Economic Theory

The case against a Universal Basic Income (UBI)


Trade, Development, and Immigration
There is strong support for the idea of a universal basic income (UBI) right across the political spectrum. Advocates include the Greens, who proposed the policy in their 2017 manifesto, and John McDonnell. Some Conservatives and libertarians have also supported the idea. Milton Friedman proposed a variant of the basic income (though he would have applied it to households and so, in fact, his proposal would have been closer to my proposed reforms outlined below). Sam Bowman, formally of the Adam Smith Institute, is a vocal advocate. And, in an IPPR survey 40 per cent of Conservative voters favoured a universal basic income.

The policy involves the state giving everybody an income regardless of their circumstances: it would be given to children, hedge fund managers, wives or husbands of hedge fund managers… and so on. As the Conservative Party looks for more radical policies and to attract the next generation, this is a proposal that should be firmly rejected.

Why a basic income?

It is often suggested, especially by the Left and the Greens, that the rise of robots will lead to employment becoming casual with many jobs being destroyed. Proponents of a basic income argue that we will become so productive that a basic income will be affordable – and will also be attractive, since it would provide an income base on which people could build. It would then not matter so much, the argument goes, whether income from work was transitory or unpredictable.

John Maynard Keynes, writing in 1930, said: “Thus for the first time since his creation man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won”, and predicted 15-hour working weeks. Indeed, he argued that working 15 hours would only be necessary to satiate our desire to do some toil, as our needs could be satisfied with much less work.

Keynes put a timescale of a hundred years or more on this change, but the experience of the 90 years since 1930 is that we work only a little less, whilst desiring to produce much more and live more comfortably. In other words, we find new goods and services to produce to satisfy new desires (including for better healthcare and a better standing of living during periods of morbidity). I suspect this trend will continue and, certainly, it would be imprudent to develop a whole system of social security designed to deal with the uncertain consequences of changing labour markets.

A stronger economic case for the basic income is that it is a single intervention which allows a great deal more freedom for its recipients whilst hugely simplifying a complex welfare system. In some versions of the plan, the basic income would be sufficient for people to procure education and healthcare, and thus provide much greater freedom of choice and efficiency of provision in relation to those services. Libertarian and Conservative supporters tend to be attracted by this argument.

And why not…?

The first problem with the basic income is philosophical. It is a radically individualistic concept which ignores the crucial economic role that households, families and other institutions play in the process of income distribution. It ignores how people choose to live in a free society.

People tend to arrange their lives by organising themselves in households and families. At some point in their life, everybody is a dependent and, at any particular time, around 75 per cent of people live in households which have more than one person.

Households redistribute income (or more likely goods and services in kind) between children and parents; between middle-aged people and the elderly, and between spouses or partners. Giving money to apparently poor people in well-off households is not the function of the state: it is the function of the family or household.

A huge number of people with little income to their name are not in poor households, but they would receive the basic income. This is why the Universal Basic Income would be extremely expensive.

John Kay has done calculations indicating that the provision of a realistic basic income would raise tax rates by about 27 percentage points of national income, of which about seven percentage points would relate to the reclassification of the personal allowance as government expenditure, as taxes and benefits went round and round in circles. We would be taxing families more so that more money can go out of the pockets of one of the members of a household, through a bureaucracy and be put back into the pocket of another individual in the household who probably holds a joint bank account with the first individual!

A further problem is that welfare tends to be calibrated by need. Such needs may be based on whether an individual has a disability or is in need of long-term care or whether people are old or young. Unless people insure to cover these contingent needs (a policy which has strong merit, but which should be pursued in any case), then the government is back in the realm of a discretionary supplementary welfare system which completely eliminates the main benefit of having a universal basic income.

How should we reform welfare and tax systems?

Of course, this is not to say that our benefits system should not be reformed and made simpler. There is a real problem with the way in which our tax and welfare systems interact, discriminating against both family formation and single-earner households.

This arises because welfare benefits are based on household income whilst tax is based on an individual’s income. We should (and do) allow all the transfers of income to take place within the family that naturally take place – between husband and wife, those of working age and elderly dependents, those of working age and children, and so on – before deciding whether to give a family welfare benefits. However, the interaction of this system with the tax system means that, when an earner joins together in a household with somebody with very little or no earnings (for example, as husband and wife), their tax bill remains the same, but the benefits they receive can reduce dramatically.

The household should be the unit of assessment for both tax and welfare, with tax-free allowances dependent on the composition of the household. Families who earned below the household tax-free allowance would have incomes topped up. Those who earned above would be taxed. In other words, we should move to a tax system closer to that which exists in many continental countries.

Conservatives and libertarians should completely reject the idea of a universal basic income and, instead, look to a policy reform that reflects how people choose to live. Apparently poor people in rich households should not receive money from the state. At the same time, people should not be penalised for marrying or looking after their elderly parents in their own household. As Nigel Lawson freely concedes, the independent taxation of household members without transferability of tax allowances was a big mistake. A universal basic income would involve throwing out the baby with the bathwater.


This article was first published on Conservative Home.

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

7 thoughts on “The case against a Universal Basic Income (UBI)”

  1. Posted 23/05/2018 at 09:57 | Permalink

    So you would hold that in a nation like Venezuela, it is better to keep on concentrating the oil revenues in the hand of the government, so as to maintain the redistribution profiteers’ franchise value, instead of sharing it all out to citizens… with a UBI? No way Jose!

  2. Posted 23/05/2018 at 18:06 | Permalink

    i think that is a somewhat tenuous conclusion to draw from my analysis.

  3. Posted 21/02/2019 at 09:31 | Permalink

    To summarize: people choose to be dependent and UIB will be too expensive. Particularly weak arguments.

  4. Posted 01/04/2020 at 07:12 | Permalink

    One of the lamest arguments against UBI I’ve ever heard.

  5. Posted 10/04/2020 at 21:09 | Permalink

    Anything so simple that helps ordinary people and shifts the status quo will be hard to bring into realty but it will be worth the fight

  6. Posted 14/04/2020 at 14:20 | Permalink

    Blaming the victim of rich household failing to redistribute wealth and keeping him/her into poverty is just pure evil.
    Also argument that “people choose to be dependent” is weak -how about rich living on passive income?
    Should they be not stripped bare of their wealth and forced to work according to your logic?

    Reality is – process od making ans keeping one poor costs money. This is what UBI solves – instead of developing complex system means-testing if poor did not step out od poverty, wchich they DID NOT ORDER, and forcing everyone to pay for the system , even though rich and wealthy sponsor welfare system to HELP the poor getting OUT of poverty.

    So your arguments are like arguments od southern slave owner against slavery, just a “family guy” it seems… They even look like copied straight away from debates on slavery, with just remarks on whipping wife stripped…

  7. Posted 17/11/2021 at 19:48 | Permalink

    A universal system may work now than when this article was typed up. But it will be sometime until it is a reality, simply because the changes in society aren’t apparent to many. And the welfare system just has the setup that people can get a different occupation.

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