A Fair Income

Tax-benet reform in an
era of personalisation
Simon Dufy
Editors: Simon Dufy, Jon Glasby and Catherine Needham
POLICY PAPER 01.12.2011
1
POLICY PAPER 01.12.2011
A Fair Income
Tax-benet reform in an
era of personalisation
Simon Dufy
Editors: Simon Dufy, Jon Glasby and Catherine Needham
2
A Fair Income | About this series
About this series
Joint policy document series
In the summer of 2010 The University of Birminghams Health Service
Management Centre hosted a two day think-tank to explore whether recent
innovations in health and social care might be the key to a more radical
redesign of the whole welfare state.
As part of the think tank papers were produced which proposed signicant
policy developments. These papers were then subject to debate and
criticism. The papers were then further developed for publication.
Each paper in the series has been produced by a leading practitioner and
social innovator. The papers combine evidence and ideas for policy reform
which are rooted in the real experience of bringing about change from the
bottom-up.
www.centreforwelfarereform.org
www.hsmc.bham.ac.uk
Acknowledgements
I would like to thank the Commonwealth Fund of New York for allowing
me to spend a year as a Harkness Fellow and giving me the chance to read
more widely and think more deeply about the meaning of welfare reform.
I would also like to thank Jeremy Waldron for his inspirational teaching on
social justice which helped me to seek other ways to understand fairness. I
would like to thank Geof Bantock, a real tax inspector, who has continued
to prompt, encourage and support my questioning of the incoherent system
of tax and benets within which we all try to live. Thanks to Andy Lymer who
was my friendly respondent at the seminar where the rst version of this
paper was delivered and to all who helped with comments and ideas. Finally
I would like to thank Jon Glasby for his support to The Centre for Welfare
Reform and the development of this particular series of policy papers.
3
A Fair Income | Contents
Contents
About this series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Fair Income Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1. The Argument from Fairness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2. The Argument from Rationality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3. The Argument from Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4. The Argument from Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5. The Challenge of Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Editors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Small print . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Joint policy document series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
A Fair Income | Preface
4
Preface
In the early twenty-rst century, elements
of the welfare state are in the middle of a
transformation process based on the concepts
of personalisation and self-directed support.
Beginning in adult social care, these approaches
seek to recast users of state welfare away from
being passive recipients of pre-purchased
services towards a situation where they are active
citizens with a right to control and shape their
own support. Variously described as a form
of co-production or in terms of individuals
becoming the micro-commissioners of their own
support, this has been seen as a shift away from
a professional gift model towards a citizenship-
based approach, arguably more in keeping with
other aspects of our lives (Figure 1).
Community
Contribution
via Taxation
Government
Funding for
Services
Professional
Assessment
and Support
Needy
Person
Community
Citizen
Entitlement
to funding
Negotiated
support
Government
Professional
Contribution via taxation
Figure 1. From Professional Gift to Citizenship Model
A Fair Income | Preface
5
Central to this agenda to date has been the concept of direct pay-
ments (pioneered by disabled peoples organisations and devel-
oping in the UK from the mid-1980s onwards) and individual
budgets (developed from 2003 onwards by In Control). Begin-
ning with 60 people in six local authority pilots in late 2003,
there are now possibly 100,000 people receiving an individual
budget and the government has stated that all adult social care
will be delivered by this mechanism in future.
Although starting in adult social care, this approach is now
being piloted in childrens services and in healthcare, with several
leading think tanks and commentators interested in its possible
extension to other areas of state welfare (such as the tax and ben-
ets system, housing, education, rehabilitation for ex-oenders,
substance misuse services and support for young people not in
education, employment or training). If privatisation was the
key focus of the 1980s, it has been claimed, then personalisa-
tion could be the key focus of the early twenty-rst century.
Unsurprisingly, such issues have acquired even greater relevance
in the current nancial and political context, with debates about
reduced state expenditure and potential government shrinkage.
Despite recent progress, much more remains to be done,
including:
Fully embedding personalisation in the training of
social workers and other public service practitioners and
managers.
Exploring the implications of self-directed support for
broader areas of state welfare.
Understanding key levers for embedding change in policy
and practice.
Understanding more fully the implications for cost-
efective use of scarce resources in a challenging economic
climate.
Developing more explicit theoretical and conceptual
frameworks around citizenship, ethics and social justice.
A Fair Income | Preface
6
Against this background, this series of papers was rst presented
and discussed at a national think tank funded by the University
of Birminghams Advanced Social Sciences Collaborative (ASSC).
We invited real experts to explore the changes they think
could bring about positive change in:
Local government and civil society
Services for children and families
Our health and social care systems
The criminal justice system
The tax-benet system
In turn these ideas were challenged and reviewed by an audience
of leading policy makers, managers, practitioners, policy analysts
and researchers. We are publishing these papers in their revised
form.
Underpinning many current policy debates is a sense that the
ethos, law and structures that underpin the current welfare state
is dominated by 1940s thinking and assumptions and that
some of the concepts inherent in debates about personalisation
and self-directed support could help to shape future welfare
reform. Te Beveridge Report is widely credited with establish-
ing the thinking behind the post-war welfare state. It is time
to engage in the same depth of thinking about the relationship
between the state and the individual in the twenty-rst century.
We hope that these papers contribute some fresh thinking.
Prof. Jon Glasby, Director, Health Services Management Centre (HSMC),
University of Birmingham

Dr. Simon Dufy, The Centre for Welfare Reform

Dr. Catherine Needham, Queen Mary, University of London,
Honorary Fellow, HSMC
7
A Fair Income | Summary
Summary
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The current government has committed itself to the rst
radical redesign of the tax-benet systems since World War II.
Unfortunately, while some of their analysis of the failings of the
current system is fair, their proposed solution will fail. They may
succeed in pushing through many of their proposals; but they will
fail to redesign the system in a way that is fair and they will fail to
make the UK a better place to live.
This paper ofers another way forward; it does not fall back on the
old system with its undue complexities and many weaknesses, but
it avoids the increased poverty, stigmatisation and dependency.
The paper proposes the creation of a system of Fair Income
Security, a system that would have the following seven features:
1. integration of the current tax and benets into one
coherent system
2. A consistent approach for benets and taxation, more
supportive of families, in all their forms
3. The simplication of tax-benet calculations into one set of
questions
4. A minimum income for all, delivered through a universal,
non-means-tested, benet
5. Fair rates of taxation that remove the extreme disincentives
for the poorest
6. A constitutional right to a minimum guaranteed income
and to fair taxes
7. A public committee to shape the core entitlements,
open to submission and scrutiny
The main arguments presented for making this fundamental
change to the system are:
Argument from fairness - The principal unfairness of the current
system is that it enmeshes millions of people in a dependency
relationship with the state in which people nd that their income
security depends upon not earning, not saving, not building their
family and not making the best use of their talents.
8
A Fair Income | Summary
Argument from rationality - The current system is unduly complex
and opaque, this serves not only to erode transparency and a
reasonable sense of entitlement, it also make it difcult to test out
whether, and to what degree, incentives can be reshaped.
Argument from economics - By locking millions into benet
dependency the current system is inherently inefcient. It reduces
the level of labour, skill and energy available to the whole economy
and creates a disincentive to productive efort for the poorest and
the richest. It is also a highly wasteful and inefcient system.
Argument from society - Systems of social welfare need to adapt
to changing social circumstances. The structures upon which the
post-war welfare settlement were based have been eroded, partly
by factors driven by the welfare state itself and partly by external
factors. The modern welfare state needs to be redesigned to reect
the risks and opportunities of a new social context.
In addition, I argue that the growing complexity and incoherence of
the current system are linked to the weaknesses in the relationship
of modern democracies to welfare provision. This analysis also
suggests that normal party politics, on its own, is unlikely to
achieve a coherent redesign of the welfare state. It is likely that a
very diferent strategy will be necessary.
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A Fair Income | Introduction
9
Introduction
For many observers the debate about public
services has been an argument between those
seeking more public spending and those seeking
reductions in public spending. But in the last
few years there has been a growing awareness of
the sterility of this more or less debate and a
renewed focus on deeper questions of the design
of the welfare state - the principles that should
frame it and the structures by which those
principles are realised.
One of the most important eorts to redesign the welfare state
has become known as personalisation and many of the leading
advocates of this approach have focused their eorts on shifting
power and control over public funds into the hands of disabled
people and their families. Although the policy and practice in
this area continues to be highly contested, much of the best prac-
tice has been motivated by the plausible hypothesis that better
quality decisions can be made by those who directly benet from
support and funding than when these decisions are removed to
bureaucratic or professional systems.
One important element of this new approach is called the
individual budget (Duy, 2005). An individual budget can hold
social care funding, healthcare funding or education funding or
other funding streams (Cowen, 2010). How it is used is deter-
mined by the person who is entitled to the budget, although
this use may be subject to some conditionality and require some
additional support (Duy et al. 2010). In this way the individual
budget becomes a tool for individualising and personalising
public services, while ensuring some scrutiny by public agencies
of how the budget is used. Tis is welfare expenditure, but it is
expenditure controlled by people themselves, and this seems to
be much fairer and more eective on many levels.
A Fair Income | Introduction
10
What is much less well understood is how individual budgets
work in practice and why they seem, in the right conditions, to
be so eective at improving outcomes and increasing eciency
in public services. Te element that attracts the most attention is
the ability that the individual budget gives for people to purchase
support that makes more sense to the detail of their lives. But
this rather consumerist focus tends to miss some of the other
important factors that have made individual budgets successful.
Some of these include:
Incentives - Individual budgets can provide people with
a more robust entitlement that is not subject to some of
the vicious poverty traps that operate in the old social
care system. For example, once an individual budget is
set there is less disincentive from using that funding to
strengthen family life, spend time with friends or get
involved in local communities. The old system penalised
people who had natural support - this new system has
been less damaging.
Transparency - Individual budgets, because they are
dened in advance of any detailed planning, have enabled
people to plan in ways that are more efective and
creative. In this way the budget can be treated as just one
element to be used in developing a whole life solution.
Individuals can use the budget to increase value by pulling
other resources (not just money) into their lives (Hagel &
Seely Brown, 2005).
