Let citizens spend tax revenues rather than the technocrats at the top

July 20, 2014 by
Filed under: Adam Lent 

This post is jointly written by Director of the RSA Action and Research Centre, Adam Lent, and the Director of Institutional Reform at the RSA, Anthony Painter.

In the last century, the idea took hold that the state should expand to provide the public services and social security that the free market was unable to deliver on its own. The corollary was the need to fund this expansion through higher levels of taxation. But this conception of tax-funded services provided directly by the state is proving deeply problematic in an era increasingly defined by creativity and self-determination.

The problem emerges because the current model of the state was developed in the first half of the twentieth century when technocratic elitism was in its prime. The faith placed in the power of a small, educated set of technical specialists to deliver beneficial outcomes for any and all areas of life was enormous.

Governments were in thrall to the mass production revolution in the private sector where highly complex production processes were devised by technicians to generate vast numbers of standardised products as cheaply as possible.  Consequently, the notion of hierarchical systems led by an elite group of professionals ended up shaping the models for expanded health, welfare and education services.  The other side of the coin was the emergence of a highly passive notion of both private sector consumer and public service user who were simply expected to take what they were given with little or no opportunity to shape the goods or services they received.

Since then attitudes and behaviours have shifted beyond recognition. We are seeing the rise of more active consumers who now directly involve themselves in business processes such as R&D and design. In addition, the old faith that used to be placed in the beneficent wisdom of specialists and leaders is long gone to be replaced by a default scepticism towards pronouncements or decisions from above.

This is not a trend that has passed the public sector by. For two decades now public service leaders have been talking about their response. Efforts have been made to develop and introduce greater ‘choice’, ‘personalisation’ and now ‘co-production’.

These waves of reform have taken things forward to a certain extent but the drives for transformation always feel inadequate to the depth of change happening in social attitudes and in the commercial world.  One realises how far the public sector still has to go to meet shifting expectations and behaviour when one looks at how sectors such as the creative industries have been revolutionised in just the last five years by internet platforms like YouTube and Twitter and how a similar revolution of user generated content and activity is now transforming areas such as manufacturing and energy generation.

There are also counter-trends underway in public services which actually reinforce the old model. Beveridge designed his welfare state around national insurance. It had a dynamic ‘pay to play’ principle at its core. But since then, benefits and public services have become more akin to a set of entitlements. This only serves to underline a more passive relationship between the citizen and state.

At the same time public service reform has mainly been driven by targets, most recently in the payment by results approach. This falls into the same new public management category as target-setting and public private partnership. They are all means of managing efficiency in a top-down fashion, whether successful or not.

Tax and Spend for Creative Times

In short, as the RSA has explored elsewhere, we now live in ‘creative times’ where growing numbers expect the freedom and resources to turn their own ideas into reality – what we call the ‘power to create’. The public sector and wider government has yet to feel part of these creative times or to unleash the power to create in pursuit of public service ends.

Our contention is that this is because the fundamental relationship between citizen and state is not being addressed. Even with efforts at greater choice or co-production there is still an inherent user passivity built in to the model. The citizen is required by law to hand over a portion of their income which politicians and officials then get to deploy according to their priorities. The only thing that has changed since the modern state was formed in the 20th century is that those priorities now include more of a limited element of user choice and consultation than once was the case. The fundamental power relationship created by the transfer of those material resources in the form of tax has not altered.

One solution is to radically reduce levels of taxation and the size of the state.  However, if you believe, that a certain level of human dignity and social justice can be maintained only by employing a redistributive mechanism of a reasonable size then the questions about the future of tax are more complex. Even were we to shrink state spending to around 35% of GDP from its current 45% – which one international study suggests is the size at which the state provides the greatest social benefits for the least cost – that is still a very sizeable chunk of income for citizens to hand over to the technocratic elite at the head of the old model.

Another option which takes account of this challenge is to consider tax in a completely different way; to regard it not as cash to be used by government and public sector officials but as a creative resource available to citizens. In other words to use tax in a way that chimes with our creative times.

The fundamental shift would be from one where the default position is the use of tax by government and its agencies to provide services to citizens to one where the default position is the distribution of tax revenues to citizens to arrange the delivery of services for themselves.

Importantly such a principle, by virtue of its redistributive aspect, still addresses the fundamental problem of a free market in this area, namely that unequal material resources mean unequal access to services such as healthcare and education which are fundamental to human well-being, flourishing and equal opportunities. Indeed, the extent and nature of the redistributive aspect would remain, as it currently is, a matter for political debate. But, importantly, it removes the second part of the twentieth century equation which was that a technocratic elite knew better than citizens how to spend the tax revenue.

