This is the full text of the talk given at the National Convention for Scotland’s Future on 14 June 2025.
After looking at the causes of material poverty, the options open to us for an income maintenance system are reviewed, and we end by asking ourselves ‘What sort of society do we want to create in Scotland?’.
The causes of material poverty
We all receive endowments of unearned consumption from our families, our wider communities, education, via state benefits and unearned income. Material poverty occurs as the result of a combination of insufficient endowments and low pay. Rich nations could adopt an interventionist policy on behalf of their poorest members, both by increasing their endowments and by improving their education and skills training. In rich countries, poverty exists because it is government policy.
Technical change gives rise to highly trained workers on higher wage rates. Growth occurs, leading to rich people becoming even richer and poor people becoming just enough better off to deter them from being a nuisance to rich people by demanding more. Inequality increases. Once people have experienced a higher standard of living, they tend to feel aggrieved at the thought of losing it. They are loss averse. Economic growth should always be accompanied by a policy of redistribution.
Poverty is more likely to occur if one of the essential conditions for democracy is missing, as in the UK. Our level of inequality means that our rich rulers are completely out of touch with the reality of the lives of poor people, whilst ensuring the comfort of the lives of people like themselves. Many claim that benefit levels can only be boosted by growth, but, in the UK, benefits levels are not related to growth, having been increased according to inflation over the decades. The average incomes of the rest of the population have increased by accumulated growth. Even low growth, when prolonged, makes a difference. Thus, the real value of the benefits received by our poorest are based on a poverty level appropriate many years ago. Claimants are trying to survive on below-subsistence benefits which completely disconnect them from the rest of the population.
This is further exacerbated by micro-economic theory, which assumes that everyone is ‘comfortably off’, based on economists’ own experience of diminishing marginal utility, (where the extra pleasure gained from each successive level of consumption decreases). Economic theory has no concept of an individual being deprived of either consumption or leisure. It has no recognition that people who are deprived suffer from both malnutrition and insecurity causing mental health problems and are not well enough to do a day’s work. Thus, if these other, supposedly comfortably off, people do not react in the same way as they – the establishment – themselves would, it must be because they are ‘lazy scoundrels’, undeserving of support from the state.
An example of poverty policy is that given by New Labour, which, soon after being elected in 1997, announced a policy to prevent child poverty by 2020. Why wait? While reducing some child poverty, it missed its first target in 2005, and in 2008 Gordon Brown lowered the standard rate of income tax from 22 to 20 per cent, when the higher rate of tax could have been used to reduce child poverty. Also, governments are loathe to prevent child poverty by helping their deprived parents, as though they blame the parents for being poor or having children. Some ministers even suggest that when poor children are too hungry to learn, that they should be granted extra lessons.
But all of this ignores the various ways in which the establishment avoids paying its fair share of taxes, by legal tax avoidance. Every time that the Personal Allowance is increased, the whole range of incomes subject to the standard tax rate moves as a block, so that the range of incomes that changes from being subject to the standard rate to zero tax, is matched by a similar range of incomes that changes from being subject to the higher rate of income tax to the standard rate. Another ruse is the number of allowances and exemptions in the income tax system, like a leaky bucket, which is another way of providing income taxpayers (who are the richer half of the population), with a system of means-testing so that we can avoiding paying taxes in proportion to our incomes. An even better ruse has been housing policy – leading to increasing prices and rents for housing, which is a veritable system for redistributing wealth from poor to rich.
Growth via technical change but without redistribution exacerbates the situation of poor people. In contrast, redistribution of income from rich to poor can increase demand and potentially lead to growth, because poor people consume a greater proportion of their income than rich people. Redistribution could reduce both ill health and crime and thus the current costs of the health service and justice system. Redistribution of income is a necessary condition, but not sufficient on its own, to reduce poverty in general, but reducing material poverty will make a good start.
This is why it is appropriate that we, the comfortably off middle classes, should learn about the experience of poverty and acknowledge that this is what our comfortably off middle classes vote for, whether unwittingly or negligently. Thus, people like us have helped to cause it, but, by the same token, we can take responsibility for changing it.
Four basic systems.
In medieval Europe, monasteries were the main providers of charity in the form of ‘poor relief’. After the Reformation and the dissolution of the monasteries in the sixteenth century, local authorities were required to collect taxes to pay for the support of people who could not work. The implementation of these laws was often brutal, with poor people housed, clothed and fed in punitive workhouses. This was moderated in the UK by Attlee’s National Assistance Act of 1948. However, it has become less benign over the last half century.