Control - Individual Budgets give people control, and this
control not only serves to ensure that better decisions
are made, or poor decisions responded to more quickly, it
also serves to reinforce the responsibilities and rights of
the citizen. Individual budgets reinforce the citizenship of
those using them (Dufy, 2003).
However individual budgets, even on the most optimistic
analysis, are not a panacea for the reform of the welfare state.
On the one hand there are some public services (e.g. emergency
A Fair Income | Introduction
11
services, acute healthcare and social work) that are not well suited
to being managed through an individual budget. It makes much
more sense to organise these on a national or a local basis. On
the other hand individual budgets can be cumbersome and ine-
cient. It is more empowering to ensure that people have adequate
incomes using the tax-benet system. It is even arguable that
many people with individual budgets would be better o if that
budget was simply part of their direct income. For it should
not be assumed that the initial success of individual budgets in
transforming block funding for services into more individualised
funding for individual budgets is the end of the possible path
of reform. Tere is a strong case for going further and turning
individual budgets into genuine entitlements that are part of the
tax-benet system.
However it is a mistake to dene personalisation as the applica-
tion of individual budgets. Personalisation is actually the eort
to redesign the welfare state to promote citizenship for all, and
its scope is much wider than that of individual budgets (Duy,
2010a).
In particular I will argue that there is enormous scope to
rethink the current tax-benet system in order to promote
citizenship. Just as with individual budgets, we may be able to
see ways to:
Provide benets in ways that do not damage the incen-
tives to earn, save, strengthen the family or improve our
skills.
Simplify benets so entitlements are clear, fair, easy to
access and easy to use.
Promote responsibility and contribution, encouraging
citizens to pay taxes and support each other.
I will begin by outlining the features of a new system for tax-
benets and then I will explain why I think this model oers
an attractive and feasible framework for reforming the current
system.
A Fair Income | Fair Income Security
12
Fair Income Security
Te model for a reformed tax-benet system
which this paper outlines has seven properties:
1. The integration of the current tax and benets into one
coherent system
2. A consistent approach for benets and taxation, more
supportive of families, in all their forms
3. The simplication of tax-benet calculations into one set of
questions
4. A minimum income for all, delivered through a universal,
non-means-tested, benet
5. Fair rates of taxation that remove the extreme disincentives
for the poorest
6. A constitutional right to a minimum guaranteed income
and to fair taxes
7. A public committee to shape the core entitlements,
open to submission and scrutiny
I will refer to this new model as Fair Income Security (repre-
sented graphically in Figure 2). Tis model assumes that there
will still be a role for other public services, whether those are
directly funded by the state (e.g. Police) or managed through
individual budgets (e.g. education or long-term health and social
care). How to distinguish when and where funding should be
controlled by citizens and in what forms is not discussed in detail
in this paper.
In this rst section I will describe Fair Income Security and its
central rationale. I will go on to provide more discussion of the
underlying reasons for this model and the problems it is trying to
overcome in the later sections of the paper.
A Fair Income | Fair Income Security
13
Figure 2. Fair Income Security
1. Integration of tax and
benets
Currently the major tax systems are organised and
administered by the Inland Revenue, through Her Majestys
Revenue & Customs (HMRC). The main system for giving
people benets (including pensions) is the Department
of Work & Pensions (DWP). There are also various other
taxes and benets scattered through the workings of other
government departments and local government.
Te integration of the tax and benet systems into one
coherent system would have several obvious advantages:
The stigma of the benet system would be eroded, all
citizens would get their entitlements through one system.
It would be clear that the wealthy were also beneting
from one universal system.
Universal Family Security
Adjusted for
Number
Age
Disability
NOT Means-Tested
Fair Taxes
Individual Budgets
for
Health Care
Education
NOT Means-Tested
Rights Duties
Access
to
Universal
Public Services
NOT Means-Tested
Family
A Fair Income | Fair Income Security
14
Incoherence between the tax and benet systems could be
engineered out to create better incentives for low earners.
It would create efciencies in the administration of the
tax-benet system.
In the discussion that follows I will not assume that all taxes can
be or should be simplied, or that all taxes will be based upon in-
come. Tere are other uses for taxation beyond providing income
security and other roles for taxes beyond just lling public funds.
However taxes on income are a very large part of our current
system and other taxes (e.g. VAT) are also signicantly correlated
with income.
2. Support for families
Currently the tax system pays no attention to whether you
are in a family, whereas the benet system tends to start
with the assumption that families are there to provide free
support. The net efect of both systems is to put families
at a disadvantage. People who rely on benets nd
themselves losing income when they form families. Those
who are better-of are given no encouragement to spend
time with their families, instead the presumption is that
it is best if everyone is working as long as possible. This
atomistic approach is damaging the fabric of society.
A unied system would need a unied taxonomy. Tere are
two options, both of which would be an improvement on the
current system:
1. Dene entitlements for the citizen and take no account of
family circumstances. This would probably have the net
efect of encouraging people to build stronger families, as
resources shared within families are likely to go further
than resources spent by lone individuals.
2. Alternatively one could treat the household or family as
the basic item of the system. This is more complex and
A Fair Income | Fair Income Security
15
more dependent upon the way in which calculations
of family size and any other relevant factors are
weighted. It also raises questions of gender and sexual
orientation. However it could be argued that the family
(in all its forms) is the real social bedrock and so a
system that took families seriously could also have
advantages.
Whichever system was adopted such a system would need to
respect and support family life and, in particular, the role of
women.
A family-based system would have several advantages:
It would enable the community to better recognise
the value of the family in providing care and support
to citizens in childhood, old age and in conditions of ill
health or disability.
It would provide opportunities to shift more resources into
the direct control of women.
It would create a consistent approach to agreeing how we
identify and count families.
Tis does not mean that single people would have no obligations
or rights, clearly they too must be entitled to Fair Income Secu-
rity and, in such a system a person who lived alone, in a house-
hold of one, would be treated as the minimal family. However
the system should start with the presumption that family life is
a fundamental building block for community life, and must be
particularly sensitive to ensure that no signicant disincentives
for family life are created.
In the following argument I will talk about family income and
family need rather than citizen income or citizen need. Tis does
not mean that the rst option, the option of citizen income,
is excluded as an option. However it seems more natural to
consider economic questions from the perspective of the family,
perhaps because the root of our word economy is found in the
Ancient Greek term oikonomia which means household man-
agement.
A Fair Income | Fair Income Security
16
3. One calculation
The tax and benet system has evolved into a highly
complex system, with 137 discrete benets or benet rates
and at least 27 diferent forms of taxation. However at its
heart must be some calculation of how much someone
needs and how much someone owes. There is no reason
why this calculation could not be done just once, focusing
on: income, family size, age of family, and impairments (if
any).
A system using one calculation would be:
much simpler to calculate and deliver
able to deliver much more focused scrutiny in determining
a fair level of entitlement and contribution
able to eradicate poverty traps that occur from linked
benets (e.g. housing)
much more reliable and less subject to complaint
Although it is true that family circumstances will change and
that this will need to be tracked, this is already a problem, and
a problem made worse by the systems complexity. One of the
major problems of the current system is that the poorest in
society are expected to alert the DWP of minor changes in family
circumstances and many other parts of the current system, e.g.
tax credits, are highly vulnerable to changes that are picked up
too late - thus causing delay, embarrassment or debt. It would be
much better to normalise reporting of household status within
one simplied system.
A Fair Income | Fair Income Security
17
4. Universal entitlement
There is already a de facto commitment by the community
to ensure that no one is left without income. However
this commitment is not universal and it is framed in such
a way that those who are seen as benet dependent are
stigmatised and their right to income security is deemed
questionable. On the other hand, poverty is also dened in
a way that is relative and ineradicable. We are locked into
a system that leaves far too many people far too poor, and
the main solutions championed by political parties never
come close to addressing this central issue.
Instead Fair Income Security means dening a level of income
that no family should be without as the poverty level, and we then
ensure that no family should be allowed to go below that level.
Tis poverty level (which may vary with dimensions of family life,
as set out above) becomes the basis for calculating a fundamental
level of benet income which is then dened as a universal entitle-
ment and provided by the community to all tax payers.
Tis would have several advantages:
The commitment to eradicate poverty would become
feasible.
The benet would be universal, not targeted, so all
families would see themselves as beneting.
The income-poverty trap would be eliminated.
There would be a stronger sense of security which would
encourage increased risk-taking and entrepreneurship at
all levels.
Currently the least generous rate of income support is 2,780
per year (DWP, 2011b). If this was extended as a benet to all
60 million people in the UK the total cost would be 169 bil-
lion, less than the current cost of all pensions and benets in the
UK (185 billion). Tis would be a signicant benet to many
tax payers and so it would enable rates of tax to be increased so
that this extremely low minimum income could be improved to
A Fair Income | Fair Income Security
18
something more reasonable. Tis simple example demonstrates
that a universal minimum income guarantee for all is not a pipe
dream, it is already within our grasp.
5. Fairer taxes
The current tax system is highly complex and purposefully
obscure. Moreover many negative taxes (benet reductions)
or means-tests are hidden within the benet system.
Fair Income Security means increased transparency and
atter rates of tax. Transparency would be increased by
eradicating means-testing from the calculation of the basic
entitlement and fairness would be increased by moving
to a atter tax system (that is, everyone paying a similar
proportion of their income in taxes), one that set a fair level
of contribution for all. This would have several advantages:
Everyone would understand their contribution to
providing a guaranteed income for the whole community.
The extreme marginal taxes paid by the poorest (and the
subsequent poverty traps) would be eradicated.
The wealthiest would also see themselves as part of a
demonstrably fairer system and show more commitment
to mutual contribution.
Some objections to atter taxes seem to be based on a misunder-
standing about the technology. Flat taxes are progressive - their
atness is a atness in the rate of marginal tax. Tat is, the rate
of tax a citizen pays is consistent, whatever their income. Flat
taxes are the opposite of poll taxes (which are both regressive and
highly tapered). Te current system is not at it is U-shaped. Te
poorest and then the wealthiest pay the highest rates of marginal
tax. Moreover the poor pay the highest share of their income in
tax. It is hard to imagine a more unfair tax system than the one
we currently use.
