieved, the population could then vote on whether to adopt a more generous benchmark, such as that provided by the Minimum Income Standards.

HOW WOULD IT BE FUNDED?

A range of possibilities to fund a BI scheme has been proposed, including a wealth tax such as a Land Value Tax, expenditure taxes, (such as a Sales Tax or VAT), Sovereign Wealth Funds (SWFs) based on the community control of community- owned natural resources, such as Norway’s SWF or the Alaska Permanent Fund, both based on oil revenues – a long-term solution; also carbon and other resource taxes, seigniorage (printing money), or a Tobin Financial Transaction Tax, which would need international co-operation.

All of the BI schemes put forward in the last two or three years rely heavily on the income tax and National Insurance (NI) systems as major sources of finance.

Using the personal income tax system (together with NI Contributions by employees and self-employed people) to fund BI schemes has the following advantages:  Cash payments and income tax are reverse sides of the same coin, and should be treated as a single system, even if the different branches are administered separately.  Similarly, the Social Security system, which cost £262bn in 2015-16, and the benefits given to taxpayers through the non-collection of income taxes and NICs as a result of tax loopholes, (called tax expenditures), costing £235bn in 2015- 16, should similarly be considered as a single system.  Income tax and NICs are the only taxes that could raise enough revenue.  Hypothecating (ring-fencing) income tax and NICs to be used for paying only BIs, other retained cash payments and their administration costs, is the most effective method of redistributing income from richer to poorer members of society.

This method of funding BI scheme is economically viable, even if some do not regard it as politically feasible just now.

NB. In 2015-16 tax expenditures, including the Personal Allowance and other tax exemptions, reliefs and allowances, cost £235bn or about 17% of gross income in

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the UK. This is effectively removed from the potential income tax base. Income tax and NICs removes a further 32% of the 83% remaining income, leaving 56.5% available for taxpayers’ pockets. In other words, 43.5% has been taken off gross income, which is 11% more than we are led to believe. Those tax loopholes have reduced the tax base and increased by 11% the effective tax rate facing those who pay income tax.

Government Expenditure, (as contrasted with the Government’s Social Security expenditure), could be paid for out of indirect taxes.

COULD IT WORK IN SCOTLAND, BASED ON THE CURRENT DEVOLVED POWERS?

A full BI scheme that met the poverty benchmarks would be financed most effectively by a restructured (proportionate or progressive) income tax system, in which both income tax and NI systems are subsumed, there are no tax loopholes, everyone pays the same rate of tax on all sources of income, and which is hypothecated to pay for the whole cash transfer program.

The Scotland Act 2016 has devolved to the Scottish Government the power to create new benefits and to set thresholds and rates of income tax. The Westminster Government has reserved to itself the power to change the multitude of tax loopholes, many of which favour the wealthier sections of society in proportion to their incomes. This makes the task more difficult, but not impossible.

Create a new benefit, a tax-exempt BI, where: assessment and delivery are based on the individual, rather than the couple as now; it is universal to people who have the legal right to reside in the UK, and who have lived in Scotland as their only or main home for a minimum residency period (length to be decided); it is not means- tested; it is unconditional; and it is delivered regularly and automatically to those who qualify. It is non-selective except by age and by giving a premium to the parent with care (PwC), (who receives and administers the dependent child’s benefit on his/her behalf). This is equivalent to giving more for the 1st child, as now. Pensioners would have to choose between retaining the basic element of their State Retirement Pension (SRP) (£122.30 pw maximum in 2017-18) or the new contributory State pension, and moving to the full BI which will never be less than 0.4 of mean income per head of the Scottish population.

Stage 1 sets up the BIs such that they will lift the people in Scotland out of the misery of the current MTB system. The BIs would be set at the levels of the main income-replacement MTBs in the current system (Pension Credit, income-based IS, JSA, ESA, and UC, Child Tax Credit and Working Tax Credit). These will be counted as income when assessment is made for MTBs, and the people in Scotland should find themselves just above the MTB system. The Child BI should encompass the current Child Benefit during stage 1, because it is more generous for 16-19 year-olds who stay on full-time at school than the BIs based on the current MTBs for young adults.

Stage 2 will increase the BIs of working age people (aged 16-64).

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Stage 3 will adopt the alternative poverty benchmark, further increasing the level of the BI for working age citizens.

The following example demonstrates that the BI scheme is economically viable.

TABLE GIVING DETAILS OF THE THREE STAGES OF THE BI SCHEME

BI SCHEMES, based on 2017- Stage Stage Stage 18 benefit levels 1 2 3 AGE 2015 Population £ pw £ pa £ pw £ pa £ pw £ pa 5,373,000 65+ 983,000 159.35 8,309 159.35 8,309 157.00 8,186 64 61,736 159.35 8,309 159.35 8,309 125.60 6,549 25-63 2,800,864 73.10 3,812 100.00 5,215 125.60 6,549 16-24 615,110 57.90 3,019 100.00 5,215 125.60 6,549 0-15 912,290 66.87 3,487 66.87 3,487 62.80 3,275 PwC (554,197) 17.42 545 17.42 545 31.40 1,637

COSTS £ m £ m £ m With no Pers Allowance 24,900 30,178 35,458 with Pers Allow of £3,911 +3,201 +4,164 +4,164 the COST equals 28,101 34,342 39,622

SOURCES of FINANCE £ m £ m £ m

Savings from replacing MTBs, & basic SRP 11,734 11,734 11,734

Income tax system Remove Pers Allowance 9,416 12,271 12,271 % % % Incr. rate on dividends by 10 456 10 456 10 456 Increase basic rate by 3 1,793 10 5,977 10 5,977 Increase higher rate by 3 188 5 313 5 313 Create new threshold at £80,000 Introduce extra rate on £80,001 to £150,000 2 63 3 94 3 94 Increase additional rate by 3 15 8 40 8 40

New Taxes Land Value Tax on 2009 £120,000m evaluation 3.16 3,792 3.16 3,792 3.16 3,792 Sales tax, (like a State tax in the USA), on GDP 1 1,466 3 4,398 TOTALS 28,923 34,667 39,075

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FURTHER DEVOLVED POWERS to the Scottish Government would increase the range of sources of finance available to fund the BI system:

The National Insurance (NI) system:

As the levels of the BIs increase, they would take over many of the functions of the NI benefits, generating savings by replacing contribution-based JSA and ESA (£26m), Incapacity Benefit (£371m), and Maternity Allowance (£36m) £433m.

The NI system could be subsumed into the income tax system and no new liabilities would be created. The following NI benefits would be retained: Graduated Pensions, SERPS and S2P (£1,612m); Guardian’s Allowance (£48m), Statutory Sick Pay (£8m), Statutory Maternity Pay (£196m), and Statutory Paternity Pay. (Data based on one twelfth of 2015 figures from Tables 5.1.4, and 5.2.4S of UK National Accounts, The Blue Book, edition 2016). These benefits are already in the system and so do not create new expenditure.

Reduce the NI Primary Threshold, (where workers start to pay NICs), to match the new Personal Allowance in income tax of £75 pw (£3911 pa), saving £1,816m.

The Employers’ NICs, (hard-fought for to contribute to workers’ welfare), could be retained as a payroll tax, and the revenue, £5,514m, could reduce income tax rates by about 5%.

Powers to close tax loopholes:

The tax rules permit the maximum rate of tax relief on contributions to pension schemes of up to £40,000 out of income in a year, amounting to a windfall of £18,000 to each. On the principle that it is more important to ensure that every senior citizen has an adequate pension, rather than to subsidize wealthier people to increase theirs, closing this tax loophole can save £3,891m.

Every tax allowance, relief and exemption should be examined to test whether it contributes to the public good. Even if it does, a more visible method of funding should be created. For instance, governments support charities because they do much good work. Rather than use Gift Aid to do so, the government could provide support more efficiently through a 25% top-up to each charity’s annual donations. Closing the various other tax loopholes would save £5,712m.

The distribution of gross incomes of 4,461,000 adults (in 000s) was estimated to be as follows: £0-£3,911, 900; £3,912-£8,164, 742; £8,165-£11,500, 400; £11,501-£20,461, 807; £20,462-£45,000, 1,243; £45,001-£80,000, 200; £80,001-£150,000, 142; £150,001+, 27.

Details of the sources of data, assumptions and calculations can be made available to the Scottish Social Security Committee on request.

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Written submission from Howard Reed, Director, Landman Economics

Introducing a Universal Basic Income (UBI) for Scotland

This written submission addresses the following three questions as instructed by the Committee:

Question 1: What level of basic income is sufficient?

There are various different definitions of a "sufficient" income. One obvious measure of sufficiency is the Minimum Income Standard (MIS), which is calculated by researchers at the University of Loughborough for the Joseph Rowntree Foundation. The MIS is "a benchmark of adequate income based on what the public think people need for a minimum acceptable living standard in the UK." If Universal Basic Income (UBI) were designed to be sufficient to live on without any other income, this would seem to be an obvious benchmark to use.

