Poverty Buster: The impact of the 2019 Green Party manifesto on household incomes and equality

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Summary

The Green Party manifesto commitments from 2019 on taxation, UBI and benefits would result in a 33% reduction in poverty in the UK in the first 5 years, including a 37% reduction in child poverty, and a 9% reduction in inequality.

This would involve numerous changes including the introduction of a Universal Basic Income, reduced conditions and withdrawal rates for remaining benefits, and significant tax reforms.

Using the new PolicyEngine tool, we can see the full impact of the changes proposed in our 2019 General Election manifesto.

These changes include:

• Introducing a Universal Basic Income of £89 per week for working age adults (updated to £94 per week to take account of inflation since 2018 when these figures were calculated)/ £175 per week for pensioners (updated to £185 per week) /£70 per week for children (updated to £75 per week)
• Removing all other income related benefits, including the State Pension, but not Housing benefits, Carers’ Allowance, Childcare benefits or disability benefits
• Reducing the withdrawal rate on those remaining benefits from 63% to 40% (this is now 55%)
• Merging all taxes on income into a Consolidated Income Tax
• Removing the current income tax free threshold
• Introducing a Carbon Tax on all greenhouse gas emissions
• Replacing current property taxes with a Land Value Tax

Overall, this plan would aim to be fiscally balanced (i.e. spending increases would match increased tax revenues or cost savings elsewhere). The Policy Engine analysis suggests a net cost of £24.9bn, but the increased revenue that would be collected as a result of merging income taxes, closing multiple loopholes and improving tax collection would raise this full amount, closing that fiscal gap. In future analyses, we will try to include those changes, but for now they are not incorporated into PolicyEngine’s modelling. For comparison, the current means-tested approach to income-related benefits would require another £20bn+ to make all the payments it is designed to make, so in that sense, even without further measures, this model leaves us in a similar fiscal situation as the current system.

This impact does not include increased spending in other areas intending to support those on lower incomes or other policies focused on reducing poverty, such as the extension of free childcare, free social care, rent caps or minimum wage increases.

The impacts outlined below are primary impacts only (i.e. direct effect on incomes) and do not attempt to assess secondary or tertiary impacts (such as increased labour market engagement, improved mental or physical health, better educational attainment, reduced crime etc). These impacts are important, but will have to be measured separately. All methodologies, assumptions and calculations are included in the Appendices at the bottom of this article.

The Impact

The most important impact the Green Party proposals would have is on poverty levels.

Impact on poverty

The combination of the Green Party policies mentioned above will result in a 33% reduction in poverty across the UK, including a 37% fall in the number of children living below the poverty line.

There is also a fall of around 35% in the number of pensioners living in poverty, but this figure assumes those pensioners would be liable for Land Value Tax payments immediately, when in reality they would be able to rollover those payments until death or the sale of their home. Neither of these scenarios would require the over-65 homeowner to pay the tax up front, and so in reality we would probably see a much larger reduction in pensioner poverty than this model suggests (so this figure is the minimum reduction we would expect for pensioner poverty, rather than an average or maximum).

Impact on household incomes

This radical reduction in poverty levels is achieved by significantly increasing the disposable incomes of the very poorest households.

Here we can see large increases in disposable income for all households below the median income level (and more modest increases even for most of those above it).

In percentage terms this change is even more striking, with the poorest 10% of households seeing their disposable income increase by nearly 60% under these proposals.

What creates this massive uplift in disposable incomes at the lower end?

In a word (or phrase): Universal Basic Income.

The removal of conditions for receiving this payment (compared to means tested benefits) means that those people who most often miss out on, or do not claim, the benefits they require, would now be in direct receipt of that money.

As you can see from the chart below, it is the increases in UBI (the top 3 Green elements of Decile 1s income changes) that account for the vast majority of their uplift. There are also some substantial decreases in income for them (the grey blocks), brought about by increases in indirect taxes (especially Carbon Tax) and abolition of current benefits, but these are more than offset by the UBI payments.

The moral of this story is that even regressive taxes (such as those on consumption) can have very progressive outcomes if their revenue is used to make universal payments. Those on lower incomes tend to be made much better off by that approach. So abolishing current benefits, removing tax allowances at the lower end and taxing consumption are all made super-progressive by the equal redistribution of the proceeds.

The tax and UBI approach (or ‘Fee and Dividend’ as it’s sometimes called) results in significant redistribution of income from rich to poor. And it is that which is driving down poverty most effectively in this scenario.

Note: it is worth pointing out that the Green Party’s tax proposals would shift the burden of taxation away from households and towards businesses, assets and land. So, along with significant income redistribution, there would also be a small uplift for households more generally as a result of these other Green Party proposals.