A Fair Income | Fair Income Security
19
6. Constitutional right
The rights to a minimum income and to fairer taxes are
fundamental and need to be protected from short-term
partisan political interference. They need constitutional
protections that would ensure:
It becomes more difcult for political parties to try and
give advantage to one group, to the disadvantage of
another, in order to achieve electoral advantage.
Individuals can claim protection from the courts if treated
unfairly by the design of the system.
Fundamental changes would require more than a minor
shift in public support.
It is interesting to note that while the state now controls approxi-
mately 50% of GDP in the UK there are no signicant consti-
tutional guarantees for citizens about how their social rights and
duties are dened and respected. Instead welfare systems have
become subject to a process of political pandering to key sections
of the electorate. Constitutional guarantees are an important
form of self-discipline for the welfare state.
7. Independent committee
The calculation of a fair minimum income and a fair tax
level would need to be adjusted in the light of changing
circumstances and information about its impact on society.
The decision as to the right criteria (and their weighting)
will require ne judgements that can only be made by
human beings deliberating together and then making a
decision. Such decisions are best made by an independent
committee, allowing for submissions to be made by
diferent sectors in society and allowing for their discussions
and nal decision to be subject to public scrutiny.
A Fair Income | Fair Income Security
20
Overall
The seven elements of the core model of Fair Income
Security are interlocked, but they are still distinct. Each
element could be separated and there are issues of detail
which could be resolved in diferent ways within each part
of the model. However for the purposes of this essay I am
going to treat Fair Income Security as one model and to
presume that it can be implemented in the full-blooded way
described above.
In summary the core idea is this:
Each family will be entitled to an income that is sucient to
avoid poverty, and each will contribute to the communitys
capacity to provide for this income by paying a clear and fair
level of taxation on any income over and above this mini-
mum.
Although I have already provided some reasons why Fair Income
Security is attractive, these reasons demand more explanation.
However I think this is best done by exploring a more holistic
case for reform.
I will do this by considering the question of tax-benets from
four dierent perspectives:
1. Fairness
2. Rationality
3. Economics
4. Society
Finally I will go on to explore some of the practical questions
surrounding implementation and the politics of the welfare state.
A Fair Income | 1. The Argument from Fairness
21
1. Te Argument from
Fairness
Te current system of tax and benets is unfair
because it does not help those who are poorest to
make the best of their own lives. A fair society is
one that never loses sight of the interests of those
who are in danger of exploitation or who are
suering. Tis is a fact that has been known for
thousands of years. For example, it is a repeated
theme in the Old Testament:
Do right to the widow, judge for the fatherless, give to the poor,
defend the orphan, clothe the naked, heal the broken and the
weak, laugh not a lame man to scorn, defend the maimed, and
let the blind man come into the sight of my clearness. Keep the
old and young within they walls. Wheresoever thou ndest the
dead, take them and bury them, and I will give thee the rst
place in my resurrection.
2 Edras 2:20-23
Te current welfare system fails this test of fairness. Instead of
giving greatest consideration to those who are weakest it locks
them into poverty and damages their ability to do the best they
can for themselves. A better system would start with a broader
conception of the capabilities that underpin a good life and it
would be more sensitive to providing the support and incentives
necessary for self-development and stronger communities.
A Fair Income | 1. The Argument from Fairness
22
Focusing on real wealth
The best way of understanding the injustice at the centre of
the current system of income security (benets, pensions
and tax) is, paradoxically, to realise that money alone is
not the key to a successful life (Sen, 2009). Money is only
one means for achieving a better life, and we can identify
at least ve broader capabilities, each of which is essential
to the creation of a good life. We might think of these
ve elements as real wealth, the resources necessary to
construct a positive and meaningful life (Murray, 2010).
Te ve elements of real wealth are represented in Figure 3
and they are:
5. Gifts - skills, strengths, interests and even needs: Each
individual has their unique gifts, and a good human life
consists in the sharing and development of these gifts -
whether they are great or small.
6. People - family, friends, peers and colleagues: Human
ourishing is impossible in isolation, instead we
develop through relationships with other people -
especially love.
7. Community - associations, organisations, structures,
government and civil society: Our ability to use our
gifts is dependent upon our access to the opportunities
available within our communities.
8. Assets - money, housing, time and energy: We need
sufcient resources, under our own control, so that we
can build a good life for ourselves (Snow, 1994).
9. Spirit - hopefulness, resilience or good mental health:
Finally, and most fundamentally, it is our ability to
shape our life, to use all the dimensions of our real
wealth to develop a life worth living, that will shape
the life we lead (Vidyarthi & Wilson, 2008). Hope is
essential to the human spirit.
A Fair Income | 1. The Argument from Fairness
23
Figure 3. Five Dimensions of Real Wealth
Tis model reminds us that if our primary concern in building
a just society is the quality of peoples lives then we will only be
interested in money as one aspect of real wealth. It is not just
money, it is the exercise of our talents, development of relation-
ships and engagement with community that is necessary for hu-
man development. So when examining our welfare arrangements
it is not the size of public spending or even the level of minimum
income, on its own, that should concern us. It is the way in
which these social arrangements provide the necessary incentives
and supports for personal and social development.
William Beveridge, the architect of the welfare state in the
UK, recognised this clearly:
The State should ofer security for service and contribution. The
State in organising security should not stie incentive, opportunity,
responsibility; in establishing a national minimum, it should leave
room and encouragement for voluntary action by each individual to
provide more than that minimum for himself and his family.
William Beveridge, Social Insurance and Allied Services, p.6
However, although Beveridge recognised the challenge, the way
that the actual system has evolved has led to a situation where
People
Gifts
Spirit
Community
Assets
A Fair Income | 1. The Argument from Fairness
24
incentives are not just weak they are often deeply perverse. Each
aspect of our real wealth is put at peril when we become de-
pendent upon the welfare system. For many people the welfare
system becomes a Poverty Net - a mesh of inter-locking taxes
and benets, that locks people in poverty (Duy, 2010b). Tis
poverty is not just poverty of income, for many it is a poverty
of relationships, capacity and community. Many people nd
themselves isolated, vulnerable and excluded from community
life (including many people who would not consider themselves
poor). Tis broad ranging poverty is not just unfair, it can begin
to damage the human spirit itself.
Just to be crystal clear, this is not the fault of welfare or of
social security in itself. Te welfare state is both good and neces-
sary; we are dependent beings and we need a system of collective
income security. Welfare is not the problem; the problem is the
welfare state is badly designed.
The Poverty Net
The idea of a Poverty Net is useful because it reminds us
that the better known term poverty trap is too simplistic.
The Poverty Net is made up of a range of diferent benets
and taxes although sometimes those benets come as
services and often those taxes are hidden within benet
reduction rates or charges or other forms of means-
testing. The combined efect of these systems is to create a
series of inter-locking poverty traps.
Te most well known poverty trap is the income-poverty trap.
For example, in the UK in 2011, a young woman relying on in-
come support would be entitled to 2,780 per year. After earning
5 in a week each pound that she earns must be taken, pond for
pound, from her benets. Tis means she is paying a marginal
tax rate of 100% (DWP, 2011b). In other words, she must pay
everything she earns back to the government.
A Fair Income | 1. The Argument from Fairness
25
It has been observed by many critics of the current system that
this extreme marginal tax rate may be creating a signicant disin-
centive to work (Economic Dependency Working Group, 2009).
It is estimated that in total, more than 600,000 people could
face a Participation Tax Rate in excess of 90 per cent that is
more than 90 per cent of their gross earnings are lost through
tax and withdrawn benets. This measure does not take
account of in-work costs such as travel, which can easily wipe
out a meagre nancial gain.
21st Century Welfare, p.11
Te DWP itself gives the following example of how increased
earning hardly pays and it provides a useful graphical image
that shows how as earnings increase, income hardly increases:
In this example [see Figure 4], based on current benet and
tax rates, a couple with a single earner and two children sees a
Marginal Deduction Rate of 95.5 per cent on earnings between
126 and 218. This means that someone at the National
Minimum Wage would be less than 7 per week better of
if they worked 16 extra hours and earned an extra 92 (an
efective wage rate of 44p per hour).
21st Century Welfare, p.11
Moreover, it is possible that this could be doubly damaging, not
only reducing opportunities for the individual, but also reducing
the individuals contribution to the whole community. In other
words such systems make the poor poorer, but make all of us
poorer too. But we will return to these broader economic consid-
erations in the next section.
For many people relying on benets total incomes are not
quite as low as 2,780. Many people are entitled to some other
benets or tax credits. Benet have dierent rules, dierent tax
rates and some benets are linked to other benets. However the
impact of these reforms has been to maintain very high tax rates
and create even more complexity and confusion for citizens.
A Fair Income | 1. The Argument from Fairness
26
Figure 4. Extreme Taxes on Low Earners
As Table 1 shows, for the poorest 10% of households average
incomes after tax are little more than 3,500 per year. Tis is
very low indeed. Moreover, as Figure 5 show, the poorest 10% of
households do not just face extreme marginal tax rates, they even
pay more tax as a percentage of their income (47%) than any
other group (Oce of National Statistics, 2009).
Decile Number Income plus Benets less Taxes Net Income Tax
1st 2,528,000 2,043.00 4,592.00 3,092.00 3,543.00 46.6%
2nd 2,528,000 3,738.00 7,287.00 3,274.00 7,751.00 29.7%
3rd 2,530,000 7,464.00 7,431.00 4,642.00 10,253.00 31.2%
4th 2,527,000 11,387.00 7,702.00 6,155.00 12,934.00 32.2%
5th 2,529,000 18,354.00 5,969.00 8,656.00 15,667.00 35.6%
6th 2,530,000 26,523.00 4,093.00 10,978.00 19,638.00 35.9%
7th 2,529,000 33,862.00 3,656.00 13,379.00 24,139.00 35.7%
8th 2,525,000 43,552.00 2,743.00 16,710.00 29,585.00 36.1%
9th 2,531,000 56,842.00 2,310.00 20,833.00 38,319.00 35.2%
10th 2,531,000 100,138.00 1,958.00 35,271.00 66,825.00 34.5%
Mean 30,390.30 4,774.10 12,299.00 22,865.40 35.3%
Sum 25,288,000
Table 1. Household Incomes by Deciles, 2007-08
A Fair Income | 1. The Argument from Fairness
27
Figure 5. Average Household Income by Decile and Tax Paid as Share of
Income
Moreover the income-poverty trap is only one of the many dier-
ent, complex and interlocking poverty traps that make up the
Poverty Net. Figure 6 provides a visual image that describes the
whole Poverty Net.
