Despite New Labour's present insistence on the benefits of paid work, the logic of events could impart a different slant to policy

A government adviser friend of mine always greets me with two questions: "How do you think we are doing?" (meaning the economy) and "Can't you see that we are moving towards a Basic Income?".

My answer to the first is "the economy is doing quite well" - it can't all just be due to the measures of a government elected just over three years ago.

My interlocutor knows enough about long and variable lags to see this. The answer to the second question is a little more difficult, but has to be "Not quite".

The adviser has in mind the Working Family Tax Credit (WFTC)- that is top up pay for wage earners with children who take relatively low paid work rather than stay on the dole - and its possible extensions.

A Basic Income means an unconditional payment to every adult irrespective of efforts to find employment. It stands in contradiction to New Labour's emphasis on paid work as the sole gateway out of poverty and away from social exclusion.

The best way of describing Labour's present aim is that of a minimum income for those who work. I am afraid this is known in the jargon as a Labour Market Participation Income (LMPI). A new study shows however that the inherent difficulties of taking the present approach further is likely to lead towards a Basic Income and away from the present puritanical obsession with paid work (Stumbling Towards Basic Income, by Bill Jordan and colleagues, Citizen›s Income Study Centre, LSE, St. Philips Building, Sheffield Street, London WC2A 2EX.)

The authors put a lot of emphasis on the direction in which Labour activists, voluntary groups,"social entrepreneurs" and the like may push a Labour government. They forget however that there is another strand of support for the Basic Income from supporters of capitalism and private property who believe that the only thing wrong with "unearned income" is that too few of us have it.

These supporters see advantages in the "modest competence", which gave the old European bourgeoisie a degree of independence and saved them from being complete wage slaves, and would like to extend these benefits to the whole population. It will in any case. need a tacit coalition of radicals coming from different directions to move the bias of policy.

The authors start out with what might seem like a rather technical point. The British tax system contains a Personal Allowance which has the effect of removing the lowest paid from having to pay income tax and introducing a progressive principle above this level. They have little difficult in showing that raising the Personal Allowance would do much more for the poorest tax payers than the headline making alternative of widening the lower rate band - still more that of reducing the basic tax rate further.

It so happens that, if the Personal Allowance is increased by plausible amounts, after about five years it will come to equal the benefit known as Income Support paid to single working age citizens without any other means of support.

It would then be a simple and natural step to convert the allowance into a tax credit, which would reduce the tax bill of the middle and upper range taxpayer but be handed over as a benefit to those below the tax threshold. In this way everyone would receive what amounts to a basic grant of a modest kind.

A tax credit would automatically put an end to the present harsh system of removing Income Support, pound for pound, once a person starts to work. Instead he would pay normal income tax on his initial earnings.

Families with children are at the moment treated rather differently. There is a Child Allowance, non taxable and available as of right. This is a rudimentary Basic Income for families with children; and Gordon Brown has introduced a Child Tax Credit which is gradually withdrawn as incomes rise.

In addition the Working Families Tax Credit, WFTC, provides an income top up for those at work on low pay. Recipients have the choice of drawing it as a benefit or claiming it as a credit against their tax bill. Gordon Brown has spoken of the prospect of extending this benefit to families without children and thus making it into a Labour Market Participation Income; and this is what I myself have long advocated.

Unfortunately however there are many perverse effects of the WFTC which the authors have persuaded me, make it undesirable to stay too long at this stage.

For instance because of the 69 per cent taper at which the credit falls off there is quite a strong disincentive to work longer hours or seek better paid employment. Moreover there are persuasive social arguments against pushing mothers, whether married or unmarried, into paid employment when they might do better to look after their own children and perhaps engage in voluntary work.

A further stage might be something like a Social and Economic Participation Income, SEPI, which would also be available to anyone who engaged in worthwhile communal work of any kind, such as caring for the young or old, looking after the sick, voluntary service and so on.

I am sorry for all the acronyms with which this subject is bedevilled. But I would assure the reader who, like myself, is not a social security expert, that I have spared him the great majority of complications, estimates and sets of initials.

This is about as far as one can envisage public opinion going at the present time. But even this broader kind of conditional participation income would have snags. It would depend on all the committees and focus group so beloved by the present government making all kinds of difficult distinctions between social participation and idleness or leisure.

The best way of avoiding these snags might then be to go the whole hog to an unconditional Basic Income, which would not by then be be all that much more expensive. The gain in preserving the good intentions and genuine altruism of a left wing administration without all the nanny state attributes would be immense. And a vast load of bickering, jealousy and search for scroungers would be removed from national life.

We are not in a position to go that far either financially or in terms of public attitudes. But at least a road has now been mapped out showing how present policies could be nudged in that direction.

The authors of this booklet, like most other writers on poverty and social security think mainly in terms of income streams. But there is also another approach which starts from the desirability of people acquiring capital, the income from which they could use at their discretion.

Two American authors have published a proposal for providing every young American with a capital sum of $80,000 and somewhere in between the ages of 18 and 21, which, they argue, could be financed from a two per cent wealth tax. (B Ackerman and A Alstott, The Stakeholder Society, ale University ress). Some left wing British think tanks have put forward similar ideas.

Gordon Brown has a chance of making a move in this direction without looking for new taxes. He could use the unexpected bonus the from the auction of mobile telephone licences for this purpose. There is of course no free lunch here.

The cost of moving towards a citizen›s capital stake would be that these windfalls would not be available to reduce the national debt and the interest on it; and this would mean that there would be a slower pace of so called tax cuts.

There is no need to make a definitive choice between the capital and income routes towards a citizen stake at this stage. It is a matter of taking advantage of any opportunity that occurs in either direction, if my adviser friend is right and the economy continues to do well.