Unfortunately, due to the level of MIS for various types of family, it is unlikely that an UBI at (or even near) the MIS level could be funded using any conventional tax instrument. Work by Richard Murphy and myself in 2013 for the CLASS thinktank suggests that paying an UBI at the MIS level for the UK would cost in the region of £500bn per year (just over a quarter of the UK's annual Gross Domestic Product). Even after abolishing all existing benefits and tax credits the net extra cost of UBI at the MIS level across the UK would be around £300bn per year. This would be a substantial additional expenditure – equal to almost 3 times the entire budget for the NHS in England. I have not worked out specific figures for the cost of paying UBI at the MIS level in Scotland but they would most likely be of a similar magnitude relative to Scottish GDP.

Because of the difficulties of funding an UBI at the MIS level, my recent work on UBI has focused on funding a basic income payment at around the level of the current Jobseekers' Allowance for a working age individual (around £73 per week) with a smaller allowance for children (£59 in recent work with Stewart Lansley – considerably above the Child Benefit level but not enough by itself to eliminate child poverty) and for pensioners, at or above the level of the current Pension Credit Guarantee. For working age adults the JSA level is inadequate by itself to avoid poverty; however it should help avoid the ignominy of having to go to foodbanks, and would also lessen dependence on such insidious channels of short-term income support as payday lenders. I would recommend introducing an UBI scheme at a relatively low level and work upwards from there – moving some of the way towards MIS – as growth in the economy allows.

It is also important that much of the existing tax credit and benefit system is retained alongside UBI if UBI is introduced at this low level; if it were abolished there would be significant losses among many of the poorest families in the Scottish population, which would be unacceptable on ethical grounds.

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Question 2: How would UBI be funded?

My recent work with Stewart Lansley for the research and campaigning group Compass (Universal Basic Income: An idea whose time has come?) suggests that an UBI paid at around a weekly level of £51 for pensioners (on top of the current State Pension), £71 for adults below pension age but over 25, £61 for adults under 25 and £59 for children (in place of Child Benefit) would cost around £160bn per year if the UBI was taken into account when calculating existing means-tested benefits. This could be (approximately) funded by abolishing the income tax personal allowance and the employee National Insurance Contributions lower earnings limit, increasing all income tax rates by 5% and having a flat rate of 12% employee NICs on all earnings. These results are an important rejoinder to critics who have insisted that UBI schemes are inherently unaffordable. An UBI could be afforded using changes to the rates and thresholds of the existing income tax and NICs schemes.

That said, it may be that there are more creative ways to fund UBI which would be more feasible, more progressive and/or more popular. Section 4 of the Compass report discusses a few other options for funding UBI, including:

 Increased tax on wealth and assets – for example through a tax on land values, higher tax on capital gains, and/or a tax on financial transactions;  establishing a targeted UBI social wealth fund, in which the returns from investment in the fund contributed to the annual cost of UBI payments.

Could basic income work in Scotland on the current devolved powers?

There are three issues here:

(1) power to pay an UBI,

(2) interaction of UBI with other benefits and tax credits, and

(3) power to raise funding to meet the cost of UBI.

I discuss these in turn in this section.

(1) Paying an UBI The additional powers over benefits which the Scottish Parliament has now assumed as part of the 2016 devolution settlement include control over the level and rates of benefit payments, and crucially, the power to establish new benefits. Hence the Scottish Government clearly has the power to pay an UBI as a new type of benefit.

(2) Interaction of UBI with other benefits and tax credits Because the Scottish Government has control over the level and assessment rules for benefits, the interaction of UBI with other benefits is no problem; for example, UBI can be treated as income for the purposes of calculating entitlement to means-tested benefits (as suggested in the Reed/Lansley Compass report).

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The question of interaction of UBI with tax credits (and with Universal Credit, as UC gradually replaces tax credits and much of the means-tested benefit system) is more problematic, as Westminster has retained control over the levels of tax credits and UC. The best way to proceed in this case would depend on whether the Westminster Government decides that UBI should be taken into account as income in the assessment for tax credits and/or UC (in the event that Scotland started to pay an UBI):

 If UBI is not taken into account as income for tax credits/UC, one option would be to have a hybrid system whereby UBI is paid on an unconditional basis for families who are not claiming tax credits or UC, but where UBI is tapered away at some rate (which could be pound-for-pound, or a less steep taper) for tax credit/UC claimants. Or, a simpler (but cruder) solution would be to have a lower rate of UBI entitlement for tax credit/UC claimants.  Alternatively, if the Westminster Government decides that UBI should be taken into account in the calculation of entitlement for tax credits and Universal Credit, the situation is the same as for means-tested benefits; UBI payments will reduce entitlement to tax credits/UC.

(3) Powers to fund UBI If UBI is to be funded by income tax, my understanding is that from April 2017 the Scottish Government has the powers to do this. (Note that the Reed/Lansley Compass report suggested funding UBI from a combination of income tax and NICs increases, but the Scottish Government would have to rely solely on income tax as NICs rates are still under the control of the Westminster Government. Also, the Scottish Government is not allowed to abolish the personal allowance for Income Tax – which was one of the means by which UBI is funded in the Reed/Lansley report – and so income tax rates for basic and higher rate taxpayers would have to be correspondingly higher to balance the books).

If UBI is to be funded by some other tax (e.g. a tax on land values), the feasibility of this would depend on whether the Scottish Government has the powers to introduce such a tax. I have not been able to find sufficiently detailed legal guidance on this point so cannot comment further on its feasibility under current devolution arrangements.

If UBI is to be funded by a social wealth fund, once again the feasibility would depend on whether the Scottish Government has the power to introduce such a fund. Again I am not sure whether this is possible or not under current devolution arrangements.

Of course, if the current range of powers available to the Scottish Government were to expand (either as a result of a further devolution of powers from Westminster, or as a result of a majority vote for Scottish Independence in a future referendum) then the range of options for funding an UBI would increase considerably.

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Written submission from RSA

How could Scotland run a Basic Income trial? 1. Definition of Universal Basic Income (UBI) UBI is a regular unconditional payment made to every eligible adult and child. It is not dependent on income and so is not means-tested. It is a basic platform on which people can build their lives – whether they want to earn, learn, care or set up a business. 2. What is a UBI pilot and what is a Basic Income (BI) experiment? It is useful to make a broad distinction between Basic Income pilots and Basic Income experiments, while recognising that initiatives may not fall neatly into either:

 Pilot: A full UBI pilot adopts the full principles of UBI as outlined above, but might be temporally limited or applied only to a subset of the wider population – a town, city or region for example.  Experiment: A BI experiment tests a certain aspect(s) of UBI such as impact on work, health or engagement with education and learning. Experiments are not full UBI pilots as they are not universal (eg they will target a particular cohort). In the RSA’s view, given the current powers and resources of the Scottish Government and Parliament, a trial would be more feasible as an experimental BI trial instead of a full UBI pilot. Nonetheless, this experimental trial is likely to generate very useful findings.

3. What would be the purpose of a Scottish BI trial? There are deep concerns about how the current and emerging system of tax, tax credits, and benefits is operating. Concerns include the degree to which conditionality, in and out of work, impacts family wellbeing, particularly with respect to benefit sanctioning. There have also been expressions of concern regarding the degree to which high marginal deduction rates can distort work choices as earnings increase. Despite evidence of some success in terms of increasing employment rates, there are questions about whether a complex system with conditionality can meet the needs of a changing labour market without creating negative impacts such as benefit delays, rent arrears, debt and a lack of labour market progression for the low paid. The Joseph Rowntree Foundation reports that four out of five individuals on low pay will stay there over a ten year period4.

Universal Basic Income has been proposed by a range of political parties, national, regional, local and city authorities (including Glasgow and Fife), think-tanks, academics and voices from civil society and business as an alternative system. The core argument, as expressed by the RSA, is that the relative simplicity of UBI from the perspective of the beneficiary creates a more solid foundation on which citizens can make critical life decisions.

Therefore a Scottish BI trial would be expected to achieve the following:

4 Joseph Rowntree Foundation, ‘We can solve poverty in the UK’, accessed at https://www.jrf.org.uk/report/we-can-solve-poverty-uk

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1. Advocates of UBI hypothesise that withdrawal from the labour market is unlikely other than where an individual takes time to find work more aligned with their skills, they intend to retrain and develop their learning, experiment with an enterprise, or take on greater caring responsibilities. Opponents claim there will be significant labour market withdrawal vis-à-vis the current system. A trial would test these hypotheses. 2. Based on previous trials in Manitoba, Canada and North Carolina, USA, positive impacts on physical and mental health, family well-being, and engagement with education have been detected at significant levels5. Would these benefits be repeated in a Scottish context? 3. A UBI, at a fiscally feasible level, would replace a whole series of benefits. However, additional support through the benefits system for disability, housing, Council Tax and child care are likely to remain. The way in which UBI interacts with these other systems could be explored through a trial. 4. A shift from the current system to a UBI based system would be a significant shift in the structure of tax and benefits. A trial generates a degree of public engagement and discussion with the proposition and promotes wider public awareness. Therefore, an experimental trial could serve an important democratic function.