First we have a wide range of dierent taxation systems, some
general applying to all citizens, and some that are only faced by
people who need extra help (Adam & Browne, 2009). Te most
important of these are taxes on income and taxes on sales. But
there are also many other hidden taxes or taxes that are disguised
as means-testing. For example, should you need extra help as
you get older and frailer you will nd that you will have to pay
an extra tax, built into the means-testing or charging system
for adult social care. In other words there is a hidden tax that is
specically focused on people who need extra help and support.
Tese forms of double-taxation seem particularly unjust as they
target those who already need extra support. It is a super-tax on
disabled people.
Second, we have a range of dierent benets. Tere are over
100 distinct benet rates in the Department of Work and Pen-
sions formal system of benets (ODea et al. 2009). But many
other benets are delivered by other systems. First, there are
tax credits and personal allowances, which are part of the Inland
Revenue System. Second there are benets that are delivered as
services, like healthcare and education. Tirdly there are even
A Fair Income | 1. The Argument from Fairness
28
benets like individual budgets in adult social care, that are
intermediate between services and cash benet and are organised
as conditional resource entitlements (Duy et al. 2009).
Figure 6. The Poverty Net
Te complexity and perversity of this whole system is dicult
to fully characterise; these are just a few of its interlocking
characteristics:
Some benets are linked to other benets. For example
Mortgage Interest Relief is available only to people on
Income Support. These conditionally linked benets can
also have the impact of dramatically increasing marginal
tax rates; for people can nd themselves suddenly losing
their linked entitlement when they are no longer entitled
to the rst.
Some benets are means-tested, while others are not.
Child Benet and the State Pension were the most widely
recognised non-means-tested benets (paradoxically this
makes the termination of Child Benet for the rich a very
worrying step away from a more universal and simpler
system). But even some services that are considered to
VAT & Duties
Council Tax
'Charging' means-tests
Prescription charges
Income Tax
Benet means-tests
Tax credits & allowances
Social care
Multiple Benets
NHS Services
Schooling & education
Housing Benets
Benets Taxes Poverty Traps
Discourage
Saving
Discourage
Control
Discourage
Family
Discourage
Contribution
Discourage
Growth
A Fair Income | 1. The Argument from Fairness
29
non-means-tested often include some important elements
of means-testing. For example, prescriptions for medicine
are means-tested although access to healthcare is often
cited as a universal and free benet.
Some benets, such as tax credits, are administered
through the Inland Revenue system; while others are
managed by the Department of Work and Pensions or
other government departments. This not only creates
unnecessary complexity it has also led to many people
on low incomes developing debts to the Inland Revenue
(Public Accounts Committee, 2009a).
Some taxes and benets are locally dened, some nation-
ally, and there is no clear logic as to which are local and
which are national.
Together this complex mesh of taxes and benets is so
constructed that it creates a whole set of further poverty
traps and many of those poverty traps do not only damage
incentives to earn income:
1. Gifts - Our skills, strengths and individual capacities are
often taxed. There are signicant incentives to be treated
as unt for work in our current system as the benet
system tries to target additional resources at people
with disabilities, health and mental health problems.
Paradoxically trying to penalise those who are deemed
t for work creates deeper poverty traps for those who
manage to get themselves assessed as unt for work.
However, with the right support, we know that many
disabled people are willing and able to work. If incentives
were right we would not need the undignied spectacle of
the state sorting us into those who were t or unt for
work.
2. People - More important than income to our existence and
to our well-being are our relationships, particularly the
relationships of love and family that create the conditions
for life itself. However, two individuals over the age of 25
who were both reliant on income support, but who were
A Fair Income | 1. The Argument from Fairness
30
thinking of marrying (or living together as a couple), would
see their joint income drop from 130.90 to 102.75 (a
direct tax on marriage of 22%). They would also be likely to
see a 50% cut in their housing benets and other possible
benets - so the net taxation on family life is likely to be
even greater.
3. Community - Many benets are so structured that they
limit the citizens access to the wider community. For
example, people needing social care may nd that care
is only made available in day centres or care homes that
efectively segregate them from wider access to civil
society. Choice of education or healthcare is limited to
pre-dened options that may not suit individual needs
and certainly fail to encourage social innovation. Locally
dened benets are not portable and people may feel
unable to move to places they would prefer and which may
ofer better opportunities.
4. Assets - It is not just our income that is taxed, we also
nd that means-testing extends to our savings and to
the incomes of others in our household. For example,
you need to have savings of less than 14,250 in order
to be fully eligible for support when you are over 65
and acquire a serious health condition or disability. This
leads to many people having to spend or transfer their
modest savings to family members in order to maintain
or improve their entitlements to social care or an
enhanced pensions.
My hypothesis is that the design of the welfare state is not only
insensitive to its impact on real wealth, but that it is largely nega-
tive - dampening incentives for citizens and families to make the
best of their talents, strengthen family life and increase contribu-
tion and personal control. Instead the welfare state gives benets
in a way that is demeaning, dispiriting and damaging to human
development.
A Fair Income | 1. The Argument from Fairness
31
The impact of Fair Income
Security
The challenge is to design a system that encourages, or
at the very least does not discourage, personal and family
growth. Fair Income Security attempts this by two very
direct measures:
1. A universal, non-means-tested, benet - calculated to be
sufcient to avoid poverty for all families.
2. A fair rate of tax, payable on all earnings - that is tax is
on income after the universal benet.
Tis means that everyone has enough income, to the extent that
enough is dened and revised by our community from time to
time. Tis also means that everyone benets from this universal
benet, removing at one stroke the stigmatising eect of the
concept of benet dependency. Fair Income Security solves
the problem of benet dependency by making everyone eligible
for this benet. At a stroke this model removes the extreme and
unfair taxes that burden the poor in the form of marginal benet
reduction rates.
In addition, this model makes very clear that it is the respon-
sibility of every family to contribute to the maintenance of this
system of income security, each according to their means. A fair
tax also creates a clear, fair and progressive system of contribution
and ensures that income poverty traps are either excluded, or at
least are felt by all members of the community equally.
Moreover this reform may be more feasible than one may
suspect. For example, in Table 2 we have set out two simplied
calculations of cost. Model 1 uses the current benet for couples
relying on income support as the rate of the average benet.
In Model 2 we have doubled this rate to show the impact of a
more generous approach. Te cost of these two dierent entitle-
ment are then expressed as a proportion of various aspects of the
national economy.
A Fair Income | 1. The Argument from Fairness
32
Model 1 Model 2
Number of Households in UK 25,400,000 25,400,000
Average Family Benet 5,000 10,000
Cost of Universal Benet 127,000,000,000 254,000,000,000
% of GDP (1 Trillion) 12.70% 25.40%
% of Current Tax Bill (c. 500 Billion) 25.40% 50.80%
% of Total Benets (c. 185 Billion) 68.65% 137.30%
Tipping Point 39,370.08 39,370.08
Table 2. Cost of Universal Benet if average set at 5,000 and 10,000 pa
It is interesting to note that, on this model, as the benet
elements become more generous, and the tax rate higher, the
tipping point remains the same. Households that have incomes
above this point are net contributors, households below this in-
come are net beneciaries and the tipping point does not change
with the generosity of the dierent systems. In fact the tipping
point will always be at the mean household income. In addi-
tion it is also clear that, perhaps surprisingly, there is very little
dierence in the cost of this scheme compared to the cost of the
current pension and benet arrangements.
Clearly these are rough and ready calculations and it is obvious
that this model also raises many other problems and uncertain-
ties. I will address as many of these as I can manage within the
constraints of this paper; and I will also try to demonstrate that
even if the whole model may take time to be achieved it still
provides a useful framework.
However my aim here is to demonstrate that there is a
plausible alternative to the current system and that this model
would be fairer for several reasons:
1. It ensures every family in the community has sufcient
income to support citizenship.
2. It is a public and clear guarantee that the community can
acknowledge, dene and support.
3. Meeting this guarantee places reasonable demands on
all citizens.
Above all else a welfare system should be fair. Te current sys-
tem is not fair in that it damages the lives of the poorest. Tis
proposed alternative puts fairness at the heart of its design.
A Fair Income | 2. The Argument from Rationality
33
2. Te Argument from
Rationality
Some people will not recognise this appeal to the concept
of fairness or will have a diferent ideas about fairness.
Many people are attracted by a concept of overall utility or
efciency, others may have doubts as to the validity of my
claims about the negative impact of the current system or
the positive impact of such a radically universal approach.
This section sets out a second and diferent argument for
Fair Income Security; one which does not rely upon such a
specic vision of social justice and may engage people with
a diferent perspective.
The case for clarity
The current system is confusing and complicated. It has
developed over time into an elaborate Byzantine structure
that no one fully understands.
Tis is unattractive for many reasons:
If citizens do not know what they are entitled to then they are
not citizens, instead they are subjects - subject in this case to
the remote and inexplicable power of a bureaucratic state.
If citizens do not know what their responsibilities are then
they are not citizens. Instead, particularly for those who are
expected to contribute signicantly, they will begin to see the
system as a trick, a game designed to squeeze as much from
them as possible, by the most obscure means.
If the system has become too complex even for those running
it to understand then we are in an even worse condition, for
when the system has become too opaque to be managed
efectively then even enlightened bureaucratic paternalism
becomes impossible.
A Fair Income | 2. The Argument from Rationality
34
Tere is no doubt that the current system is too complex.
Martin makes the point in the following way:
The DWP issues a total of 14 manuals, with a total of 8,690 pages,
to its decision makers to help them to apply DWP benets. A
separate set of four volumes totalling over 1,200 pages covers
Housing and Council Tax Benets, which are primarily the
responsibility of local authorities. The Tax Credits manual used by
HM Revenue and Customs is a further 260 pages, even though it
omits details for many relevant tax concepts which are found in
other tax manuals. In addition to these encyclopaedic works is a
cornucopia of circulars, news releases and guidance notes issued
to professionals and claimants. The underlying legal statutes and
statutory instruments make up a vast mass of further material.
