Universal Basic Income is an idea which has seen a phenomenal increase in interest throughout much of Europe. In the recent French national elections a number of candidates supported it in various forms. Britian’s Labour Party is apparently having a serious look at the idea. Switzerland held a referendum on the introduction of a nationwide UBI (which lost).
Stewart Lansley is a visiting fellow at London’s City University and the author of a Sharing Economy, Policy Press, 2016. It was reviewed in BRAVE NEW EUROPE – Read here
Howard Reed is the Director of the consultancy Landman Economics which specialises in policy analysis and economic modelling. They are co-authors of a Universal Basic Income: An Idea Whose Time Has Come? Published by Compass
A universal basic income ( UBI ) is an idea that even two years ago was viewed as eccentric, promoted by those out of touch with reality. Today there is an extensive global debate while trials of the idea are underway in seven countries, from Finland and the Netherlands to Kenya. Some of these are funded by the state, some by Silicon Valley magnates and some by crowd-funding charities.
A UBI would pay all citizens a tax-free, universal, no-questions asked weekly income to every individual as of right. Yet, despite the remarkable momentum generated by the experiments, the idea remains highly controversial.
While the debate in the UK is well behind those taking place in many other countries, interest is beginning to stir, in part because of the growing possibility of a local trial taking place in Scotland. Support for a UBI stems from a recognition that the status quo is unsustainable, The UK’s social security system, designed for a post-war world of full employment, steady growth and rising real wages, fails the test in today’s much more fragile economy and will be unable to meet the challenge of the disruption that will stem from the robotic revolution of the next 20 years.
Unlike the present excessively punitive and intrusive system, a UBI would guarantee, for the first time, a secure income floor. But it would do much more than help fix a broken system of social protection and labour market. It would encourage greater personal autonomy and choice, boost bargaining power, and for the first time, provide financial support for the mass of unpaid work from childcare to voluntary help – disproportionately undertaken by women and of significant, but too often unacknowledged value. These changes would be profound and even some critics recognise their importance.
But can a UBI be made to work? Critics say no. To assess its feasibility, we modelled two different approaches to implementation. The first tested a ‘full scheme’, one which replaces most, though not all, benefits. Such a ‘big bang` approach that swept away most of the existing system of income support would be either too expensive, or create too many low income losers, and is therefore not feasible in the current circumstances.
However, the study also tested a ‘modified scheme’, one that still provided a universal and unconditional income but at a moderate starting level. This approach leaves much of the existing system intact, and would be feasible. Payments were set at £51 for pensioners, £71 for adults over 25 and £61 for those under 25, and £59 for children. The basic income for children would replace child benefit, but nearly all other benefits would be kept, while UBI is taken into account as income when calculating means-tested benefits.
Such a scheme would offer real and substantial gains: a sharp increase in average income amongst the poorest; a cut in child poverty of around 45 per cent; a modest reduction in inequality; and a strengthening of the universal element of the benefit system with a fall of a fifth in the number of families claiming means-tested benefits.
The impact of the modified scheme is the product of two key changes: the replacement of the personal tax allowance (of no benefit to those with earnings below the tax threshold) with a flat-rate payment to all, and changes in tax and national insurance contributions. Marginal income tax rates are increased, with the basic and higher rates rising from their current 20% and 40% to 25% and 45% respectively. The national insurance lower earnings limit is abolished and the rate of employee NICs increased to 12% across the whole earnings scale, effectively abolishing the upper earnings limit. In addition, conditional benefits are made unconditional.
These changes – which have a net cost of around £8billion a year – produce a more progressive and integrated tax-benefit system.
The results are based on a static analysis, assuming no behavioural effects in response to the introduction of UBI and the tax changes. In practice, there would be dynamic behavioural effects, including on employment. Such a scheme would be a hybrid. Although it would retain some of the complexity of the existing system, it would contain a genuine unconditional income and would deliver many of the benefits of a fuller scheme.
Critics of UBI have a point. It would be difficult to implement a full-blooded, big bang scheme in one go. However, an incremental approach – ‘starting small’ – would build on the existing system. By offering a phased approach to reform, not wholescale and immediate replacement. incrementalism reduces the risks of big bang reform, while offering flexibility for gradual improvements over time. It could, for example, begin by converting current tax allowances into cash payments, or be phased in by demographic group, perhaps starting with a stand-alone scheme for children through a big increase in the level of child benefit. This is evolution, not revolution.
Child benefit is effectively a basic income for children, and there is a strong case for raising the level of child benefit substantially (it is set to have lost a quarter of its real value between 2010 and 2020) as a particularly effective way of reducing poverty, as well as being a first step towards a UBI.
A UBI is not a silver bullet. It will help deal with some of the fault lines of today’s economic and social systems, but not all, and will offer a progressive response to some of the deep-seated changes of the 21st century.