4. Overview of current and planned Basic Income pilots/ experiments Various Basic Income pilots / experiments are currently occurring or scheduled to begin. The following table details some of the key features of three of the most significant (experiments are also planned in Utrecht, Netherlands, at a small scale in Livorno, Italy, in Kenya and potentially in India where the Federal Government is beginning to take a positive stance on UBI):

Finland Ontario* Oakland* Sample Size 2000 1000-2000 1000 Length 2 years 3 years 3 years, with subset receiving for 5 years Cost €20m TBA – likely Feb 2017 $19million* Evaluation model Before and after Before and after Short and frequent surveys, compared surveys; local web surveys, in- against control administrative data person interviews, group on health, education administrative data etc where possible * To be confirmed.

5 Painter, A. “A universal basic income: the answer to poverty, insecurity, and health inequality?” British Medical Journal, December 2016.

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Each of these pilots takes different approaches regarding the chosen model, target audience, saturation site and how the experiment will interact with existing tax and benefit systems. Further detail is supplied in the Annex to this document. 5. Current Scottish Parliament Tax and Welfare Powers As of the Scotland Act 2016, the Scottish Parliament now has the following powers with regards to tax, benefits and welfare:  As of April 2017, the Scottish Parliament will have the the power to create employment schemes for those at risk of long-term unemployment and to help disabled people back into work. This means the current Work Programme and Work Choice schemes run by the UK DWP will be replaced by Scottish services to provide support to help unemployed and disabled Scottish people.6  Yet policy will be constrained by policy and financial decisions announced at UK Government spending review in November 2015 will substantially reduce funding for contracted employment support from April 2017.  Power to set income tax rates and thresholds for non-savings and non-dividend income.  Ability to top-up reserved benefits with discretionary payments. 7  Power to create new benefits in devolved areas. The following benefits remain reserved in Westminster: Pensions/ Pensions Credit, Child Benefit, Income Support, Tax Credits/ Universal Credit. The functions and programmes of the JobCentre Plus remain reserved.

6. Options for Scottish Basic Income experimental trial Considering the above, the Scottish government has a few options for how it might deliver a basic income pilot or experiments. Two of the options are outlined below:

1. Targeted cohort – the Finnish model (see Annex)

i. Structure: A Basic Income would be paid to a particular group or demographic for three years across Scotland, who in return agree to opt out of out of work benefits and in-work credits. The cohort could, for example, be recipients of work related ESA, long-term unemployed, or a group of 18 to 34 year-olds either out of work or in low pay.

This latter group is an attractive one for an experiment as they are likely to be highly sensitive to changes in incentives. These participants would receive job search and progression services alongside the Basic Income. Participants would be selected at random and a control group would also be selected (and paid a small, non-behaviour distorting, participation fee).

6 http://www.gov.scot/Resource/0049/00498123.pdf 7 http://www.parliament.scot/20160317_DevolutionGuide.pdf

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ii. Cost: A pilot of 1000 people receiving an income of £4000 (approximately the amount factored into the RSA illustrated UBI model8) would likely cost, in gross terms, approximately £10m per annum. In accordance with the principle of ‘no detriment’, UK Government savings on tax credits / JSA may rightfully be claimed by the Scottish Government reducing the gross cost to the Scottish Government considerably – savings on JSA alone can conservatively be estimated at £250,000 per annum, with savings on tax credits likely to be considerably more. There would likely be some ‘counter charges’ imposed by HMRC. The cost of the research component of the experiment would be £250,000-£500,000 across 3 years.

iii. Feasibility: It could be necessary to get HMRC agreement to disregard the Basic Income as taxable, to ensure that the participants did not face losses as a result of voluntarily not receiving the tax credits (as they would end up in the national insurance system more rapidly). Although it is feasible that some participants could renege on a pledge to not claim other benefits/credits, they would disqualify themselves from receiving the Basic Income should they do so.

There are interactions with other benefits that need to be considered. For example, housing benefit would either need to be given as an allowance to this group subject to a cap on earnings or withdrawn at a slower rate as earnings increase (so as not to recreate high marginal deductions of the current system). There would be some cost implications of either these approaches (though again ‘no detriment’ could reduce gross costs). Child tax credits create a similar challenge. Therefore, it could be advisable to only select single or couple-only households for the trial. Should that status change during the pilot, the Basic Income would not be withdrawn.

Finally, funding for the net cost of the BI experiment could come from four potential sources (or a blend of sources): (i) General expenditure (ii) Discretionary welfare budget (iii) Scottish government research budgets (v) Philanthropic or charitable donation.

2. Targeted cohort within one or a number of localities – the Ontario/Oakland model (see Annex)

The pilot would operate as above with the exception that it would be location specific. The advantage of this approach would be:

8 https://www.thersa.org/discover/publications-and-articles/reports/basic-income

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- Bespoke labour market support services would be easier to organise thereby testing the type of strategies that are most effective alongside the Basic Income to meet the needs and ambitions of the individual (or couple). - Interactions with Housing Benefit and Council Tax Credit could be contained and more easily managed. - The sites would be volunteer sites so are likely to be more proactive in imagining how public services, communities and civil society could work with individuals to help them make the most out of their Basic Income.

Given these additional benefits this model would be the recommended option of the RSA. Concluding comments The narrow view of UBI is that this is simply a reform of the tax and social security system. The RSA’s interest in UBI draws on a much wider lens. UBI is an opportunity to reconsider the interaction between the economy, the state, civil society and the individual. Any system of UBI will need not just a laisser-faire disposition but a set of institutions and interventions that reinforce norms of contribution (taking advantage of the so-called ‘fly-paper’ effect)9 – without falling back on the blunt and destructive instrument of hard conditionality. Therefore, in the Scottish pilot we have advocated proactive but voluntary support for individuals involved. Development of social norms must be a critical component of a Basic Income experimental pilot. This is not to skew the result; it is to imagine a system with a very different core logic of encouragement and support. Finally, by moving forward on a BI experiment, Scotland would be in a position to demonstrate that it is in the vanguard of the next generation of social policy. Moreover, as changes to current, struggling systems of support become necessary in the face a changing labour market, there will already be extremely valuable implementation lessons available. Scotland would demonstrate itself to be vanguard of modern social policy and 21st century social justice Annex Further background to ongoing and planned BI experiments.  Finland, 2017-19 o A payment of €560 per week paid to 2000 people selected at random from among 120,000 persons receiving unemployment benefits from the Finnish Social Insurance Institution Kela. o These recipients are geographically distributed across Finland o The non-taxable payment replaces the basic unemployment support, but continues even should a recipient find work and a taxable income.

9 https://www.weforum.org/agenda/2016/12/giving-money-to-the-poor-heres-what-they-really-spend-it-on

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 Ontario, TBC, provisionally 2017-2020 o Model likely to be a negative income tax by which the state pays those earning under a certain threshold, the amount increasing in line with level of deprivation o Saturation site is TBC, but one option being explored is a school district in a city such as Toronto. Geographically concentrating in this way allows for the study of ‘neighbourhood effects’ – the social multiplier effect of numerous people in a community receiving the payment o The target group will be limited to unemployed persons or those on low incomes o The programme will be designed to work within the existing tax and benefits system and administered through existing income assistance programmes. o It will align with Child Benefit, a new non-taxable, means-tested income, with those in receipt likely to receive a reduced basic income payment. The Child Benefit amount is flat up to $30,000 per year, after which it tapers off to nothing for the richest households.

 Oakland, 2017/18 – 2022/23 o Recipients will be randomly selected from census tracts, with the eligibility being anyone on or below median income. The pool will, however, likely be deliberately skewed to target those on low incomes and younger people o Recipients likely to be geographically dispersed throughout North Carolina. Discussions are ongoing regarding the addition of a second state. o It is currently being decided how the experiment will interact with existing tax and benefits systems o Payment size is likely to $1500-$2000 per month.

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Social Security Committee 5th Meeting, 2017 (Session 5), Thursday 9 March 2017 Evidence session on basic income 1. Introduction This paper provides background information for the Committee‟s evidence session on citizen‟s income, or (universal) basic income. This paper uses “basic income” or “BI” throughout, as the use of either “universal” or “citizen” could be taken to suggest a particular approach to eligibility based on nationality or residence, which is not common to the proposals discussed below. This paper outlines the concept, and some international BI pilot schemes. It then lists some UK and Scottish proposals, before considering some practical issues with implementing a BI, including in the current Scottish context. 2. The concept of a basic income The Basic Income Earth Network (BIEN) traces the idea of a basic income back as far as the early 16th Century, quoting Thomas More‟s Utopia (1516): “Instead of inflicting these horrible punishments, it would be far more to the point to provide everyone with some means of livelihood, so that nobody‟s under the frightful necessity of becoming, first a thief, and then a corpse.” BIEN gives a useful summary of the evolution public assistance measures, and how humanist, republican and socialist philosophy play a part in the evolution of the modern concept of a basic income.1 BIEN‟s view is that a “basic income” should be defined as “a periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement.” Some of the experiments described below instead use a negative income tax model to ensure that income never falls below a minimum level for people taking part in a pilot. However, this is arguably still a valid way to test the effects of a BI. Annie Miller, Chair of the Citizen‟s Income Trust and a Trustee of the Citizen‟s Basic Income Network Scotland, explained the difference between the two concepts to the House of Commons Work and Pensions Select Committee as follows: “Samuel Brittan, about 30 years ago, pointed out that a basic income, which is favoured by people who are concerned about the poor, is a separate payment and then the tax system would claw back. In the negative income tax system it is a different administration whereby the tax and benefit systems are integrated and so you either receive a net payment after your taxes have been deducted or you get a net benefit after your taxes have been deducted.