Impact on Equality

This programme of policies would have a profound impact on inequality in the UK. The ‘Gini Coefficient is a measure of inequality that compares the share of income within an economy for each decile (in this case) and compares it to a perfectly equal distribution. . Perfect equality (i.e. if every person had the exact same income) would have a score of 0, while perfect inequality (1 person has all the income) would create a score of 100.

We can see below that applying Green policies would reduce the UK score by nearly 10% (from 32.1 to 29.1):

There are many advantages that come with greater income equality, as set out in The Spirit Level, including a greater likelihood of combating climate change, so this change would actively support the wider Green agenda, and not just our efforts to reduce poverty.

The cost

But there is a cost.

Or at least there is work to be done to transfer resources from those with higher incomes and higher wealth to those at the lower end of the scale.

People who currently enjoy income tax loopholes, or who extract significant amounts of wealth via land or other non-productive assets, or even those who might benefit from some generous means-tested benefits payments might find themselves slightly worse off. The Green Party’s current stance is that no person currently receiving benefits will be worse off under our plans, but that is virtually impossible to guarantee. Those people are small in number and the broader benefits will more than outweigh any downside for atypical individuals (see distribution of gains and losses below), but it is something we could possibly manage with more targeted support and/or a gradual transition to this type of tax and benefits structure.

There will be tax increases for some (especially those with high levels of land wealth), but they will be countered by effective tax reductions for others. Renters paying income tax, for example, will almost certainly find themselves with much lower tax bills/ higher take home pay and disposable incomes. Pensioners on modest incomes would also be paying much lower levels of income tax (and with higher state pensions), given that the new Citizens Pension will not be taxable in the way that the current state pension is. Wealthier pensioners will, however, find themselves paying a basic tax rate on their income of 32% compared with 20% currently.

When looking at absolute changes to income, we can see that the wealthiest 2 deciles see substantial tax bills from the Carbon Tax and Land Value Tax (£7k and £1Poverty Buster: The impact of GPEW manifesto GE2019 on household incomes and equality.

It will take time

The changes we are proposing here are fundamental shifts in government policy and approach and will likely take several years to implement.

This analysis is intended to provide a snapshot of what the impact of those changes will be, rather than a plan for how they can be implemented.

By breaking down the effect of each policy idea, we can perhaps also help prioritise which proposals are worth focusing on first, and which ones represent the greatest economic and social impact.

Zero Carbon, Zero Poverty

By undertaking this assessment, we hope to demonstrate how a policy programme designed to support an environmentally sustainable economy can also lead to a fair and just society.

The changes the Green Party has proposed are radical and significant, but they are undoubtedly pointing in the right direction.

We hope this new policy development tool, alongside a clear commitment to eliminate Greenhouse gases and an understanding of how our policies impact household incomes, will help us agree on a programme of massive poverty reduction to run alongside our current commitment to reducing carbon emissions.

Please use PolicyEngine, become part of the conversation and help us agree a programme for government that will lead towards zero poverty, as well as zero carbon.

The Breakdown

The table of revenue/ spending changes below shows how much extra revenue would be spent by government for each policy/change outlined (negative figures denote increased tax revenues or spending reductions).

As you can see, overall, this policy programme would involve spending £24.9bn more (net) than is spent currently. We would cover this extra spend with a series of changes to tax reliefs/exemptions and improved collection (see explanation above).

The Assumptions

There are some assumptions that were required, on top of those outlined in the 2019 manifesto.

These included:

• Legacy benefits and the impact of the migration of most benefit recipients on to Universal Credit. In 2019 we proposed to retain certain means-tested benefits relating to housing and disability, while also extending free childcare provisions. Since then, most of those benefits have been rolled into Universal Credit, which complicates the calculation of impact. We have assumed that the relevant aspect of Universal Credit (the housing, childcare and disability elements) will be retained under Green Party proposals, in addition to the retention of the legacy benefits for those who still receive them. We feel this is a reasonable assumption, but the two benefits systems work slightly differently, so there might be some difference in the output of these calculations. However, even if the difference is marked, it is unlikely to change the overall conclusions of this analysis.
• The policy to reverse cuts to disability benefits (of around £1.7bn factoring in inflation) has been distributed across the various disability elements of Universal Credit. This could be distributed differently, but we don’t stipulate in our policy which disability benefits (which have since been blended into UC) would increase. The difference in these elements of UC is now considerable, and although only resulted in a modest increased spend for government, would result in a significant uplift for those people in receipt of these benefits
• Land Value Tax on residential and commercial property. The Green Party policy from 2019 was to replace current property and land taxes with a Land Value Tax. For this reason we have assumed that the rates levied on households would be enough to cover the current revenue from Council Tax and Stamp Duty (and a few other smaller taxes related to property). While the rates levied on companies and commercial properties would be enough to cover the revenue currently generated by NNDR/Business Rates. Eventually, all land will be taxed at the same rate, but given that currently commercial land is taxed more heavily, in the transition (which is likely to be longer than a parliamentary term), we have assumed a differentiated rate.
• Pensioner payments of Land Value Tax. The more significant assumption around LVT in this calculation is that over-65s would pay it up-front. The Green Party 2019 manifesto would allow pensioner home-owners to roll over the payment until death or sale of the property. This would, in effect, turn the LVT into a capital gains or inheritance tax for those properties, and allow the homeowner to pay nothing for the rest of their lifetime. This would significantly improve the impact on low income pensioner homeowners and increase the poverty reduction number included here. However, the model needs to incorporate the decision to pay it up-front, and so this assumption needs to be included in the base calculation.
• Carbon Tax rates. For Carbon Tax, the rate set would be linked to the revenue estimates set out in the 2019 manifesto: £76bn raised meant that the rate in 2024 (the end of a parliamentary term) would be just over £200 per tonne. This assumed that emissions would fall considerably over the 5 year term, and as that happened the rate would increase to maintain a steady revenue stream. The calculations in this article are using 2020 emissions, which are higher than we assumed would be the case in 2024, and therefore the Carbon Tax level would be lower at £135 per tonne. The impact on household incomes will remain steady, so this different rate doesn’t impact the outcomes of this analysis.
• Disposable Income. Usually ‘disposable income’ is: earned income + benefits — direct taxes. But, for the purposes of this exercise, we have also included the impact of Carbon Tax, which is an indirect tax (it would not be levied directly on households or individuals, but as close to the source of Carbon as possible). We are not yet able to factor in other indirect tax changes that the Green Party proposed in 2019, so this inclusion of Carbon Tax does tilt the analysis slightly against us (i.e. it shows disposable income at a lower level than it would actually be), but we felt this was appropriate given the big change that Carbon Tax & Dividend represented. A further analysis of ‘final income’; (Disposable income — indirect taxes + value of government services) might be worth doing to give us a fuller picture, but is not incorporated here.
• Devolved decision making. For changes in taxation, we have assumed the same policies/changes will be enacted across the UK. Of course, the devolved governments in Wales, Northern Ireland and Scotland might choose different tax and spending policies, but for the sake of presenting a single set of figures, we have assumed a single policy approach across the UK. This is very unlikely to happen, but at least gives us a starting point for calculating the impact of these policy changes. For our own purposes, the Green Party of England and Wales would extrapolate the England figures and percentages from these UK-wide calculations.
• Poverty line. To measure the effect of policy reforms on the poverty rate, PolicyEngine uses the government-defined levels used in the Households Below Average Income statistics. The poverty measure used is absolute poverty before housing costs — a household is in poverty under this measure if its equivalised disposable income before housing costs is less than the poverty threshold, which is 60% of the median equivalised disposable income from 2010, uprated by inflation (in 2022 this equalled £314 per week). This calculation is made for both baseline and reform scenarios in order to compute the relative change.

The Methodology

To reach the estimates of the effect of this policy reform on households, PolicyEngine uses an open-source microsimulation model of the UK tax-benefit system, OpenFisca-UK. This model uses data from a representative household survey, the Family Resources Survey, and implementations of tax-benefit legislation in code to simulate taxes and benefits for each household. The model can then calculate properties such as disposable income or poverty status for households, and use these results to calculate population-wide metrics such as the poverty rate.

To estimate effects of policy reforms, the model’s implementations of taxes and benefits parametrise elements of the programs, such as the value of the basic rate, or the phase-out rate of Universal Credit. These can be changed, the model’s outputs re-calculated, and the results of the two simulations compared.

The model is documented, and automated tests are run on every new version of the model. These tests are a collection of unit tests (testing individual components of programs — e.g. the Universal Credit standard allowance), integration tests (testing entire programs against external calculators and examples — e.g. Universal Credit) and microsimulation tests (testing the results of simulations on the survey microdata against official statistics).

Most taxes and benefits can be simulated from the information provided in the Family Resources Survey, but some require more data on wealth or consumption — for example, carbon taxes or land value taxes. For these, data is imputed from other surveys: the Wealth and Assets Survey for wealth data, and the Living Costs and Food Survey for consumption. For each survey, a predictive model is fitted to estimate the desired variables (wealth by asset type, consumption by spending category), from input variables shared with the FRS. This model is then used to augment the FRS by adding the estimated wealth or consumption variables. Additional steps are taken to estimate exposure to land and carbon taxes by combining statistics on aggregate land value and carbon emissions with the wealth and consumption characteristics of FRS households.

The model is static, meaning that it does not simulate behavioural responses to taxes and benefits. The figures produced on PolicyEngine are those estimated for the policy reform over the current calendar year, against a baseline of tax-benefit policy at the start date.