Many voluntary social insurance schemes were set up in the latter half of the 19th century, rationalised by the Beveridge Report of 1942, and implemented by Attlee’s National Insurance Act of 1946. These were accompanied by the provision of public welfare services – free secondary education under the 1944 Education Act, the setting up of the National Health Service in 1948 and subsidised Council Housing. Child Benefit, introduced between 1975-77, turned out to be popular, with a 97% uptake. It is the prototype for Basic Income (BI), which is a periodic unconditional cash payment delivered to all on an individual basis, without means test or behavioural requirement.
These four examples represent the main ways of supporting poor people. What do they involve?
- Charity is welcome but is insecure.
- Social Assistance comes in many forms, but is mainly means-tested, household-based (which could include extended-family members’ and lodgers’ incomes), often with stringent conditions. It creates a tension between the help given and its cost, leading to its being a grudging concession, with a major deterrent effect and demanding reciprocity. The current UK version is couple-based which can leave many women subject to economic abuse and financial coercion and its administrative regime leads to insecurity, anxiety and mental-health issues among claimants.
- Social insurance works well but is based on a contract available only to workers, thus excluding a large part of the population. It is based on the individual and provides earnings replacement during times of sickness, unemployment and old age. Insurance payments depend on his contribution record but include extra amounts for his dependents.
- Basic income can be justified by Thomas Paine, who asserted in 1796 that the land and natural resources belong to the people, and those who appropriate them for private use owe an annual ground rent to the whole excluded population.
The rights basis for each is as follows:
- Charity – none.
- Social Assistance – based on reciprocity, it is a lifetime ‘loan’ with punitive conditionality.
- Social insurance – a contract, available only to those who work for pay.
- Basic income – the restitution of our rights to our land and natural resources, and to our infrastructure & material heritage, and to our nation’s intangible capital & institutions such as the rule of law.
What sort of society do we want to help to create and to be part of?
Many may remember the Basic Income Feasibility Study of 2018-20, supported by a £250,000 grant by the Scottish Government. Its first finding was that the powers devolved to the Scottish Government do not include the legal right either to implement a basic income or to raise the necessary finance.
It also had concerns about:
- the difficulties of implementing a BI scheme and integrating it with the current Social Security system.
- whether a BI scheme would lead to large numbers of workers reducing their hours of work, and
the total gross cost.
None of these concerns is insurmountable.
The introduction of a BI scheme could be carried out in increasing instalments over a period of, say, 5 – 10 years, checking and adjusting for unintended adverse consequences. The BIs should be bedded in alongside the current benefit system and their amounts would reduce claimants’ means-tested benefits. As the levels of the BIs increase with each instalment, the claimants will gradually be floated off mean-testing.
Those whose working lives leave them deprived of leisure should certainly take the opportunity to reduce their hours. The maximum feasible level of BI would provide a modest, but dignified, standard of living and wage rates would still provide financial incentives to work for pay. Many people also enjoy the non-financial benefits of working. A more worrying concern will be the number of low-paid and knowledge-based workers who will become redundant as the use of AI becomes more widespread.
A BI scheme specifies both the cash payments and the method of financing them. The relevant cost factor is the net cost, that is, the difference between the gross cost of the outlay and the amount raised to finance it. Increasing the money supply should only be used to finance infrastructure and other investment, rather than for consumption, and borrowing should be used only as a short-term expediency. Ideally the direct taxation system would be hypothecated to finance the cash benefit system, thus creating a redistribution system, and infrastructure and other investment would be financed out of indirect taxation.
Many people object to personal taxation, not acknowledging the interdependence of human endeavours necessary to create their own personal incomes and wealth. Taxation is the price that we pay for a good society, and this does not come cheap. Employees of foreign companies working in the Nordic countries are not deterred by their high tax rates.
The question facing each of us is ‘What sort of society do we want for ourselves in Scotland?’
I want to be part of a society characterised by:
- liberty – in the form of the right to financial emancipation.
- egality – in the form of the right to sufficient endowments for wellbeing.
- fraternity – in the form of lower levels of inequality of income and wealth, leading to a more just, united and inclusive society.
Much change will be required to create such a society, but a reasonable level of basic income must be at the heart of it.
Finally, may I remind all of us that on the mace in our Scottish Parliament are engraved the words: ‘integrity’, ‘compassion’, ‘wisdom’, ‘justice’ – and I would like to add ‘hope’.