1 http://basicincome.org/basic-income/history/

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They are different administratively but they could produce the same outcome.”2 In Scotland, the welfare state provides a basic safety net for most people (albeit largely reserved to Westminster). Advocates argue that a basic income can be seen as a way of mending the social security system, which they argue is no longer fit for purpose. The arguments for BI include the prospect of automation of an increasing number of jobs, the need for security in a world of precarious employment, and the potential for administrative savings. The arguments against include that people getting a BI would choose not to work, that a flat-rate basic income may leave some people on the lowest incomes worse off than the current system, and the cost of implementing a BI scheme. Drawing on work by the Fabian Society, the House of Commons Library has produced an extensive list of arguments for and against a basic income, for a Westminster Hall debate on the concept. A series of international BI pilots are either in development, or underway. When complete, these may provide evidence of the potential effects of a BI system. However, recent media reports often suggest that pilots are further advanced than is actually the case. It is also not clear that that any current pilot schemes are actually introducing a BI as defined above. It is arguably a fairer description to say that they are experimenting with the effects of some of the features of a BI (particularly in relation to labour market participation) when compared to an existing social security system. Some of these pilots are outlined in the following sections of this paper. 3. International basic income pilots Finnish basic income experiment In Finland, the Government agency Kela3 is currently running a „basic income experiment‟ from January 2017 to December 2018 (with the possibility of extension). The first phase of the experiment involved the selection of 2,000 claimants of state unemployment benefits aged between 25 and 58 at random, in November 2016. The eligible group was only a proportion of unemployed Finns. This is because in Finland there is also a system of state-supported unemployment funds.4 Those covered appear not to have been eligible for the experiment, as they receive an earnings-related benefit from the fund, instead of state unemployment benefits from Kela.5 When the most recent Finnish unemployment benefit statistics were compiled (December 2015), only 18% of eligible participants for the experiment had a strong recent connection to the labour market.6 Once selected, participation in the experiment is compulsory. For this reason the experiment is designed to ensure that no-one is worse off with a basic income. Those selected to receive a BI are paid €560 a month, tax free, and are not

2 House of Commons Work and Pensions Select Committee Oral evidence: Universal Basic Income, HC 793, 12 January 2017 3 Kela (an abbreviation of “Kansaneläkelaitos”) is the Finnish social insurance institution broadly equivalent to the DWP. 4 http://www.tyj.fi/eng/unemployment_funds_/funding_and_regulation/ 5 http://www.nordsoc.org/en/Finland/Unemployment/ 6 See http://www.kela.fi/web/en/charts (Unemployment Benefit). There were 42,681 claimants of Basic Unemployment Allowance and 195,801 claimants of Labour Market Subsidy (for claimants without a strong recent work history or who have been unemployed for more than 400 days). For details of the difference between these benefits see http://www.kela.fi/web/en/unemployment

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SC/S5/17/5/2 monitored during the two years of the study. Participants who find work during the experiment continue to be paid the basic income. However, changes such as the following will end participation in the experiment:7  receiving a state pension  moving to out-of-work benefits  moving abroad for over 30 days  long term hospital admission. Those whose unemployment benefit entitlement is higher than the BI (such as families with children) must continue to meet the normal conditions to get that benefit. As the press release announcing the start of the pilot put it, “anyone receiving unemployment benefits along with a basic income will need to complete unemployment status reports and submit them to Kela.”8 After two years, employment outcomes of those receiving BI will be compared with a control group, made up of those eligible for the trial but not selected to take part. The Kela research team have already recommended that the pilots are extended in 2018. Possibilities suggested include trialling different levels of basic income, and admitting non-jobseekers and under 25s to the experiment.9 Dutch national pilots10 The Dutch national government has proposed an experiment which varies the obligations placed on benefit claimants to look for and take up suitable work.11 The design for the experiment is yet to be approved by the Dutch Council of State. The framework for the experiments is the national Participation Act, which allows for experiments to research options that may increase participation in work. Municipalities monitor compliance with conditions of the Participation Act. The Guardian quotes a Nijmegen Councillor on the difficulties that this can cause: “In Nijmegen we get £88m to give to people on welfare, …but it costs £15m a year for the civil servants running the bureaucracy of the current system.”12 Dutch municipalities will operate the experiments, needing to seek central Government approval for their plans. If approved in the current form, experiments may last up to two years, and cover either 25 municipalities, or 4% of benefit claimants in the Netherlands.

7 http://www.kela.fi/web/en/basic-income-report-changes 8 http://www.kela.fi/web/en/press-releases/-/asset_publisher/LgL2IQBbkg98/content/first-payments-of- basic-income-go-out-today?_101_INSTANCE_LgL2IQBbkg98_redirect=%2Fweb%2Fen%2Fpress- releases 9 http://www.kela.fi/web/en/news-archive/-/asset_publisher/lN08GY2nIrZo/content/research-team- recommends-expansion-of-basic-income-experiment-in- 2018?_101_INSTANCE_lN08GY2nIrZo_redirect=%2Fweb%2Fen%2Fnews-archive 10 There is little official information about the current situation available in English. This section attempts to give English language sources where possible, and notes references which are not available in translation. Some helpful presentations from a Kela conference comparing the Finnish and Dutch pilots in November 2016 can be found at this link: http://basicincome.org/news/2016/12/comparing-basic-income-experiments-finland-netherlands/ 11 https://www.eerstekamer.nl/bijlage/20160930/ontwerpbesluit_tijdelijk_besluit/document3/f=/vk7xmfpp 59nd.pdf (no English translation available). This is made under s83 of the Paticipatiewet (“Participation Act”) 12 https://www.theguardian.com/world/2015/dec/26/dutch-city-utrecht-basic-income-uk-greens

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The groups examined must include:13  A reference group (people not signed up for the trial)  A control group (people signed up for the trial who will be covered by the normal rules in the Participation Act)  At least one of: 1. A group exempted from the obligations to look for and take up work 2. A group required to make twice as much effort to look for work 3. A group who are allowed to keep an increased percentage of earnings on top of their benefits. If one group is exempted from the obligation to look for and take up work, another group must be required to double their work search intensity. Also, if a trial participant is exempt from the obligation to look for work, after 12 months the municipality can remove them from the trial if they are judged not to be making sufficient effort to look for work. Municipalities will have to seek volunteers for their experiments, who must be randomly allocated to different trial groups. Trial participants will then normally be required to complete the two years of the trial. BIEN reported the draft rules for the experiments alongside criticisms of the way in which they have been designed. This included the perceived deterrent effect of the possibility that volunteers may face a higher level of conditionality (and so a greater chance of being sanctioned).14 Utrecht basic income pilot Most Dutch municipalities appear to be awaiting approval of the national experiments. But the City of Utrecht and University of Utrecht plan to run their own trial, for two years from 1 May 2017. The trial will look at the effect of the obligation to “re-integrate” into the workplace (effectively to search for and take up work) on the likelihood of finding work, and also the impact of people getting extra financial benefit from working. Press reports suggest that around 400-800 people will be involved in the Utrecht trial.15 Participants have to volunteer, and will be chosen by lottery. In addition to a control group subject to the normal Participation Act rules, the trial involves:16  A group with no obligation to look for or apply for work  A group with no obligation to look for or apply for work, who also receive extra support and assistance to help them to find work  A group with no obligation to look for or apply for work, who are offered an additional payment of €125 per month to carry out work for the municipality  A group who must look for work, but can keep extra earnings on top of benefits (50% of extra income up to a max of €199 per month, for a period of two years).17

13 https://www.rijksoverheid.nl/documenten/kamerstukken/2016/09/30/nota-van-toelichting- experimenten (no English translation available) 14 http://basicincome.org/news/2016/10/netherlands-design-of-bi-experiments-proposed-meets- criticism-from-stakeholders/ 15 http://www.binnenlandsbestuur.nl/sociaal/nieuws/utrecht-start-1-mei-met-experimenten- bijstand.9558556.lynkx (no English translation available) 16 https://www.utrecht.nl/city-of-utrecht/living/welfare-experiment-weten-wat-werkt 17 This trial group will start later, as its operation depends on legislative approval of the national experiments set out above.