Inspiration from Direct Payments

In fact, the model already exists in the UK in the form of direct payments whereby people requiring social care are given public funds to purchase that care for themselves rather than having to rely on that provided directly by a local authority. It has proven an exceptionally popular and successful approach and the new CEO of NHS England, Simon Stevens, has announced plans to extend the scheme to those requiring long-term support from the health service. The imperative of our creative times, however, is to go much further and roll out the approach much more widely across numerous services and to all users.

This ‘creative resource’ approach to tax revenues and public spending may well also offer a route out of the current dysfunctional relationship between citizens and our political leaders. Much of the debate about the strong sense of alienation and anger that citizens feel about government focuses on the problems of formal politics in the form of poor turnouts at elections and declining party memberships. Strangely, however, the focus is rarely shifted to the issue of tax which is so central the citizen-state relationship.

In these creative times, when people have so much more confidence in their capacity to think for themselves, develop ideas and change theirs and others’ worlds, a relationship built around the notion that citizens should simply hand over cash in return for top-down provision is bound to cause annoyance and confusion. It also encourages the very abdication of personal responsibility which politicians now tell us we need to revive to meet the challenge of long-term austerity.

Opposition to a ‘Creative Resources’ approach to tax and spend

Even though the creative resources approach seems to chime so well with contemporary trends, for many, particularly those on the left, the underlying principle will be anathema. It immediately raises fears about the marketisation of public services and the promotion of an individualist and consumerist mind-set at the expense of solidaristic and collectivist models. This would be a profoundly erroneous response. It places the public sector in opposition to the long-term historical trend towards greater self-determination and creative self-expression.

It also ignores the fact that devolving tax revenues to citizens would enable the very mutualist responses to the delivery of public services that was at the heart of socialist thinking and practice before the left turned to lionisation of the state after the Beveridge report. Indeed, the internet has awakened and enabled a deep desire amongst the public for forms of highly creative, non-market collaboration as charted by the author Steven Johnson – how much further might that spirit travel if it had the power of devolved tax revenues behind it. We are in the early garage innovation stage of political change; a re-defined citizen state relationship based on the creative resources principle would move it into the mainstream.

Creative Times and Welfare

One further set of questions which present themselves is about how a welfare state should function in creative times. Working lives are changing rapidly through the impact of new technology, hollowing out parts of the labour market and encouraging the rise of micro-businesses and self-employment. This fragmentation of working life, and rapid structural change can result in many people being ‘left behind’. How should a working age welfare system work given this context?

One approach is the negative income tax model proposed by Milton Friedman and other which lies at the heart of the tax credits approach. It is targeted but may have perverse impacts. Should we now consider a different approach that provides in-work support on a more universal basis, providing a basic foundation and allowing people to concentrate creatively on their careers and work rather than playing the entitlements system? These are open questions but must form part of any analysis of a new citizen-state relationship designed for creativity rather than hierarchy.

A Very Big Leap

It would be wrong to under-estimate how great a psychological and organisational shift it will be to move our tax and services approach from one based very largely on a direct provision model to one based very largely on a creative resources model. For example, another approach which bears a family resemblance to the ideas presented here – school voucher schemes – has been controversial and faced operational challenges. Replicating such a model across public services in a more open, radical form would be a huge political and organisational undertaking. But unless we really believe that, in these creative times, the hierarchical relationship between taxer and taxed that currently exists is sustainable for years into the future we may have no choice but to make the leap.

 

We will be investigating this idea of turning tax and spend into a creative resource for citizens in the coming months as we write an RSA paper on the subject. At this early stage, we want to learn from the experience and knowledge of others. We have six key questions which we are considering:

  • What are the barriers and blockages to a tax and public services system that unleashes human creativity?
  • Should there be limits to how creative resources drawn from tax revenues could be used?
  • What are the functions of the state in this new world? What direct provision, if any, should it retain?
  • How should a modern welfare state support people to pursue their ideas and creativity through their lives and work?
  • How could people be supported/advised/brokered in a creative resources approach?
  • The operational challenges of shifting to such a system are huge but what are they and how can they be overcome?

We are very keen to hear your thoughts as we develop this analysis. Email us: anthony.painter AT rsa.org.uk and/or adam.lent AT rsa.org.uk , contact us on Twitter here and  here or feel free to comment below.

 

 

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