Redistribution in a Cold Climate

Deindustrialization and stagflation transformed the context in which social policy was made during the 1970s and 1980s. One of the foundations of Margaret Thatcher’s electoral success was a public backlash against welfare spending and the tax burden. Nevertheless, the idea of a guaranteed income continued to resonate for three reasons. Firstly, the collapse of the post-war employment model opened up a wide-ranging debate about the future of work, and basic income began to attract support as a way of underpinning the transition to a more flexible labour market. Secondly, developments in economics and social research highlighted the growth of poverty under Thatcherism and focused attention on tax-benefit reform as a possible solution. Thirdly, cash transfers to working-age households grew rapidly between 1979 and 1997: partly as a by-product of deindustrialization, but also because shrewder Tories recognized that an effective social safety net could help smooth the introduction of free-market policies.

‘The Pragmatist’s Solution to Poverty’

The ‘rediscovery of poverty’ prompted a wide-ranging debate over how the British government could best support low-income families. One radical response came from Edward Heath’s Conservative government, which published plans to replace the whole system of personal tax allowances with refundable tax credits—the closest any British government has come to introducing a Universal Basic Income. This chapter examines the origins of the Tax Credit Scheme in 1971–2, which was devised by special adviser Arthur Cockfield in response to the rising cost of tax administration and the difficulty of establishing a selective Negative Income Tax in Britain. As the plans took shape, however, the cost of introducing the reforms on a no-losers basis became a source of growing concern within government. Indeed, Treasury officials were relieved when Labour’s victory in the February 1974 election made it possible to jettison the scheme and focus on simplifying and computerizing the PAYE system.

Introduction

The 2008 financial crisis and the era of austerity that followed have pushed poverty and inequality to the top of the political agenda for the first time in a generation. One of the most striking responses has been the surge of interest in a Universal Basic Income—an idea which has circulated in British politics since at least the First World War, and has intersected with proposals for more selective and conditional forms of minimum income. This introduction examines the history of guaranteed income in modern Britain from two perspectives: an ideational story about the circulation and development of basic income, Negative Income Tax, and tax credit schemes, and a public policy story about the growth of cash transfers since the 1970s. It argues that the UK has become a ‘transfer state’ in which working-age benefits play a central role in legitimating a particular form of post-industrial liberal capitalism.

Redistributive Market Liberalism and its Critics

The belief that a civilized society should seek to prevent destitution among its citizens is one of the oldest ideas in politics, yet the idea that this should be achieved through a guaranteed minimum income is relatively new. This chapter takes John Kay’s concept of ‘Redistributive Market Liberalism’ as a starting point for examining how cash transfers became central to British social policy debate in the course of the twentieth century. Drawing on work by Samuel Fleischacker, Martin Ravallion, and Alice O’Connor, it argues that a guaranteed minimum income is a distinctly modern concept, shaped by an Enlightenment conception of distributive justice, an Anglo-American tradition of ‘poverty knowledge’, and the methodological individualism of neoclassical economics. The collapse of manufacturing employment since the 1970s, together with a declining faith in planning and collective provision, has encouraged UK governments to pursue their distributional objectives through the tax and benefit systems.

What Kind of Transfer State?

This final chapter draws together the arguments developed in previous chapters and examines the prospects for the UK’s ‘transfer state’ in the twenty-first century. It argues that Universal Credit marks the culmination of a particular line of development: the expansion and rationalization of income-tested support for the working poor, driven forward by policy-makers in Whitehall and backed up by conditionality requirements. The combination of benefit sanctions and cuts means that, despite its scale, the UK social security system does not provide a guaranteed income for working-age citizens in any meaningful sense. Although a subsistence-level Universal Basic Income is likely to be prohibitively expensive, even a low-level basic income could give individuals greater economic security by placing a stable income floor beneath the means-tested benefit system.