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Ontario basic income pilot The Government of Ontario is currently considering options for a BI pilot. A public consultation from November to January, requested the views of citizens on the design of the pilot.18 BIEN reports that a final design is expected in April 2017.19 Hugh Segal (who drafted the proposal for consultation) recommended testing: “A negative income tax (NIT), or refundable tax credit, that tops up all recipients to 75 percent of the Low-Income Measure,20 … a minimum of approximately $1,320 per month, non-taxable, with an opportunity to keep partial additional income earned from participation in the labour market.”21 Segal recommended that the pilot should last at least three years and that three "saturation sites" should be selected to test the effects of a whole community being entitled to a BI, alongside a randomised control trial (RCT) in a larger urban area. The idea of a saturation pilot is similar to the previous Dauphin BI experiment (see below). Segal suggested that in the RCT, four groups should be used to test different withdrawal rates and levels of basic income. Perhaps in the knowledge of how little research resulted from the Dauphin experiment at the time, there are also detailed recommendations for how research into the effects of the pilot should be undertaken. This includes suggestions for involving Canadian federal agencies. The list of suggested outcomes to measure is extensive, covering health, education and work behaviour, in addition to food security and administrative costs. A recent article by the Canadian Minster of Community and Social Services for the World Economic Forum suggests that 2,500 people will take part in the pilot.22 The Minister also expressed the hope that the complexity of the current “Ontario Works” scheme23 can be addressed, whilst Segal highlights the potential to avoid the poverty trap created by high marginal deduction rates24 in the current system. Dauphin, Manitoba – the Mincome From 1974 to 1979, Dauphin, (a rural community in Manitoba, Canada) was the subject of a “saturation” BI experiment. It took place alongside an RCT pilot in the city of Winnipeg. Dauphin is similar to the modern Ontario experiment, and the current thinking of those involved in the Fife proposals (see below). Whilst it is perhaps the most well-known 1970s BI pilot, it was not actually the largest of the five North American experiments that took place in that era. An experiment in Seattle and Denver had 4,800 participants,25 whilst in Dauphin, around 1,000 families took part.26

18 https://www.ontario.ca/page/basic-income-pilot-consultation 19 http://basicincome.org/news/2017/01/smiths-falls-ontario-canada-council-reverses-decision-votes- to-lobby-for-basic-income-pilot/ 20 The Low Income Measure is broadly similar to the UK‟s accepted income poverty threshold, although it is 50% of adjusted median income. See http://www.statcan.gc.ca/pub/75f0002m/2012002/lim-mfr-eng.htm 21 https://www.ontario.ca/page/finding-better-way-basic-income-pilot-project-ontario 22 https://www.weforum.org/agenda/2017/02/canadas-basic-income-experiment-will-it-work 23 This appears quite similar to universal credit, although there is a separate means tested “Ontario Disability Support Programme” for claimants with long terms disabilities or health problems. 24 A marginal deduction rate is the amount of benefit entitlements lost for every extra £1 of earnings received (also referred to as a participation tax rate). 25 https://home.cc.umanitoba.ca/~simpson/JOLE1993.pdf

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In Dauphin, families were offered an unconditional payment (the “Mincome”). This was similar to levels of social assistance (SA), but a substantial increase in income for households who did not qualify for SA, such as single employable males and the working poor.27 The payment was unconditional, but withdrawn at a rate of 50% as income from other sources increased. In common with the other North American pilots mentioned above, this was essentially a negative income tax (or “guaranteed annual income”) scheme. Researchers visited all families included in the pilot at home monthly, to assess their income so the correct amount of Mincome could be paid to them.28 Changes of government and an economic recession (rapid inflation saw indexed Mincome payments rise beyond the experiment‟s budget) brought the pilot to an end. The data collected was archived until located by Dr Evelyn Forget, who has published an initial assessment of the impact of the experiment using census data. Forget found that Dauphin had lower rates of hospitalisation for accidents and injuries that the control site, and there was evidence of improvements in mental health. Additionally, more high school students completed grade 12. She also found "no increase in fertility...[or] family dissolution rates."29 These were common concerns of those opposed to BI systems, and Forget suggests that the Seattle-Denver pilot site finding a large increase in divorce rates was largely responsible for the loss of interest in the concept in the United States. A later analysis argues that this “finding” was actually a statistical error.30 Other basic income systems and pilots The Alaskan Permanent Fund is probably the closest thing to a BI that currently exists within the social security system of a wealthy nation. This fund was established by an amendment to the Alaskan constitution in 1976, and funded through oil revenues.31 It provides an annual dividend to all people who have resided in the State of Alaska throughout the year.32 In 2015 the dividend was a historically high $2,072.33 However, BIEN reports that in 2016 Governor Bill Walker vetoed half the payments into the Dividend Fund, limiting the dividend to $1,022. He argued that this was the only way to protect the Fund‟s future.34 Whilst several other experiments and schemes similar of a basic income could be cited, most of these have been undertaken in countries that are less comparable to Scotland, in terms of their GDP and existing social security system. Amongst the most often mentioned are the following:  Otjivero – Omitara, Namibia  Madhya Pradesh, India  the Brazilian "bolsa familia"

26 http://legalcheckpoint.blogspot.co.uk/2007/11/social-policy-manitoba-mincome.html 27 Evelyn Forget (2011). The Town with no Poverty 28 http://www.huffingtonpost.ca/2014/12/23/mincome-in-dauphin-manitoba_n_6335682.html 29 Evelyn Forget (2011). The Town with no Poverty 30 Glen Cain and Douglas Wissoker (1987) Do income maintenance programs break up marriages? A reevaluation of SIME-DIME 31 http://www.apfc.org/home/Content/aboutFund/fundHistory.cfm 32 http://pfd.alaska.gov/FAQ 33 http://pfd.alaska.gov/FAQ 34 http://basicincome.org/news/2016/09/alaska-us-amount-2016-permanent-fund-dividend-1022/

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In June 2016, Switzerland held a referendum on the idea of a basic income. The referendum question did not specify the amount of a basic income,35 but supporters of the proposal suggested a level of £1,755 a month for adults, and £439 for children. Opposed by the federal government, the proposal was rejected by 77% of voters.36 The American start-up funding company Y Combinator is also currently planning to run an initial BI pilot in Oakland, California.37 4. Recent proposals and issues with implementation in the UK The Committee have already received written submissions from the witnesses who will give evidence at the session. This section does not seek to summarise them, but rather to draw the Committee‟s attention to some recent BI proposals (including work co-authored by witnesses) that have been made to replace the current UK social security system, whether focused solely on Scotland or not. Also included in the list below are some more critical assessments of the idea of a basic income.  Malcolm Torry (January 2017) Citizen’s Basic Income: a brief introduction. Citizen‟s Income Trust BI proposal.38  Jonny Ross-Tatum (November 2016) A Secure Foundation to Build Our Lives. Buchanan Institute BI proposal.  David Piachaud (November 2016) Citizen’s Income: Rights and Wrongs. LSE case paper, rejects a BI system as a “wasteful distraction”.  Andrew Harrop (August 2016) For Us All. Fabian Society vision for social security reform for the 2020s. Rejects a full BI scheme, but recommends strengthening universal social security benefits.  Howard Reed and Stewart Lansley (May 2016) Universal Basic Income: An idea whose time has come? Compass BI proposal.  James Mackenzie, Siobhan Mathers, Geoff Mawdsley and Alison Payne (February 2016) The Basic Income Guarantee. Reform Scotland BI proposal.  Anthony Painter and Chris Thuong (December 2015) Creative citizen, creative state. RSA BI proposal.  Donald Hirsch (March 2015) Could a ‘Citizen’s Income’ Work? JRF Minimum Income Standards project commissioned paper. Concludes that a BI scheme would not work.  Simon Duffy and John Dalrymple (September 2014) Let’s Scrap the DWP. Centre for Welfare Reform BI proposal.  The Expert Working Group on Welfare (June 2014) Re-thinking Welfare: Fair, Personal and Simple. Second report of the Group – included as it recommended that a BI system could be one option for longer term change to the social security system in an independent Scotland.  Ailsa McKay and Willie Sullivan (March 2014) In Place of Anxiety. Compass and Commonweal BI proposal.

