Participation Income As A Method To Reduce Inequality

To give this post a bit of context, I’ve just finished reading Inequality by Anthony B. Atkinson, a professor based at Nuffield, Oxford. The book takes an interesting format, it begins by examining the causes of changes in inequality over the past century, noting that post war inequality has decreased significantly but that post 1980s it’s been on the rise in the developed world. Atkinson then makes a number of recommendations of ways in which we can rectify this worrying trend. I’ve listed a few of these below:

  • The every citizen of the UK, who is eligible, should receive a minimum capital endowment (inheritance) on turning 18.
  • Every citizen who participates in the economy through employment, volunteering, caring or other recognized activity is paid a participation income. This income could replace Job Seekers Allowance for those unemployed and some aspects of the State Pension for Pensioners.
  • Income tax should be adjusted so there is no longer a personal allowance and that the highest rate rises from 40% to 65%.

When the Greens included a “Basic Citizens Income” in their manifesto for 2015, I thought that they were proposing economic suicide. What is the purpose of being employed if you can be paid without working at all. Atkinson makes the case, however, for a participation income very well. Major causes of poverty currently include people not being aware of what benefits they are eligible for, and them finding the application processes for these too complicated. The participation income would require a person to contribute to our society and work (or seek work) but would remove these issues. Furthermore income tax could then be reformed to remove the personal allowance, but could still be applied progressively (through banding income) to bring in tax revenue. Atkinson suggests raising the top rate to 65%, this is something I will come to in another post.  On the whole however I felt when reading this proposal that it could do our country a great deal of benefit. A participation income will ensure everyone in our society has enough money to eat and survive, but will require them to contribute and will still provide an incentive to people to work, everyone being eligible will bring a reduction to some of the red tape that currently exists.

When it comes to a minimum capital endowment, if enacted well I think that this could be successful. By raising inheritance tax and adjusting it’s remit we could substantially increase revenue, this could be used to fund a minimum capital endowment. This would be a guaranteed payment of a sizable amount, perhaps £10,000, that would be paid to every person (presuming a citizen of Britain) at a certain time in their life, perhaps their 18th or 21st Birthday. Inheritance in itself is inherently a significant cause of inequality. By providing those who wouldn’t not otherwise receive a inheritance with one, this would allow recipients to start small businesses, pay for training (or an apprenticeship) or to save for a deposit. This will allow many lower income households to defeat poverty while placing the burden of this on those who tend to have the highest standard of living.

Atkinson makes an interesting point when justifying some of his more economically inhibitive proposals, including a higher top rate of income tax. This is that (using an analogy) a smaller cake shared more equally is surely better than a marginally larger cake shared much less equally. Why prioritize GDP growth if the benefits of such a measure are going to fall in (and stay in) the wallets of the rich? Both UK and EU policy should take heed of this.

In this post I’ve written up some of the most interesting proposals that the book contained but in order to gain a full idea of those please go and read it! You will not regret it 🙂

1 thought on “Participation Income As A Method To Reduce Inequality

  1. I believe a signal effect of the minimum capital endowment would be evidenced in every young person being “launched” regardless of their parent’s participation. Those who do not receive family help in becoming independent often cannot get suitable living spaces for their own, get the most workable transportation, dress appropriately for their jobs, and so on. They very well might find themselves not being able to keep up with those who otherwise would be their peers, and suffer stress and despair. The young who are ready to begin their adult lives need that boost in order to establish themselves and prosper, and society would benefit.

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