David Martin, Benet Simplication: how, and why, it must be done, 2009
Tis state of aairs should be repugnant to anyone who be-
lieves themselves to be a citizen, someone with a real stake in
their community. Any civilised society relies upon a shared
understanding of the basic economic arrangements that govern
economic security and contribution. For example, at the heart of
Solons constitutional reforms in Athens, the reforms that gave
birth to democracy, we see, not only a system of political organi-
sation but also a clear and balanced system of economic security
and taxation (Plutarch, 1960).
The achievement of clarity
Interestingly the problem of achieving increased clarity
was faced by those of us developing systems of resource
allocation to simplify and clarify someones right to an
individual budget in adult social care. In order to achieve
transparency and simplicity it was necessary to examine
the cost of care packages in adult social care (which varied
from 0 to over 60,000 per year) and to correlate these
costs with critical questions, the answers to which allowed
for the quantication of need (Dufy, 2005).
A Fair Income | 2. The Argument from Rationality
35
Today, most of the individual budgets being delivered to people
in England use a resource allocation system based on these early
models and typically they rely on weighting the answers to about
10 distinct questions. Te process of answering the 10 ques-
tions takes less than half an hour and the resulting budget can be
specied almost immediately. Tis system has now been extended
to all of adult social care in England and will by 2013 be in place
for over 1 million people and for an overall expenditure of about
20 billion (although the quality of implementation is currently
very patchy).
Of course, this does not mean that there is no complexity
to the question of determining a fair allocation. In one sense
these new resource allocation processes simply make transparent
underlying pre-existing assumptions about need; but by making
such assumptions transparent it is possible to examine and test
them. Furthermore the results of the actual allocations made can
also be tested and the system can be further amended in the light
of any emerging unfairness or inadequacy in funding.
Tis model, which combines clarifying underlying principles
and measuring the impact of allocations is set out in Figure
7. My contention would be that if 10 questions can, in most
instances, determine a fair level of funding to meet the needs
covered by adult social care - which are extremely wide - then, by
extension, an even greater degree of reliability could be achieved
in terms of basic income security by developing a similar system
to replace the current benets and tax-credit systems.
Figure 7. The Use of the Resource Allocation System in Adult Social Care
Tarif
Cluster
Budget Supports Outcomes
Data on changes in local prices
Data on efectiveness of allocations and supports in achieving outcomes
Rules for Allocation
Social Justice Principles
1. Achieve citizenship
2. Prevent need
3. Increase equity
A Fair Income | 2. The Argument from Rationality
36
Clarity is vital to the on-going need to evaluate, understand and
validate any system. When that system is an essential component
of the modern democratic state then the need for clarity is a mat-
ter of the utmost signicance for the well-being of society.
Making the system testable
There is one further advantage of introducing clarity
into the system, which is that it would make the whole
system open to empirical testing. One of the unfortunate
side-efects of the current system is that it has become
impossible to test and develop the system so that it can
more reliably achieve desirable social outcomes.
Tere is certainly much that we do not know about the
impact of any changes to the current system:
We dont know to what extent high marginal tax rates on
the poor stop them from earning and the degree to which
lower marginal rates will increase earnings.
We dont know whether a system of Fair Income Security
would actually lead to more people withdrawing from
labour markets or seeking diferent kinds of work.
We dont know what the impact of atter taxes would be
on earners at diferent levels of income.
Tese and many other uncertainties will persist unless the system
is changed to make it possible to test these questions. Te com-
plexity of the current system paralyses rational investigation of
possible improvements.
One of the advantages of the Fair Income Security is that it
creates a much clearer foundation for meaningful empirical
testing:
Poverty could be redened and the system can be made
more or less generous.
Family dimensions could be weighted in diferent ways
along the axes of age, size and disability.
A Fair Income | 2. The Argument from Rationality
37
Marginal tax rates can also be amended and changed,
even altering the atness of the tax.
Negative tax rates could even be used to introduce means-
testing into the system at lower incomes.
Tis paper does not argue for these changes and the argument
from social justice oers a sharper and narrower account of the
system that would be demanded by a consideration of fairness
alone.
Nevertheless the argument from rationality does provide
further reasons to at support some elements of the proposed
model of Fair Income Security:
1. The creation of a unied tax-benet systems
2. The creation of a consistent taxonomy
3. The simplication of benets into one calculation, with
appropriate weighting
4. The clarication of a socially agreed denition of
unacceptable poverty
Without these kinds of changes the tax-benet system will
continue to be immune to rational scrutiny and to meaningful
public debate. In fact it should be acknowledged that the cur-
rent coalition government in the UK has shown a great deal of
commitment to create a reformed system that would have some
of these elements. In particular, the development of Universal
Credit is an attempt to move to a radically revised system which
will allow for some exibility in the design of any new system
(DWP, 2011).
However, what should be of grave concern to politicians and
citizens is that these structural reforms are not underpinned by
any clear understanding of the basic expectations, rights and
responsibilities that will make such a system explicable. Tere is
a grave risk that the current experiments will become unstuck
for lack of public support. Te current reformers have accepted
that the current system sends confused or damaging messages to
the poor. However, unless there is an attempt to dene in clear
and understandable terms what the new deal is; it is likely that
A Fair Income | 2. The Argument from Rationality
38
bureaucratic complexity will simply be replaced with dynamic
complexity (Economic Dependency Working Group, 2009).
Reforms must based on clear and public principles that dene
rights and responsibilities. Continuing the complex and
paternalistic micro-management of income and tax levels will
further reinforce confusion and undermine citizenship.
A Fair Income | 3. The Argument from Economics
39
3. Te Argument from
Economics
Another kind of approach to the tax-benet
system is to ask whether such a system is ecient
or economically productive. For many people
this is the critical question, whether reforms will
lead to growth and increased economic activity.
As the previous section implied, much of this
is an empirical question, hard to test without
real systemic change. However, there are good
reasons to believe that the economic impact of
Fair Income Security would be positive.
Increased activity
The primary economic attraction of the Fair Income
Security is that it completely removes the income-poverty
trap and gives everyone in society the same marginal tax
rate and the same incentive to earn. However, in moving
to this new system, the overall impact of this change
would most likely be:
to radically reduce the marginal tax rates of the poorest
to mildly increase the marginal tax rates of
middle-earners
to slightly change the marginal tax rates for the richest
(Whether this would an increase or a decrease would
depend upon how generous the guaranteed minimum
would be.)
A Fair Income | 3. The Argument from Economics
40
Te reason why marginal tax rates are important is that they
determine the nancial benet of working an extra hour. It has
been plausibly argued for instance that in 1979, when marginal
tax rates for high earners were slashed, the impact was not only
that high earners began to earn more but also that high earners
began to pay higher levels of overall tax. For example, following
Tatcher tax cuts in 1979, the contribution of the top 10% of
earners to the overall tax take went from 32% to 45% of total tax
paid (Heathcoat-Amory, 2008).
As Table 3 sets out, large numbers of people are now benet
dependent or live on incomes just above these benet levels
(DWP, 2008). Although it may be hard to prove, it seems
plausible that many of the 7 million households who are benet
dependent would seek to earn extra money on top of their
benet income. Of course many of these 7 million households
include people who have pensions or disabilities. However this
should not lead us to underestimate the potential for increased
economic activity when it begins to be worth peoples while to
work.
Benet Dependent Low Earners High Earners Total
Households 27.6% 28.3% 44.1% 25,400,000
Household No.s 7,000,000 7,200,000 11,200,000
Women 25.4% 29.2% 45.5% 26,400,000
Men 19.7% 27.8% 52.6% 23,400,000
Children 33.1% 27.3% 39.6% 13,900,000
People 15,900,000 18,100,000 29,800,000 63,700,000
Total Percentage 25% 28% 47%
Table 3. Household Data, UK, 2007-2008
A Fair Income | 3. The Argument from Economics
41
Increased productivity
An increased supply of labour into the labour market
would increase the overall volume of activity and will
increase wage exibility in that market. However the other
fundamental change that Fair Income Security would
introduce is modest income security for all. The sceptic will
fear that this will have an opposing impact on the economy,
that is many people might choose to withdraw from the
labour market (at least to some degree). Ultimately this
question rests on the degree to which peoples earning
behaviour is currently determined by fear of falling into the
benet system and whether a universal system of modest
income security would then lead to a radical withdrawal of
labour from the market.
Again much of this has not been tested; but at least two things
are worth considering. First, if it is true that there would be such
a signicant reduction in economic activity by earners then this
is likely to lead to a redistribution of labour towards the poorest.
Tis is hardly an unattractive outcome in a world where millions
dont work, but millions seem to work too much.
Te second factor to consider is whether any change that is un-
derpinned by increased income security would not in fact lead to
increased fussiness about the nature of work that people choose.
It seems plausible that the fear of the consequences of not work-
ing does not primarily drive a willingness to work. Most people
who can work want to work, and not just for the economic ben-
ets of working. However many people work in jobs that they do
not value or which do not seem productive to them.
It may well be that the actual economic impact of the Fair In-
come Security would be a shift towards economic activity which
is more personally rewarding. In which case we may see more
people choosing work that pays less well and fewer people doing
activities that seem less enjoyable. Of course the labour market
can adjust to some degree for this fact by altering relative salaries.
A Fair Income | 3. The Argument from Economics
42
Tis is not an economic problem; instead it is an opportunity
for the creation of a more genuinely productive economy, one
that does not use fear of poverty to drive people into less reward-
ing work.
Reduced waste
Finally the economic impact of these reforms would be to
radically reduce the need for administrators of the current
system and to much greater reliability and consistency in
tax and benet decisions. Here are just a few examples of
the current levels of waste in the tax-benet system:
At least 1.5 billion is over paid in tax credits each year
to people on low incomes and there is no fair or efective
system for reclaiming this money (Public Accounts
Committee, 2009a).
At least 1.8 billion is overpaid in benets each year to
people who are dependent upon benets for their income
and there is no reasonable way of reclaiming this money
(Public Accounts Committee, 2009b).
In any reformed system there would only need to be one
IT system (there are currently 37 in the DWP alone).
