Friday, 30 July 2010

Why not simply a Universal Pension?

"Iain Duncan Smith, the Work and Pensions Secretary, will today unveil proposals to streamline and simplify payments, as well as improved incentives for the unemployed to swap life on benefits for work." so it says in the Independent today

It strikes me that the easiest of all systems - a universal pension to every citizen - is the simplest and fairest structure. Before state retirement age this would be paid to all those engaged in 'useful work' pro-rata to the amount they do and in full to those retired and genuinely disabled.

Then you just scrap everything else - including the minimum wage - and ensure that people are taxed on the 'profit' they make from their efforts (just as the self-employed are today). Work then always pays and the tax system is simply adjusted, up or down, to ensure that aggregate demand isn't spiked too high by the pension.

We can debate what 'Useful Work' should be - whether it be normal remunerative work, volunteering or looking after children, but the principle remains: the state provides a simple straightforward safety net and that's it.

There is of course one rather large elephant in the room. Work can only pay if there is work to go to.

To make any of these schemes really work requires that the unemployed, the underemployed and those completely out of the system actually have jobs to go to.

And if the private sector isn't creating enough in any particular area, then the public sector must step in and redistribute work to where it is required. We can't all live in the City of London.