35 https://www.admin.ch/gov/en/start/documentation/votes/20160605/unconditional-basic-income.html (Note that in Switzerland a referendum must be held on any “popular initiative” that garners the support of 100,000 citizens.) 36 http://www.bbc.co.uk/news/world-europe-36454060 37 https://blog.ycombinator.com/moving-forward-on-basic-income/ 38 This is the latest in a long series of CIT papers setting out possible BI schemes written by Malcolm Torry. for more details see http://citizensincome.org/

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These suggestions are diverse in their approach, and demonstrate that the BI debate is far wider than a choice between the status quo, and the proposal of BI advocates in the run-up to the Swiss referendum last year, for example. All take as their starting point the current UK social security system, so share some of the same difficulties in terms of their implementation. Some of the challenges are discussed further below. Extent to which a basic income could replace the social security system One of the difficulties of replacing a social security system which relies heavily on means-testing and also provides extra means-tested support for vulnerable groups is that replacing means-tested benefits with a flat rate payment may leave some people significantly worse off. Whilst a single adult under 25 living at home with their parents receives £57.90 a week jobseeker‟s allowance, someone the same age in very different circumstances may receive £186.90 a week in employment and support allowance (ESA), as shown by Table 1 below. Table 1 – Applicable amount of a single person under 25 in the ESA support group. The claimant also gets the PIP enhanced rate daily living component Amounts included in ESA applicable amount £/week (2016-17) Personal allowance £73.10 (basic amount for a working age adult, once ESA assessment is complete) Support component £36.20 (for being in the support group) Severe disability premium £61.85 (gets PIP daily living component and lives alone, with no carer) Enhanced disability premium £15.75 (gets PIP enhanced rate daily living component) Total ESA entitlement £186.90 Source: The Employment and Support Allowance Regulations 2008 No. 794 Note that the introduction of universal credit will change this person‟s entitlement, by removing some premiums and reducing the personal allowance for under 25s in the support group. A new UC claimant in identical circumstances to the case study would qualify for £567.37 a month (2016-17 rates, equivalent to £130.90 a week), with an additional amount for rent if applicable. The majority of the BI proposals listed above suggest that benefits to support claimants with housing costs and the extra costs of disability should remain outside a BI scheme. This is often stated to be necessary due to the variability of housing costs in the UK, and the need for the extra costs relating to disability to continue to be met by social security entitlements. However, Table 1 above shows entitlement excluding the amount of personal independence payment (PIP), housing benefit and council tax reduction that the person in the case study might also be eligible for. A particular issue that arises with proposals that simply suggest that the housing benefit and council tax reduction schemes could remain in place alongside a BI is that they would re-create the high marginal deduction rates faced by low earners in

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SC/S5/17/5/2 the current social security system.39 Other proposals argue that this demonstrates the need for further reforms, beyond the introduction of a BI system. Eligibility issues Many proposed BI structures emphasise that a BI would be paid to “citizens”, or those “legally resident”. This raises difficult questions of whether a particular length or character of residence in Scotland would be needed to qualify for a BI.40 Further difficulties may arise when deciding if those who receive a BI should keep it if they choose to move to other countries (as pensioners are currently able to do without losing their state retirement pension, for example). Some proposals (which arguably do not meet the BIEN definition above) suggest that a condition of entitlement could be some kind of social participation, whether this might be work, study, volunteering or informal care.41 Others see the unconditional nature of a BI as one of its most important attributes. This tension is often discussed in the context of how a BI system should deal with the “surfers on Malibu beach”.42 How to fund a basic income scheme The majority of the proposals above focus on the need to re-design the income tax system in order to fund a basic income. All share the view that part of the funding required would come from the removal of at least some of the current social security benefits. A universal entitlement paid at a higher rate than current selective benefits would axiomatically cost more than the system that it replaces. Whilst administrative costs would intuitively reduce in a simpler system, none of the proposals cited above suggest that the savings generated would be sufficient to fully fund a BI system. Suggestions for other sources of funding for a BI scheme include taxing wealth or the value of land. The unit of assessment Whilst taxation is largely individualised, the current social security system assesses means-tested benefits against the resources of the household. This inevitably introduces complexity, with the social security system needing to set rules to decide when two people are sharing a household and when they are not.43 Some arguments against an individualised benefits system focus on the fact that it is too generous to couples, who can take advantage of household economies of scale. In contrast, the move to a system which gives all adults an equal BI arguably disadvantages lone parents. For instance, the JRF‟s Minimum Income Standards

39 For example, in the pre-universal credit social security system, the marginal deduction rate for housing benefit and council tax reduction combined is 85% of net earnings. However, this also currently interacts with the tax credits taper rate (41% of gross income) for many claimants. 40 The EU Co-ordination rules currently provide a framework for deciding which state is responsible for paying certain categories of social security benefit. The UK also has reciprocal agreements with some other states allowing NI contributions to be treated as made in certain circumstances. These arrangements would seem likely to require reform to cope with a non-contributory BI scheme. 41 These might be better classified as “participation income” schemes. For an example, see Tony Atkinson (2015) Inequality – what can be done? 42 See House of Commons Work and Pensions Select Committee Oral evidence: Universal Basic Income, HC 793, 12 January 2017, for example. David Piachaud (2016) Citizen’s Income: Rights and Wrongs provides a helpful summary of the philosophical arguments (from an anti-BI perspective). 43 See, for example, the lengthy DWP guidance on when two people are to be treated as a couple. Note that the legal definition is slightly different for tax credits, so HMRC has its own guidance.

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(MIS) work suggests that the MIS of a lone parent with two children (not including rent and childcare) is over 80% of that of a couple with two children.44 A provision to increase the BI of a “parent with care” to reflect this could introduce administrative complexity, as a mechanism would then be required to decide which parent should receive a higher BI if separated parents shared care of a child. 5. Basic income in the Scottish context At the outset, it is important to note that there are not currently any basic income pilot schemes underway or in an advanced stage of development in Scotland. However, the idea of a BI pilot is being investigated by both Fife Council and Glasgow City Council. Further details of each are provided below. Fife One recommendation of the Fairer Fife Commission report in November 2015 was that the “Fife Partnership should select a town in Fife to test and evaluate a highly innovative „Basic Income‟ pilot, learning from leading practice around the world.”45 Since then, discussions have continued between Fife Council and BI advocates. Recently, some reports have given the impression that a pilot is imminent or underway. Paul Vaughan, head of community and corporate development at Fife Council is quoted by the Scotsman, clarifying that: “… this is a complex issue and we are at the start of a long process. Initially we are seeking co-operation with the Scottish and UK Governments and the various departments that would need to be involved. The view of the Scottish Government is that they have some of the authority, but not all of it, to push the pilot forward.” 46 At the launch of the Citizen‟s Basic Income Network Scotland in February 2017, Mr Vaughan confirmed that no final decisions have yet been taken on the structure of a Fife pilot. It currently looks likely that the proposal put to Fife Council will outline the feasibility of selecting a town of 2,000 to 5,000 people for a “saturation pilot” – similar to the Canadian pilots discussed above. A pilot would be expected to last at least two years, and might also gather data from a similar control population. However, discussions were yet to begin with the UK Government as to whether they would permit or support such a pilot. It is clear that the current UK Government is not convinced by the arguments for BI. Winding up a Westminster Hall debate on BI for the Government, the Minister for Employment explained that: “The Government‟s approach to welfare has been about recognising the value and importance of work, making work pay and supporting people into work, while protecting the most vulnerable. A universal basic income goes against every aspect of that approach. Indeed, it would put at risk the huge progress

44 See Davis et al, A Minimum Income Standard for the UK in 2016 (Joseph Rowntree Foundation) Table 8 lists the 2016 MIS of a lone parent with two children as £372.21, 81.6% of the £455.90 required by a coupe with two children. 45 Fairer Fife Commission (2015) Fairness Matters 46 McCall, C. Fife pushes ahead with universal basic income plan The Scotsman, 26 January 2017

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that we have made over the past six years in transforming lives through the power of work.”47 Glasgow At Glasgow City Council‟s meeting on 8 December, Councillor Wild asked if “the Council supports the principle of a Basic Income for everyone and will ask the UK Government for a pilot scheme to be conducted in Glasgow?”48 Councillor Kerr (Executive Member for Social Justice) responded that it was still early in the process of considering a potential pilot scheme, and that officials had been instructed to consider the next steps.49 BBC news reports that the Council has now approved a £5,000 feasibility study, to consider the possible design of a Glasgow BI pilot.50 The Scotland Act 2016 and basic income Part 3 of the Scotland Act 2016 devolves responsibility for some aspects of the social security system to Scotland. However, most current benefits remain reserved, and the income tax personal allowance remaining reserved is also a significant barrier.51 The Minister for Social Security has expressed the view that “there would be significant challenges with piloting a Universal Basic Income in the devolved context, whilst we do not have full control of tax and social security.”52 In terms of children and pensioners, the power to top up child benefit, state retirement pension and pension credit (see s24 of the Act) could perhaps provide something close to universal coverage for non-working age participants in a pilot. The Explanatory Notes to the Act confirm that “top-up payments could be paid on an individual case by case basis or to provide on-going entitlement to specific or all benefit claimants.”53 Working age claimants would be far more difficult, as there is no existing working age social security benefit that is close to universal in its coverage. However, universal credit (UC) arguably shares some features with a negative income tax, as used in the Mincome experiment, and suggested for the Ontario pilot (see above). The Scotland Act allows it to be topped up by the Scottish Government, if a pilot wished to test the impact of increased social security entitlements. However, this would still present major difficulties. Firstly, some groups, including most full-time students, some EU nationals, and people with household savings over £16,000 are ineligible for UC, no matter their level of income. Even if this could be overcome, the process of rolling out UC is across Scotland is not expected to be complete until 2022.54 For more information on the rollout of UC, see SPICe briefing SB 17-09 The Introduction of Universal Credit.