New Labour’s Tax Credits, 1997–2010

The thirteen years of Labour government between 1997 and 2010 may come to be seen by future historians as the zenith of the British transfer state, when—in contrast to other western countries—the increase in fiscal redistribution which took place during the 1980s and early 1990s was sustained and deepened. Inspired by the Earned Income Tax Credit in the United States, Gordon Brown created a complex system of income-related tax credits, which formed a central part of New Labour’s strategy for ‘making work pay’ and eliminating child poverty. For the first time, the Treasury came to see itself as a social welfare agency, using tax credits and other instruments to achieve explicit distributional objectives. This chapter provides a detailed account of the development of tax credits, and shows how administrative difficulties and tensions between rhetoric and reality hampered Brown’s efforts to build public support for the system.

Negative Income Tax Comes to Britain, 1955–1970

The 1960s witnessed a revival of concern about poverty on both sides of the Atlantic. One of the most fashionable responses to this ‘rediscovery of poverty’ in the United States was the concept of a Negative Income Tax, which Milton Friedman popularized in Capitalism and Freedom (1962). Much of the literature on the US guaranteed income debate presents NIT as a distinctively American phenomenon, but the possibility of integrating tax and benefits in this way was also central to British social policy during the 1960s and 1970s. Both Conservative and Labour governments hoped that NIT could allow them to target benefits on the poor without the stigma of conventional means-testing—focusing first on pensioners, then on working families with children. The idea attracted wide attention inside and outside government, but ran up against both cultural resistance to wage supplements and technical difficulties in paying benefits through the PAYE system.

Social Dividends and Social Contracts, 1918–1955

Historians of British social policy have long seen the 1940s as a critical juncture, in which the Beveridge Report marked the formation of a new social security settlement. One of the consequences of Sir William Beveridge’s success, however, has been to overshadow the rival proposals canvassed by his contemporaries. This chapter examines how Universal Basic Income emerged as a policy option in the context of mid-twentieth-century welfare debates: Dennis Milner published the first scheme for a tax-funded UBI in 1918, and Juliet Rhys-Williams revived the idea in the 1940s as an alternative to Beveridge’s proposals. Though Rhys-Williams’s campaign was unsuccessful, it has had a major impact on how basic income has been understood in Britain. By presenting UBI as a step towards tax-benefit integration, Rhys-Williams squeezed out alternative conceptions of basic income as a ‘social dividend’ which had circulated between the wars, and tethered it firmly to redistributive market liberalism.

The Return of Universal Basic Income

Basic income has risen rapidly up the UK political agenda over the last five years with support from the Green Party, think-tanks such as the Royal Society of Arts, and some trade unionists. The Labour Party has set up a working group to explore the idea, and four Scottish councils are developing plans for a pilot scheme. This chapter explores the history of basic income campaigning in Britain since the 1980s and examines why the idea has regained traction since 2013–14. It pays particular attention to the institutional role played by the Basic Income Research Group (now the Citizen’s Basic Income Trust) and the Basic Income Earth Network, developments in the global south, and changing attitudes to work within the labour movement. It also examines how British campaigners have sought to reframe the case for basic income in dynamic terms, as a foundation for economic security across the life cycle.

A Crisis of the Transfer State?

One of the consequences of the financial crisis was that redistributive market liberalism came under challenge from a number of directions. At a practical level, the rising budget deficit limited the scope for further increases in cash transfers; at a discursive level, Conservative politicians successfully challenged New Labour’s focus on income poverty and recast tax credits as a form of ‘welfare’. The coalition government cut working-age benefits and focused on boosting take-home pay by raising the tax threshold, whilst Labour leader Ed Miliband took up the ‘predistribution’ agenda championed by the Harvard political scientist Jacob Hacker. However, the development of Universal Credit and mounting interest in Universal Basic Income suggests that talk of a ‘crisis of the transfer state’ would be premature. Indeed, the growing difficulties which the Conservatives have faced in cutting social security spending shows that in some respects the transfer state has proved to be highly resilient.