by John Brian Shannon | November 1, 2016

How Britain could use Quintile economics (Q-economics) to Build a Better Britain

In 2016, the population of the United Kingdom is sixty-five million people. When we divide the UK population into five equal parts, we see that we have five groups of thirteen million citizens. (65,000,000 / 5 = 13,000,000)

Let’s do as the economists and call each group of thirteen million people, one distinct economic quintile.

In the economic quintile system, each group is further classified by annual income, with the top thirteen million listed as the top fifth of income earners in the country, while the bottom thirteen million are listed as the lowest income earners, etc.

We see in the chart below how the various quintiles fare in regards to original income (wages), final income (wages + tax credits + investment income), and the all-important disposable income

The Synergy of Quintile Economics in the UK. Image courtesy of the UK Office of National Statistics.

Clearly, the top two quintiles are in no economic distress, contributing significantly to their own lives and to the overall UK economy.

The top two quintiles are also known for paying their fair share in every way except for their inordinately high CO2 emission levels (larger homes, more vehicles per person with much-poorer fuel economy, and frequent air travel) and the cost of policing and security for higher income earners is much higher per capita compared to the other quintiles.

Yet, it works for those fortunate enough to be in (or born into) the top two quintiles and it works for Britain’s economy.

When we look at the third quintile group incomes of £26,669 (original income) £33,758 (final income) and £25,833 (disposable income) economists see a healthy middle income group — even when measured against other developed nation third quintiles.

Thus far, we have three groups of thirteen million people that (at least, economically-speaking) are faring well in a developed nation economy. Each of those thirty-nine million people are either holding steady or improving their economic position, and one would like to think that they are doing the same in regards to their overall life satisfaction. All of those people (with the exception of CO2 emission levels) are paying their way and are no drain on the UK economy. So far, so good!

The second quintile numbers are challenging. With group incomes of £13,462 (original income) £22,337 (final income) and £19,251 (disposable income) this group is definitely suffering, often face unemployment or are permanently unemployed due to the offshoring of manufacturing jobs — a process which began in the 1980’s. These people through no fault of their own and probably doing their best to succeed in life, simply haven’t had the opportunity, nor (perhaps) the higher education to allow them to join the higher economic quintiles.

In the end, they probably contribute as much as they take from the UK economy. And their overall life satisfaction is likely to be low. The first and second quintiles are also the most vocal and unlikely to vote for incumbent politicians.

Finally, we get to discuss the bottom quintile group with group incomes of £6146 (original income) £13,841 (final income) and £11,883 (disposable income)

Either because of young age/entry-level work or part-time work, or diminishing opportunities in their chosen career, or poor opportunities for higher education in their younger years (in the case of older members of this group) this quintile suffers from low income, much poorer health, poorer housing, and lower life satisfaction index scores. They also die younger, spend more time in hospitals, and as a quintile have more dealings with police and security agencies. Through no fault of their own (as offshoring of jobs isn’t their fault, nor is increased immigration where lower paying jobs are taken by cheaper labour immigrant workers) this group costs the UK economy billions of pounds sterling every year.

If there were jobs available for the people in the bottom quintile they would take them, and no longer find themselves in the bottom fifth with all the attendant costs to themselves, their families, and to UK society

But the simple fact is, in the UK there are many more people looking for work, than there are jobs available — and this is particularly true since the beginning of the influx of eastern European immigrants and immigrants from other regions.

While the highest income quintile costs UK society via extremely high CO2 emissions and policing and security costs — the lowest quintile costs the UK via higher healthcare, crime, policing and incarceration, and social welfare programme spending.

And much worse than all of that, is the lost opportunity that these people represent for themselves and for the UK. This group also has (by far) the lowest life satisfaction levels and the highest suicide rate of all the quintiles. Yet, little is being done to resolve this poorly-understood strata of UK society.

There are three well understood paths to help the bottom-two quintiles (which applies in all developed nations, not only in the UK) which I can briefly touch on here:

1. Short term: So-called ‘Helicopter Money’ where the government simply provides more money to the lowest economic quintile. It’s true, the money must come from somewhere and such spending is often resented by taxpayers who themselves, may have benefited from a better education, or inherited money, or both. However, whether £200 billion (for example) is spent on the social costs that are directly attributable to poverty (a combination of social welfare payments, higher healthcare costs, crime, policing/incarceration, and ‘other’ costs) or whether it is spent on helicopter money — it still totals £200 billion! Although, spending on Helicopter Money would have the added benefit of dramatically reducing poverty-induced homelessness, drug addiction, healthcare, healthcare wait times for all healthcare users, crime against persons and property, while insurance rates would fall and the UK would see a lower suicide rate due to higher life satisfaction levels among those in the bottom two quintiles.
2. Middle term: Job retraining. Although it’s true that there are many more job-seekers in Britain than there are jobs available, some people that are willing and physically able to work will choose independence from social welfare programmes and thereby increase their personal income and life satisfaction. In a time of increasing unemployment, job retraining programmes are of little value. However, during a time of increasing employment, job retraining programmes score a triple-win — with lower unemployment insurance spending and lower social welfare spending, as retrained people are working and contributing to society, paying taxes, and supporting their own families — instead of being homeless, committing crimes and ending up in the hospital, prison, or both.
3. Long term: Many countries now provide ‘one tuition-free university degree’ to each citizen. Each additional degree must then be paid for by the student, or by a sponsor. Norway, Sweden, Denmark, Finland, Germany, France, Switzerland, Austria, Chile, and others, have various programmes whereby citizens can obtain one or more university degrees with no tuition cost for students. Notably, these countries have higher life satisfaction and boast much lower crime statistics when compared to similar developed nations without tuition-free university opportunities. In the United States, those who sign-up for military service under the ROTC programme gain one free college degree in addition to receiving valuable military training and post-military job placement assistance. Britain could offer ‘One Free University Degree in exchange for Gap Year Military Service’ allowing students to take a year off from scholastic learning (their Gap Year) and enter military service as a cadet. At the end of that year, they will have tuition equivalent to obtaining one university degree waiting for them at selected colleges or universities in the UK.

Which is best? All three!

If the UK simply increased social welfare spending to £1088. per month, that replaces all other social welfare spending — for unemployed persons over the age of 19, or to top-up the wages of those stuck in low paying full-time or part-time jobs, or to top-up pensioners on low incomes — all of that additional money instantly becomes available to local economies.

People who earn or receive £1088. per month (£1088. per month is a standard anti-poverty metric) do not have the ability to save money in the bank! Every pound sterling would be immediately returned to the local economy every single month; in rent payments, sales at the grocery store, hardware store, pharmacy, etc. — and if a person is looking for employment, at the barber or hair salon, and the (work clothing) store.

And due to all of that additional spending, personal income tax, business tax, and government sales tax revenue would be significantly higher, while small business bankruptcies would plummet as presently marginal businesses would see definite sales increases.

It would represent an incredible boon to the overall economy, and small business in the UK would receive additional billions of pounds per year — replacing all those billions going to homelessness and addiction programmes, to additional policing and court and incarceration costs, and to untold property damage and harm to persons from those people who feel they have ‘nothing to lose’ — all of which is paid for ultimately, by taxpayers.

If you’re a British taxpayer, where would you rather your tax money be spent? On astronomical policing, court and incarceration costs that the government won’t ever divulge (because there would be a taxpayer revolt!) or spending it to allow people to live decent lives for the same, or much less cost per year?

It isn’t about a ‘free ride’ for those who choose not to work, as Britain has millions more job-seekers than there are jobs available year-in and year-out (as in all developed nations) it’s about choosing to spend taxpayer money on the obscene social costs of poverty — or choosing to spend the same amount or less, on supporting local business.

It really is about the economy! It’s about appropriate job retraining programmes that meet the wildly varying needs of each particular decade. And it’s about one tuition-free college degree for a better educated Britain, via Gap Year military service.

How to pay for all of that?

Increasing social welfare spending to £1088. per month, means that policing, court and incarceration costs, homelessness and drug addiction costs, property crime costs and insurance rates, etc. would fall dramatically. Yes, there might even be an opportunity for savings once that programme would be completely rolled-out!

Highly adaptable job-retraining programmes geared towards the needs of the end-user (UK business) might well incur some additional costs compared to the presently available job-retraining programmes.

And the ‘One Tuition-Free University Degree’ costs would be borne by the UK military, as it would be the entity charged with paying for each cadet’s tuition after they have completed one full year of military service.

So yes, in totality, there would be some financial cost, but many societal benefits.

An unobtrusive 1% Tobin Tax could pay for simplified and more effective Social Welfare Spending, more appropriate Job-retraining and One Tuition-Free College Degree per student

There is one very-easy-on-the-taxpayer way to afford this (and, Bonus!) allow the government to never run a budget deficit again — by instituting a 1% Tobin Tax (a 1% tax on every financial transaction) that would cost each individual taxpayer a tiny fraction of their total investment spending, and for those who invest little it would affect them little.

As Prime Minister Theresa May has implied, Building a Better Britain is not about ‘doing the same things over and over while expecting a different result’ — it’s about looking at what works well in other developed nations and adapting it to Britain’s case. Sooner, rather than later.