47 House of Commons Hansard, Universal Basic Income (Westminster Hall, 14 September 2016) 48 Minutes of Glasgow City Council 8 December 2016 49 http://glasgow.public-i.tv/core/portal/webcast_interactive/257680/start_time/686000 50 http://www.bbc.co.uk/news/uk-scotland-glasgow-west-38991320 51 The majority of the suggested BI schemes above rely on abolition of the income tax personal allowance (and for some, significant changes to income tax exemptions) to generate at least part of the required funding to introduce a BI 52 Question S5O-00149 53 Scotland Act 2016 Explanatory Notes, para 192 54 Until the rollout is complete, working age claimants may be getting one or more of six benefits that are to be replaced by UC.

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Another difficulty with using UC to trial a BI scheme is that the most significant changes made by several of the pilot schemes above are to reduce conditionality levels or change the rate at which benefits are withdrawn as earnings increase. Both of these changes are ways to consider the potential effect of BI systems on labour market participation. These aspects of UC remain reserved to Westminster, so any attempt to systematically vary conditionality for UC claimants would require the co- operation of the UK Government. A final problem with using UC results from one of its important differences from a BI scheme, which was pointed out by Ben Southwood of the Adam Smith Institute during the recent Work and Pensions Committee evidence session. He pointed out that UC is “household-based rather than individual-based, and all basic income proposals are typically individual-based.”55 This would add complexity to any attempt to use the power to top-up UC to simulate a BI system during a pilot. The only other power in Part 3 of the Scotland Act 2016 that could potentially be used in developing BI pilots would be the power to create new benefits in areas of devolved responsibility (s28 of the Act). However, it is not easy to identify an area of devolved competence that could be used to create a new universal social security benefit. Even if this could be done, without the full co-operation of the UK Government the process of adjusting payments of a new benefit to ensure that trial participants received the desired level of support through a combination of devolved and reserved benefits would seem to be very challenging.

Jon Shaw SPICe Research 03 March 2017

Note: Committee briefing papers are provided by SPICe for the use of Scottish Parliament committees and clerking staff. They provide focused information or respond to specific questions or areas of interest to committees and are not intended to offer comprehensive coverage of a subject area. The Scottish Parliament, Edinburgh, EH99 1SP www.scottish.parliament.uk

55 House of Commons Work and Pensions Select Committee Oral evidence: Universal Basic Income, HC 793, 12 January 2017

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Social Security Committee

5th Meeting, 2017 (Session 5), Thursday 9 March 2017

Subordinate legislation

Background

1. There is one subordinate legislation instrument for consideration at today’s meeting:

the Council Tax Reduction (Scotland) Amendment Regulations 2017: SSI 2017/41.

2. The Committee has been designated lead committee for the instrument.

3. The purpose of this instrument is to amend the Council Tax Reduction (Scotland) Regulations 2012 to uprate certain amounts and premiums. Additionally, it makes provision for households receiving Universal Credit (UC) by increasing the child allowance for UC recipients who also receive council tax reduction.

4. SPICe has provided a briefing for the Committee’s consideration of this instrument (see Committee meeting paper SC/S5/17/5/4), which provides further background information on this instrument.

5. The Scottish Government’s Policy Note for the instrument is attached at Annexe A, which provides detail on the Scottish Government’s aims for this instrument. Scottish Government officials will attend the committee meeting to answer any queries on the instrument.

Delegated Powers and Law Reform Committee consideration

6. The Delegated Powers and Law Reform (DPLR) Committee will consider this SSI on 7 March. The DPLR report on the SSI will be published on the web1 and circulated to the Social Security Committee before the Social Security Committee meeting on 9 March.

Action

7. The Committee can either:

 note the instrument and agree to make no recommendations and to not report on it; or

 Agree to make recommendations and report on the instrument.

1 http://www.parliament.scot/parliamentarybusiness/CurrentCommittees/delegated-powers- committee.aspx

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Annexe A

POLICY NOTE

THE COUNCIL TAX REDUCTION (SCOTLAND) AMENDMENT REGULATIONS 2017 (SSI 2017/41)

1. The above instrument is made in exercise of the powers conferred by sections 80 and 113(1) and (2) and paragraph 1 of schedule 2 of the Local Government Finance Act 1992. It is subject to the negative procedure.

Policy Objective

2. This instrument amends the Council Tax Reduction (Scotland) Regulations 2012 (“the Working Age Regulations”) and the Council Tax Reduction (State Pension Credit) (Scotland) Regulations 2012 (“the Pension Age Regulations”) (jointly referred to as “the principal Regulations”).

3. The Council Tax Reduction Scheme operates by reducing a household’s council tax liability by taking into account their circumstances and income.

4. This instrument uprates certain applicable amount allowances and premia set out in schedule 1 of each of the principal Regulations. The applicable amounts are changed for persons of pension age (by the increase in pension credit) and those for carers and people with disabilities (by CPI inflation for the year to September 2016 or 1.0%, except for the enhanced disability premium for a child and disabled child premium which are are both to increase by approx. 1.4%). These changes apply to approximately one third of all households presently in receipt of a council tax reduction – specifically those subject to the means test. The remainder are, for practical purposes, entitled to the maximum council tax reduction by virtue of the income and circumstances indicated by their being in receipt of a particular benefit.

5. This instrument uprates the income thresholds set out in schedule 2 (alternative maximum council tax reduction) of the Working Age Regulations and the equivalent schedule 5 of the Pension Age Regulations by 2.4% - equivalent to the change in average weekly earnings between Jul-Sep 2016 and Jul-Sep 2015.

6. This instrument increases the income thresholds for non-dependant deductions by average weekly earnings growth of 2.4% and the non-dependant deductions by CPI inflation for year to September 2016 of 1.0%.

7. The existing principal Regulations determine how any receipts from UK-wide ex gratia payment schemes for those infected with HIV and/or hepatitis C following relevant NHS treatment should be treated in assessing entitlement to a council tax reduction – broadly these are specifically disregarded as income.

8. These payments are presently delivered by five different UK organisations - the Eileen Trust (charitable trust), the Macfarlane Trust (charitable trust), MFET (company limited by guarantee), the Skipton Fund (company limited by guarantee) and the Caxton Foundation (company limited by guarantee with charitable status).

9. NHS Shared Services will be taking over this role in Scotland from 1 April 2017. The intention is that a new administrator will also be appointed by the Department of Health,

2 SC/S5/17/5/3 along with the Welsh and Northern Irish governments, in 2017/18 following a forthcoming tender exercise, consolidating these functions for the other UK countries.

10. This instrument fulfils the policy objective of ensuring that any payments made under these new arrangements will be treated in exactly the same way as at present, as well as ensuring appropriate treatment of any payments which continue to be made under the existing arrangements.

11. Regulation 23 of the Working Age Regulations determines that the applicable amount for households receiving Universal Credit (UC) is the weekly equivalent of allowances and extra amounts used by DWP to calculate the UC award. This approach minimises the administrative burdens for both applicants and local government.

12. This instrument ensures such households will benefit from the increased child premium set out in the Council Tax Reduction (Scotland) Amendment (No.2) Regulations 2016 (SSI 2016/253). However, the UC child allowances differ for the first child and for subsequent children, so this instrument adds £16.73 per week (the child premium increase for all “non-Universal Credit” households) for each child to the applicable amount for households in receipt of UC.

13. Overall, these Regulations are consistent with the original policy intention of the Council Tax Reduction Scheme to ensure that no household is worse off as a consequence of the UK Government’s abolition of council tax benefit.

Consultation

14. Formal consultation was not considered to be necessary as these amendments do not alter the policy intention of the principal Regulations. However, the Scottish Government has engaged with the Convention of Scottish Local Authorities (COSLA), the Institute of Revenues, Rating and Valuation, local authority revenue and benefits practitioners and their software suppliers in the development of these Regulations.

15. Maintaining the broad alignment of the Council Tax Reduction Scheme’s entitlement criteria with that for Housing Benefit continues to minimise compliance burdens to applicants and also the administrative costs to Local Authorities. Indeed deviating from this practice would reduce these efficiencies. For this reason, a practitioner sub group of the COSLA and Scottish Government Settlement and Distribution Group were in favour of the UK social security benefits uprating for 2017/18 being applied to the Council Tax Reduction scheme.

Financial Effects

16. The amount of council tax reduction which an applicant will receive is based on their income less their deemed living expenses. The principal Regulations are amended to take account of increases in social security benefit rates for 2017/18 so that the increased income from social security benefits treated as income in the Council Tax Reduction Scheme (such as the retirement pension) does not serve to increase liability to council tax for those in receipt of social security benefits.