The Department for Work and Pensions and its agencies
spend around 2 billion a year to administer and pay
working-age benets, Local Authorities spend a further
1 billion to administer Housing Benet and Council Tax
Benet, and HM Revenue & Customs spends more than
500 million a year. (DWP, 2010)
Te complexity and confusion of these systems leads to the
situation that Teresa Perchard, Director of Social Policy at
Citizens Advice put like this in a letter to the government:
Citizens Advice acknowledges that the 1.5 billion cost of fraud in
the benet system must be recovered, but we are very concerned
at the governments persistent tendency to roll fraud and error
A Fair Income | 3. The Argument from Economics
43
gures together. Errors account for the remaining 3.7 billion of the
5.2 billion gure quoted . In the meantime, the 5 billion cost to
government through fraud and error is dwarfed by the 17 billion of
benets and tax credits that remain unclaimed every year, because
people dont know they are entitled to claim, or because the system
is too complicated.
Teresa Perchard, (quoted in Dufy & Hyde, 2012)
It is worthwhile looking at these gures in detail. 1.5 billion is
actually less than 1% of the cost of the whole benets system.
Tis is actually a tiny gure and suggests that citizen-fraud is
currently negligible. However, if people dont know that they can
claim for 17 billion then this is about 10% of the total benet
bill. A system that has been designed so that the poor do not get
what they are entitled to is a fraudulent system. It is the poor
who are being defrauded, by the government, and at eleven times
the rate at which citizens defraud the government.
In summary, although there are many uncertainties, if one
believes that the millions of people who are currently benet de-
pendent are in fact people who are full of positive capacities that
are just waiting to be unlocked, then the net impact of helping
to release those eorts into the economy is likely to be benecial,
both to them and to the whole of society.
A Fair Income | 4. The Argument from Society
44
4. Te Argument from
Society
Finally I will consider one last argument for
reform. Tis argument is based upon the social
conditions that lead to reform. Te welfare state
was not designed in a vacuum, rather it has
evolved to meet social needs and it was designed
in the light of assumptions that reected the
beliefs and practices of the time.
The development of the
welfare state
It is modern arrogance to believe that earlier societies
made no provisions for the care of all their members.
However earlier societies often built their provision around
the agrarian economy. For example, Mosaic Law sets out
measures for the harvesting of elds which are purposefully
designed to ensure that there will be enough left for the
widow without land to be able to gather food for herself
(Maimonides, 2005). Similarly in the Middle Ages it was
part of the role of the Church to provide charity for those in
need within feudal society.
However the nature of production and distribution has changed
radically. Production of the basics for life used largely to lie in
the hands of those who needed them, and security came through
both holding land or being a part of the social fabric around its
production. Te enormous advantage of technological innova-
A Fair Income | 4. The Argument from Society
45
tion has been the ability of many fewer people to produce food,
clothing and all the many other goods and services we need
or want. Te enormous disadvantage of technology, and the
capitalist society which has grown up around it, is the inherent
insecurity that seems to come with industry, technology and the
modern business. We have never been so wealthy, and we have
never had such a weak hold upon that wealth.
In the nineteenth and twentieth-centuries this insecurity fu-
elled revolutions, violent social change, war, eugenics and, nally,
the development of the welfare state, as an attempt to reduce this
radical insecurity.
Unsurprisingly the design of the welfare state also reected
the conditions and assumptions of its time, including that:
The state can, using macro-economic management (Key-
nesianism) keep most people in work.
Taxation can be used to provide a modest benet for those
temporarily out of work.
Family structures will exist to provide love and support for
men, women and children.
Healthcare and education are best delivered by expert
professionals.
Those who cant own their own home will be able to rent
a home at an afordable rent.
Many additional benets (e.g. sickness and pensions) will
be delivered by the rm.
Of course, it is interesting to note the many dierences of detail
that arise as dierent countries solve the problem of building the
welfare state. Some societies, like Japan and the US, gave a much
bigger role to business. Other countries, like France, developed
national insurance systems to include payments for healthcare;
while others, like Britain, focused on a state-provision model.
But the similarities are even more marked, for all systems have
tended to see the fundamental security as a combination of (a)
protecting overall employment rates in the economy and (b)
providing some limited support for those who fall out of employ-
ment and onto benets.
A Fair Income | 4. The Argument from Society
46
Some systems seem to be more generous, like the Swedish
system, while others seem more austere, like the US system. But
all welfare state economies have seen an enormous shift of power
and resources towards the state that has no obvious precedence
in recorded history. All modern states provide some broad form
of insurance to protect citizens from the radical insecurities of
modern economies.
Moreover the trend since the early development of the welfare
state has been to increased technological eciency, combined
with increased business insecurity. Furthermore, other social
structures, the family, communities and the rm, have all become
weaker. Tis has put further pressure on the state to provide se-
curity through the welfare system and growing numbers are now
reliant on benets (Parker, 2009).
In addition we also seem to have reached a certain kind of
limit to the degree to which the welfare state can grow relative to
the size of the whole economy. Since the 1970s there have been
on-going eorts to restrict the growth in welfare spending and
to limit levels of taxation as a share of overall economic activity.
Some foolishly advocate eliminating the welfare state, as if the
underlying need for welfare had somehow mysteriously disap-
peared. Some foolishly pretend that simply increasing spending
on welfare inevitably makes things better. Policy debates have
often been reduced to a ridiculously simplied battle of more or
less.
Te fact is that all modern societies need a system of collec-
tive economic security in order to counterbalance the kind of
radical insecurity that has been created by industrialisation. Tis
fact has not changed. Te creation of the welfare state should
be celebrated as a double achievement. First, it put in place new
social structures that reduced the vicious impact of poverty and
increased social cohesion. Without the modern welfare state we
would return to the corrosive poverty and fear that characterised
the early part of the twentieth-century.
Second, it tried to make the achievement of social justice an
explicit part of our community life. And, at rst, social justice did
improve. However the welfare state has now become increasingly
ineective at promoting social justice. In the early twenty-rst cen-
A Fair Income | 4. The Argument from Society
47
tury there are troubling signs that injustice is increasing and that
quality of life for most people is not developing as it should.
In these circumstances it seems extraordinary that we should
not be prepared to rethink the design assumptions of the welfare
state. It is time to reect upon some of the unintended conse-
quences of its current design and to critically examine how the
welfare state now ts within a world that has changed signi-
cantly since the 1940s.
The need for redesign
The reasons that the current system will continue to
come under further pressure for reform are not difcult to
discern, although there will be disagreement about how
acute these factors are:
The erosion of social structures - The decline of important social
structures (e.g. businesses, the family, the church and civil
society) seems to increase the pressure on the welfare system.
For example it is noticeable that in recent discussions about
funding for adult social care, the fact that the vast majority
of support is provided for free by families has not led to a
reexamination of a system that actually undermines families
by limiting their eligibility to social care. Instead the debate
has focused on how to increase the taxes placed on families,
thereby reducing family strength further. It is a mistake to
try and solve every social problem by increasing the size of
state spending. State-controlled welfare is not the only social
structure we need. Some things, like love, meaning and enter-
prise, can only be provided in a state of freedom by the family
and through civil society.
Economic constraints - There appear to be some near absolute
limits of state expenditure and when these are reached
economic efectiveness is imperilled such that state spending
comes under further pressure. For many observers this
maximal point of state growth was reached in the 1970s and
A Fair Income | 4. The Argument from Society
48
certainly the growth in the size of the welfare state, relative to
the whole economy, has stopped or slowed since that point.
The political and economic crises in communist countries
that led to the end of the Cold War also seem to be at least
partly connected to the problem of hubristic state control - the
state believing itself to be competent to control economic life
far beyond its actual capacity. Today we are less condent
that passing economic control to the state is always the best
solution for social and economic problems.
Increased social unrest - There is concern that benet
dependency is also likely to create wider social problems.
Crime, civil unrest and forms of self-harm (drugs, alcohol,
poor mental health) all seem to increase in places where
benet dependency dominates. This phenomenon also leads
to a culture of blame where those who sufer most from a
system that they did not create are also blamed for these
problems. The recent development of terms like underclass
or benet thief should alert us to the dangers of increased
social alienation between those who have and those who have
not. We have started to blame the poor for poverty - this is
dangerous and stupid.
Tese issues should be of particular concern in the UK. Accord-
ing to Wilkinson and Pickett the UK is the third most unequal
developed country in the world and this income inequality is
causing social problems that include increased crime, mental
illness, infant deaths, obesity and early deaths (Wilkinson and
Pickett, 2010). In fact Wilkinson and Pickett argue that the
growing size of the welfare state has reected the failure of society
to address the deeper problem of income inequality. If this is true
then this underlines how important it is not to simply resort to
increased welfare spending as a solution for every problem. It is
also a mistake to be complacent. Tese social problems will get
worse, will increase conict and may lead to more draconian
measures on behalf of powerful groups.
A Fair Income | 4. The Argument from Society
49
The possibility of reform
There are however some signs that positive reform may be
possible and a number of relatively new trends ofer some
hope:
New information technologies - The internet and systems for
processing and personalising complex sets of data, have led
to approaches where technically complex chores are being
simplied. Brokerage industries - like travel, insurance - are
being simplied into systems like moneysupermarket.com or
confused.com. Outside the welfare state, citizens both expect
greater simplicity and greater control and they nd that, when
they put their minds to it, they can also create systems that
make this possible.
New social movements - The failure of political parties to protect
the interests of genuinely disadvantaged groups has also led to
new social movements that not only advocate reform but also
design and create reform. The disability movement created the
possibility of reform in adult social care. London Citizens has
had great success in improving the wages of Londoners.
An increased focus on rights - The primary political philosophy
that underpinned the development of the welfare state has
been utilitarianism, and this is reected in the cost-benet
models applied by social theorists. This approach tends to be
insufciently concerned with the rights of the weakest and
underestimates the value of shifting power and control to
individuals. However a renewed focus on rights, including our
rights to social justice, can ofer a better ethical framework for
promoting positive reform and a fresh focus on citizenship.
It is far too early to declare that any change to the current system
is inevitable. It takes political will, courage and thoughtfulness to
reform a complex system: particularly when that system involves
the economic interests of millions. But there are some reasons to
think such a change is possible and that, unless action is taken,
further pressure for change will arise.