Impact Assessments

17. An Equalities Impact Assessment (EQIA) was undertaken in development of the principal Regulations, and equalities impacts are being reviewed during the implementation of the Council Tax Reduction Scheme. As these amending Regulations do not alter the policy intention of the principal Regulations, a further EQIA has not been produced.

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18. As there is no impact on business or the third sector, and no impact on the environment or on environmental issues, no Business and Regulatory Impact Assessment or Strategic Environmental Assessment is required.

Local Government and Communities Scottish Government February 2017

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Social Security Committee 5th Meeting, 2017 (Session 5), Thursday 9 March 2017

The Council Tax Reduction (Scotland) Amendment Regulations 2017 1. Introduction This note provides background to the Council Tax Reduction (Scotland) Amendment Regulations 2017 (“the 2017 Regulations”). The regulations were made on 21 February 2017, laid before Parliament on 23 February 2017 and come into force on 1 April 2017. 2. Consideration by the Delegated Powers and Law Reform (DPLR) Committee It is currently expected that the DPLR Committee will consider the 2017 Regulations at their meeting on 7 March. The Committee clerks hope to be able to report verbally on the DPLR Committee’s consideration of the regulations at the meeting. 3. Council Tax Reduction – Background In 2013, the UK Government abolished council tax benefit (CTB) as part of its welfare reform programme. In its place, the Scottish Government developed the CTR scheme, which operates by reducing liability for council tax. The Council Tax Reduction (Scotland) Regulations 2012 No. 303 and the Council Tax Reduction (State Pension Credit) Regulations 2012 No. 319 (“the principal Regulations”) govern the scheme, and were made under s80 of the Local Government Finance Act 1992. The Scottish Government’s policy intention was that CTR would “maintain liability as would have existed taking account of council tax benefit.” As council tax benefit closely resembled housing benefit (HB) regulations, the CTR regulations share many of the same features of the HB regulations (which remain reserved). There were 495,660 CTR recipients in Scotland in September 2016, a reduction of just over 10% since April 2013. How CTR works Broadly speaking, CTR compares the amount of income a person has with the amount that the Government considers they need to live on (their “applicable amount”). The Scottish Government uses the applicable amounts that are set by the UK Government for HB. There are three parts to the applicable amount:  a personal allowance  an amount for any dependent children  any applicable premiums (an additional amount which reflects special needs of the household – for example there are various disability premiums and a carer premium).

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If a claimant’s income is less than their applicable amount or they receive a “passporting benefit”, CTR reduces their council tax bill to zero, unless any deductions are made for “non-dependents”. If a claimant’s income is above the applicable amount, entitlement to CTR is reduced by 20p for every £1 of income above the applicable amount. The Annexe to this paper is a Scottish Government graphic showing how the CTR calculation works. A non-dependent is an adult who lives in the claimant’s home, but who does not count as part of their household for CTR purposes, such as an adult child. A non- dependent deduction reduces a recipient’s maximum CTR entitlement, to take account of an expected contribution to household bills.1 The alternative maximum CTR (or second adult rebate) can also apply if a householder does not qualify for much (or any) CTR, but lives with a non-dependent with a low income. The amount council tax liability is reduced by depends on the second adult’s income, normally to a maximum of 25%. The Council Tax Reduction (Scotland) Amendment (No. 2) Regulations 2016 (“the 2016 Regulations”) will introduce a new type of CTR entitlement from April 2017. The new type of CTR will provide households with below median income who live in Band E to H properties, with an exemption from the increase in council tax due to the change to the way that council tax in the higher bands is calculated. The 2016 Regulations were scrutinised by the Committee in October. Universal Credit and CTR For CTR claimants in receipt of universal credit (UC), the calculation of entitlement to CTR is different. The local authority must instead use the UC “maximum amount” – similar to the concept of an applicable amount explained above – and the income figure used in the UC calculation by the DWP. The claimant’s award of UC is also included as part of the claimant’s income. If a claimant’s income (including their entitlement to UC) is greater than the UC maximum amount, the entitlement to CTR is reduced by 20p for every £1 of excess income. 4. The 2017 Regulations – child allowance for UC claimants From April 2017 (as a result of provisions in the 2016 Regulations), the child allowance within the principal Regulations will increase by 25% (£16.73), from £66.90 to £83.63. The Scottish Government’s policy intention was to provide “additional support to families on low incomes”.2 This represents a departure from UK Government uprating policy, as an equivalent change has not been made to HB. However, the 2016 Regulations did not increase the child allowance for UC claimants also entitled to CTR. As explained above, UC claimants are assessed differently for CTR. Reg 4 of the 2017 Regulations now increases the child allowance for UC claimants, by adding £16.73 per week to the applicable amount for each child who is a “member of the family” of a CTR claimant receiving UC.3

1 Joint tenants do not count as non-dependents, and no deductions are made in certain circumstances, such as if the applicant gets certain disability benefits or the non-dependent is a full- time student or under 25 and receiving income support, for example. 2 Scottish Government news release Council Tax Reform, 2 March 2016 3 This appears to include £16.73 for children for whom no UC amount is included due to the reforms explained below, due to the definition of “member of the family” in Reg 2 of the principal regulations.

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5. The 2017 Regulations – annual uprating Each year, the Scottish Government uprates the applicable amounts and premiums in the principal Regulations, in line with the UK Government’s uprating of HB. The 2017 Regulations increase certain applicable amounts and premiums within the principal Regulations. In all cases the uprating measures used are the same as those proposed by the UK Government4 (although regulations to implement the proposals are yet to be made). The details of the changes are set out in the Policy Note (para 4-6). Most of the components of the applicable amount for working age people have not been increased, in line with the UK Government’s four year (2016- 2020) freeze of most working-age benefit rates.5 6. The 2017 Regulations – infected blood payment schemes For the purposes of calculating the income of a CTR applicant, the principal Regulations currently disregard specified payments, made from various UK-wide schemes to compensate people who have been infected with HIV and/or Hepatitis C following NHS treatment. From 1 April 2017, the NHS will be taking over the schemes in Scotland. In Scotland, a new administrator will be appointed after a tendering exercise. The 2017 Regulations make various amendments, to ensure that the new schemes are treated in the same way as the current ones, when they are introduced. The policy intention is to ensure “that any payments made under these new arrangements will be treated in exactly the same way as at present”. 7. Other changes to reserved benefits in 2017 As stated above, the Scottish Government’s policy has broadly been to amend the principal Regulations in line with changes to HB regulations. There are other forthcoming UK Government changes to HB, but it is not yet clear if the Scottish Government intends to make similar changes to the CTR scheme. If no changes are made, then there would be further divergence between the HB and CTR regulations. There are three current examples of such changes. The last of these is yet to be legislated for by the UK Government, although the policy is still expected to be implemented from April 2017.  The change in the treatment of compensation payments to victims of National Socialist persecution (from 20 March 2017).6  The removal of the work-related activity component for new ESA and UC claimants (from 3 April 2017).7  The restriction to the number of children born from 6 April 2017 included in means-tested benefits claims.8 The first bullet point above is a technical amendment resulting from the Upper Tribunal deciding that the HB legislation (which is identical to the equivalent CTR

4 DWP, Proposed benefit and pension rates 2017-18 5 s11 and Sch 1 of the Welfare Reform Act 2016 freeze most HB amounts for working age claimants 6 The Social Security (Income-Related Benefits) Amendment Regulations 2017 7 The Employment and Support Allowance and Universal Credit (Miscellaneous Amendments and Transitional and Savings Provisions) Regulations 2017 8 http://www.parliament.uk/documents/impact-assessments/IA15-006E.pdf

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provisions)9 had a discriminatory effect on Dutch nationals entitled to certain compensation payments.10 This is likely to affect very few CTR claimants, if any. The Explanatory Memorandum to the UK amending regulations described them as affecting “very few benefit claims”, and no impact assessment was undertaken as the impact of the change was judged to be “minimal”.11 However, the second and third bullet points will over time affect a significant number of claimants. Due to the way in which the principal Regulations take account of UC entitlement (see above), these reforms will also have different effects on CTR claimants entitled to UC and those entitled to other DWP benefits, assuming that the principal Regulations continue in force as currently drafted.12

Kate Berry and Jon Shaw SPICe Research 03 March 2017 Note: Committee briefing papers are provided by SPICe for the use of Scottish Parliament committees and clerking staff. They provide focused information or respond to specific questions or areas of interest to committees and are not intended to offer comprehensive coverage of a subject area. The Scottish Parliament, Edinburgh, EH99 1SP www.parliament.scot

Annexe – the CTR calculation

9 Sch 4 para 19(g) of SSI 2012/303 and Sch 3 para 1(g) of SSI 2012/319 10 See MN v Bury Council and SSWP (HB) [2014] UKUT 187 (AAC) 11 http://www.legislation.gov.uk/uksi/2017/174/pdfs/uksiem_20170174_en.pdf 12 Essentially, this is due to the fact that reforms to UC affect the applicable amount of CTR claimants unless the principal Regulations are amended, whilst reforms to HB do not change the applicable amount of CTR claimants unless the principal regulations are amended.

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