A Fair Income | 5. The Challenge of Implementation
50
5. Te Challenge of
Implementation
Throughout this essay I have avoided discussing the biggest
problem faced by any potential reform of the tax-benet
system - the challenge of implementation. Just because a
system is just, rational, economic or even inevitable does
not make it feasible. Feasibility only arises when the will
to reform is combined with a coherent and achievable plan
and the ability to communicate that plan in a way most
people can understand and accept.
In the UK today some of these conditions seem to exist. Tere
is certainly some political will to bring about change and there
is some understanding of the problem. What is much more
uncertain is whether the proposed reforms are clear or fair. In
fact it seems possible that the current wave of reforms will drive
up income inequality, create increased confusion and add to the
stigmatisation of the poor. Tey do not seem to create a genu-
inely universal solution that will make sense to all citizens.
Te reason why positive reform is so dicult to achieve is that
such reforms rely on normal political processes and these process-
es struggle to deliver the kind of fundamental reform required.
Again, if we return to the moment when Beveridge was trying
to persuade government of the need for deep and systematic
reform, we can sense his fear that his proposed solutions
would be undermined:
The rst principle is that any proposals for the future, while
they should use to the full the experience gathered in the past,
should not be restricted by consideration of sectional interests
established in the obtaining of that experience. Now, when the war
is abolishing landmarks of every kind, is the opportunity for using
experience in a clear eld. A revolutionary moment in the worlds
history is a time for revolutions, not for patching.
William Beveridge, Social Insurance and Allied Services, p.6
A Fair Income | 5. The Challenge of Implementation
51
In fact, as soon as the welfare state was rst designed, the patch-
ing began. Te current system is very patchy indeed and, as Bev-
eridge spotted, the reason for this is sectional interests although
it may be surprising to consider who these sectional interests
really are.
Primarily the blocks to positive reform are:
1. the politicians need to please swing voters and median
income earners
2. an administrative system that oversees its own reform
3. the economic and political power of the welfare state
itself
We will consider each of these blocks in turn.
Medianocracy
The biggest block to reform does not lie in the expected
place. It is not the civil servants or those reliant on benets
who really block reform. The most likely block to reform are
middle earners and the politicians who need to win their
support. Swing voters are vital to electoral victory, and the
swing voter is very likely to be the median income earner.
For example the median household income in the UK is cur-
rently about 22,000 (see Figure 8). Like most groups (except
the poorest 10% who pay 46% tax) they pay about 35% of their
income in tax.
However if we look at real marginal tax rates - that is the tax
on the next pound earned we nd that the tax system may
treat this group very dierently:
1. This group is not in the benet system at all, and so
has escaped the extreme marginal tax rates paid by the
poorest.
A Fair Income | 5. The Challenge of Implementation
52
2. This group pays the lowest rates of income tax (whether
as one earner or as a couple) and for a couple almost all
income would be excluded from income tax all together.
3. This group still gets universal benets like child benet.
It is not an accident that this group faces the lowest marginal tax
rates. If the household was much poorer then they would start
to attract benets that would increase their eective marginal tax
rate (although the tax rate would be disguised as a benet reduc-
tion rate). If the household was richer then they would attract
higher marginal tax rates. It seems that the tax-benet system is
so designed that the most important group politically is treated
better than groups that are much less important politically (the
poor and the better o).
Figure 8. Distribution of Income by Deciles in 2008
It is also interesting to note that the tax system is designed so
as to disguise the real marginal tax rates that people pay. Tis
enables the state to give the appearance of taxing at modest levels
(c. 20%) but spending at much higher levels (c. 50%). Tis
sleight of hand is possible because taxes are shifted out of sight
- onto sales (VAT), employers or redistributed in more opaque
fashion (e.g. National Insurance) - or shifted on to the poor or
wealthy.
151
229
280
329
381
437
506
100 200 300 600 500 400 700 800 900 1000 1100
65 per week -
Minimum
100,000
200,000
300,000
400,000
500,000
591
731
1072
Higher Earners Low Earners Benet Dependent
From 3,500 up to 14,500 From 22,500
410 per week
- Median
Higher Tax
Rate Begins
A Fair Income | 5. The Challenge of Implementation
53
We might describe this form of political power as a medianoc-
racy. It is the median voter who has the most power, and prin-
ciples of natural justice easily become distorted where this occurs.
Note also how much of contemporary political debate can be
analysed as the eorts of political parties to get the median voter
to identify themselves as their core constituency: on the Left
the strategy is to encourage people to see themselves as need-
ing more support, services or welfare. On the Right the strategy
is to encourage the same group to see themselves as subject to
unduly high taxes. Language such as alarm clock Britain or the
squeezed middle tells its own story.
Both sides are then tempted to full their promises by target-
ing programmes so that they bring extra benets to their core
voters and the swing voters they need. In this way benets are
minimised for non-target voters (the poor and the rich). Tese
groups may be thought of as already captured by Left or Right
and so no special eort needs to be made on their behalf. In ad-
dition their party will only be in power intermittently - whereas
the median voter is always represented by the party in power.
Te greatest block to positive reform is the need of politicians
to pander to one economic group - middle earners.
Administrative self-protection
The second problem for reformers is that they nd that the
welfare state is not neutral. It begins to develop its own
inherent interest and politicians nd themselves not only
having to deliver value to voters but also to implement
that value within and through the welfare states own
bureaucracy.
Tis leads to what we might call the sedimentary quality of the
welfare state. Each new benet, entitlement or reform tends to
be developed as a new layer sitting on top of older systems. It
has proved incredibly challenging to redesign or challenge those
previous layers. Each layer has its own delivery group (civil
A Fair Income | 5. The Challenge of Implementation
54
servants, professionals, commercial or charitable organisations)
and each layer has focuses on some group who benets from that
particular benet.
In addition, political leaders are rarely responsible for any gov-
ernment department for long enough to fully understand how it
works and what would be necessary for genuine reform. Similarly
legislative change tends to be piecemeal and incoherent.
For example the Law Commission, in reviewing legislation
for adult social care said:
Adult social care law remains a confusing patchwork of conicting
statutes enacted over a period of 60 years. Some of these statutes
reect the disparate and shifting philosophical, political and socio-
economic concerns of various postwar governments. Other statutes
were originally Private Members Bills and represent an altogether
diferent agenda of civil rights for disabled people and their carers.
The law has also developed with an inconsistent regard for previous
legislation: some statutes amend or repeal previous legislation;
others repeat or seek to augment previous law; and others can be
categorised as stand alone or parallel Acts of Parliament.
Law Commission, 2008
Tis sense of powerlessness in the face of bewildering complex-
ity also confronts the think-tanks and policy bodies that have
developed on the edges of the welfare state to support politicians
in the development of their thinking and policy proposals. Tere
is a very real sense that radical reform is beyond the reach of the
contemporary political system.
Nobody understands the whole system, but everyone within
that system is acutely aware of their own place within it and the
need to protect it from meddling or reform.
A Fair Income | 5. The Challenge of Implementation
55
The welfare industry
In this essay my primary focus has been on the income
adjustment side of the welfare state - the system for
increasing (and reducing) income. However the welfare
state is also made up of a set of services that exist to benet
everyone. In fact very little of our taxes goes on income
adjustment. Most of our taxes are spent on universal
services.
Tis can be seen clearly in Table 4, drawing upon the same data
as in Table 1, which analyses the degree to which each decile has
their income adjusted up or down by the combination of tax
and benets (Oce for National Statistics, 2009). For example,
for the poorest decile the average adjustment is an addition
of 1,500 per year, whereas for the richest decile the average
adjustment is a subtraction of 33, 313 per year. In fact, on this
analysis, only the rst four deciles receive positive income adjust-
ments, the remaining 60% of families are net contributors.
To put this more simply, after receiving benets and paying
taxes the poorest 10% are 1,500 better o. For the poorest 10%
this improvement in income costs under 4 billion. For the four
poorest deciles (the poorest 40% of households) the total cost of
income adjustment was 25 billion. However, when we examine
the extent of the positive contribution of the tax payer we nd
that this amounts to approximately 215 billion. Tis means
190 billion goes towards universal services.
Of course the 40% poorest families also benet from these
universal services, but often they benet to a lower degree than
the better-o. For example, the poorest 10% use 1,675 per
year less than the mean. Tis amount is actually higher than the
amount that they receive in positive income adjustment. Perhaps,
if people really understood how badly the current system treats
the poorest we might be more open to consider sensible reforms.
Te poor are not scroungers and benet thieves. In fact many
of the poor hardly benet at all from the current system.
Furthermore, one might also note that the 190 billion
contribution of the tax payer to services, rather than to income
A Fair Income | 5. The Challenge of Implementation
56
adjustment, is then spent on services that employ people. Tat is,
tax payer income is primarily converted into salaries for doctors,
nurses, teachers and civil servants. In other words, the primary
beneciaries of the welfare state are those whom it employs,
directly or indirectly. For every 1 spent on reducing poverty at
least 8 is spent on employing people within welfare services.
Table 4. Spending on Income Adjustment vs Services
Again, it is useful to return to Beveridge, who was keen to
point out that income adjustment was only one part of what a
decent welfare system should do. He argued:
The second principle is that organisation of social insurance should
be treated as one part only of a comprehensive policy of social
progress. Social insurance fully developed may provide income
security; it is an attack upon Want. But Want is one only of ve
giants on the road of reconstruction and in some ways the easiest
to attack. The others are Disease, Ignorance, Squalor and Idleness.
William Beveridge, Social Insurance and Allied Services, p.6
However the balance has now slipped too far the other way. It
seems that the political system prefers to invest in services rather
than in income adjustment. Tis may be because welfare state
workers are a better source of votes for politicians than the poor
are; or it may be because there is a glamour associated with
welfare services that are more visible benets of the welfare state
Decile Number Adjustment Cost Contribution Services Net Use Balance
1st 2,528,000 1,500 3,792,000,000 4,314 -1,675 -175
2nd 2,528,000 4,013 10,144,864,000 4,854 -1,135 2,878
3rd 2,530,000 2,789 7,056,170,000 5,503 -486 2,303
4th 2,527,000 1,547 3,909,269,000 5,839 -150 1,397
5th 2,529,000 -2,687 6,795,423,000 6,025 36 -2,651
6th 2,530,000 -6,885 17,419,050,000 5,908 -81 -6,966
7th 2,529,000 -9,723 24,589,467,000 6,281 292 -9,431
8th 2,525,000 -13,967 35,266,675,000 6,733 744 -13,223
9th 2,531,000 -18,523 46,881,713,000 7,473 1,484 -17,039
10th 2,531,000 -33,313 84,315,203,000 6,958 969 -32,344
Mean -7,525 5,989
Sum 25,288,000 24,902,303,000 215,267,531,000 151,444,774,400
Surplus 38,920,453,600
A Fair Income | 5. The Challenge of Implementation
57
than income adjustment (building a new hospital than lifting the
incomes of the poorest).
Whatever the reason it is important that we start to become
much clearer about the need for income adjustment as a funda-
mental feature of the welfare state. In the past there have been
proposals to hypothecate healthcare spending as a xed element
of our taxation. However, given the facts, it looks like income
adjustment - not healthcare - is what needs that kind of protec-
tion and ring-fencing.
Our thinking about welfare is corrupted by a focus on par-
ticular services that have great emotional value or which have
become politically powerful, like the NHS. In order to begin a
process of genuine reform it is necessary to return to a focus on
poverty and income equality.
The constitutional solution
One possible solution to the conundrum of building a fairer
welfare system within a modern democracy is to seek some
kind of constitutional solution. This means dening certain
fundamental principles (e.g. the elimination of poverty, the
fairness of the taxation system, the elimination of poverty
traps) within a constitutional framework that is protected
from short-term political interference and protected by
other structures - in particular the courts. In this way
political process can discipline itself from the temptation to
pander to the median voter.
It is for this reason that the sixth element of Fair Income Security
is a legislative framework, ideally with constitutional protections,
that guarantees the basic rights to a minimum income and fair
taxes.
It is important here to distinguish rights and entitlements.
Rights are more fundamental and static than entitlements; ideally
they would be established within constitutional arrangements
that would be relatively immune to shifts of power within the
A Fair Income | 5. The Challenge of Implementation
58
political system. Entitlements are more mobile, they are par-
ticular interpretations of a right, xed to suit particular times,
needs or circumstances. Te proposal here is that a fundamental
right to sucient income to sustain citizenship would be xed -
constitutionally.
However the precise entitlement, that would achieve
the fullment of that right, would need to be calculated
empirically and this would change as society changes, and as:
prices uctuate
essential goods change
overall wealth changed
learning increases about the impact of entitlement
patterns
Tis means that the seventh feature of the Fair Income Security
will be a mechanism for determining the size of the universal
benet whose decisions would be open to public scrutiny. Tis
could work like the Low Pay Commission or the Bank of Eng-
land committee that xes interest rates.
Public understanding
However, even if reforms are coherent and rational, they will
still needs to appeal to the hearts and minds of the public,
and particularly to those median voters who might focus on
any increase in their marginal tax rates. It is this consideration
that probably demands that the whole proposal is not
treated simply as a modest technical adjustment but rather is
explained as a new deal for all citizens.
Here are a number of arguments that could be used by policy
leaders:
This reform will nally free the poor from benet depend-
ancy, encourage greater social contribution, greater
economic activity and stronger family life.
A Fair Income | 5. The Challenge of Implementation
59
The guarantee of a basic household income is universal
and, while it may not create an immediate net economic
advantage for the median household, it will give the
median household a much stronger sense of security.
It is simply unfair not to provide a guaranteed minimum
income or to ask people to contribute in ways that are
obscure or punitive.
This reform will help reduce crime, violence, mental
illness and social instability
Te current Welfare Reform Bill is useful in that it has created
greater awareness of some of the problems that the poor face.
However it is undermined by on-going stigmatisation of the poor
and the failure treat the reforms as part of a universal set of en-
titlements. Ultimately the current reforms will leave some people
in even deeper poverty and many people subject to confused and
confusing regulations.
A Fair Income | Conclusion
60
Conclusion
Tere will be two reactions to Fair Income
Security. On the one hand there will be those
who feel that my critique of the welfare state
is too harsh, or even dangerous. We are still
wedded to the Beveridge model of how to deliver
welfare and we are understandably nervous
about anyone proposing changes in the name of
reform.
I understand this fear. Te concept of welfare reform has often
masked further attacks on the poor or eroded standards of social
justice. Yet surely Beveridge, if he were alive today, would be the
rst to be asking whether the systems that he helped to design
were really working. He would surely notice that many of his
fears have been realised and that it is the poor, above all, who are
losing out.
Tis is why the concept of design is so important. We need to
move away from simplistic thinking about the welfare state - the
more or less argument. Te welfare state is good, but its design
is wrong. We need the welfare state, but we need one that is de-
signed better; and especially we need a welfare state that is more
eective at supporting the poorest and disabled people.
Te second reaction will be that this analysis is naive or
simplistic. Tings are much more complicated than I suggest.
Change is much more dicult than I imagine. Tis reaction is
also understandable. Change is dicult and there are certainly
many more issues to resolve than I have been able to cover within
this essay. Perhaps, as Beveridge feared, patching is all we will
be able to manage.
Yet even if our political leaders can only manage to patch the
welfare state we are surely right to try to dene the principles that
shape that patching. Even patching is a political process.
A Fair Income | Conclusion
61
If you believe that poverty is not the fault of the poor then you
will want to live in a society that works to improve the situation
of the poor. If you believe that everyone, including the poor,
has talents and the need to develop them, then you will want to
live in society where everybody gets the incentive, support and
encouragement necessary to use those talents. If you want to live
in a society where everyone is treated as a fellow citizen then you
will want there to be clear rights and responsibilities that every-
one understands and acknowledges.
Fair Income Security oers a model that can be understood
and communicated. It is a model that would serve the poor bet-
ter, but would be feasible and attractive to many. It is a model
that reasserts the importance of meaningful rights and responsi-
bilities. Rights we can identify, dene and achieve; responsibili-
ties which are neither burdensome nor obscure.
Ultimately Fair Income Security oers a dierent way of
understanding the problem of welfare. Welfare should not be a
system for taking care of the poor. Instead welfare should be our
shared system for providing each other with security and support
necessary for each of us to be full citizens.
A Fair Income | Bibliography
62
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A Fair Income | Contributors
64
Contributors
Author
Simon Dufy
Simon Dufy is Director of The Centre for Welfare Reform. He
invented individual budgets and self-directed support and led
the reform of adult social care services as CEO of In Control
from 2003 to 2009. Previously Simon developed a series of
organisations and innovations in England and Scotland,
including Inclusion Glasgow and Altrum.
Simon has a doctorate in philosophy and has a special interest
in better understanding and promoting social justice. In 2008
Simon was awarded the RSAs Prince Albert Medal for his work
in developing personalisation and in 2011 the Social Policy
Association awarded him with their award for Outstanding
Contribution by a non-academic. Simon is also an Honorary
Senior Research Fellow at the University of Birminghams
Health Service Management Centre and policy advisor to the
Campaign for a Fair Society. Simon lives in Shefeld with his
wife Nicola and their son Jacob.
A Fair Income | Contributors
65
Editors
Dr Simon Dufy
Simon is the Director and Founder of The Centre for Welfare
Reform; see authors prole opposite.
Professor Jon Glasby
Jon is Director of the University of Birminghams Health Services
Management Centre. Specialising in joint work between health
and social care, Jon is involved in regular policy analysis and
advice. He is the author of a series of leading textbooks on
health and social services, and also sits on the editorial boards
of the International Journal of Integrated Care and the Journal
of Integrated Care.
Dr Catherine Needham
Catherine is a Senior Lecturer in the School of Politics and
International Relations at Queen Mary, University of London
and was a recent visiting fellow at the Health Services
Management Centre at the University of Birmingham. She is
the author of The Reform of Public Services under New Labour:
Narratives of Consumerism (Palgrave, 2007) and Citizen-
Consumers: New Labours Marketplace Democracy (Catalyst,
2003). She is currently writing Personalising Public Services:
Understanding the Personalisation Narrative, which will be
published by the Policy Press in 2011. Catherine is an associate
of the Centre for Public Service Partnerships.
A Fair Income | Contributors
66
Publishing information
The Centre for Welfare Reform
The Centre for Welfare Reform was established in 2009 to develop and help
redesign the welfare state in order to promote citizenship, support families,
strengthen communities and increase social justice. The Centres fellowship
includes a wide-range of social innovators and local leaders.
www.centreforwelfarereform.org
Health Service Management Centre,
Birmingham University
The Health Services Management Centre (HSMC) at the University of
Birmingham is the leading UK centre providing a combination of research,
teaching, professional development and consultancy to health and
social care agencies. Over nearly forty years, it has established a unique
reputation as a critical friend of the healthcare community.
www.hsmc.bham.ac.uk
Small print
A Fair Income Simon Dufy 2011
Figures 1, 2, 6, 7 & 8 Simon Dufy 2009-11
Figure 3 Simon Dufy and Pippa Murray 2011
Designed by Henry Iles
All rights reserved.
First published December 2011
ISBN download: 978-1-907790-24-9
70 pp
No part of this book may be reproduced in any form without permission
from the publisher, except for the quotation of brief passages in reviews.
A Fair Income is published by The Centre for Welfare Reform in association with the
University of Birminghams Health Service Management Centre.
The Centre for Welfare Reform
The publication is free to download from:
www.centreforwelfarereform.org
www.hsmc.bham.ac.uk
Joint policy document series
In the summer of 2010 The University of Birminghams Health Service Management Centre
hosted a two day think-tank to explore whether recent innovations in health and social care
might be the key to a more radical redesign of the whole welfare state.
As part of the think tank papers were produced which proposed signicant policy
developments. These papers were then subject to debate and criticism. The papers were
then further developed for publication.
Each paper in the series has been produced by a leading practitioner and social innovator.
The papers combine evidence and ideas for policy reform which are rooted in the real
experience of bringing about change from the bottom-up.
www.centreforwelfarereform.org
www.hsmc.bham.ac.uk