Welfare

The pandemic will shake up the welfare state – and UBI will be a central part of the debate


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State welfare systems do not change in a fundamental way very often. When they do, it is often in the aftermath of a major crisis, such as a war or natural disaster. Wars and natural disasters shake up the status quo and create political space in which ideas and policies that would not get traction in normal times suddenly do so. But the ideas are seldom new – they are usually ones that have been around for some time without ever getting to be credible policy options. The crisis changes this and brings them to the centre of debate, while at the same time bringing discontent with an existing system to a head.

During World War II, for instance, the rumbling unease about the workings of the means-tested assistance in distressed areas before the war led to support for the radical reconstruction set out in the 1942 Beveridge Report.

The Covid-19 pandemic is set to have similar consequences – and the once marginal idea that is rapidly moving into the centre of discussions is Universal Basic Income (UBI).

The idea of a UBI is old. It has been advocated by a succession of people, from various parts of the ideological spectrum, but has never managed to be adopted. Lately it has been much discussed, with trials in a number of countries including Finland, often as a response to the supposedly imminent disappearance of paid employment due to automation. Spain has also announced that it is going to introduce a form of UBI.

Covid-19 has heightened interest because responses to it have led to a massive loss of income for many people, in a way that highlights the problems with the UK’s existing system, particularly Universal Credit. The status quo will not survive the pandemic.

A UBI is a specific form of the wider policy of a Guaranteed Minimum Income (GMI). The key features that distinguish it from other kinds of GMI (such as a negative income tax) are that it is universal and unconditional. The key practical questions are two. First, is it a supplement to existing benefits or does it replace them entirely? Second, is it set at a level that is possible to live on, albeit frugally?

UBI attracts support from across the spectrum – and has many “free market” advocates. There is a strong Hayekian case for a UBI, on several grounds.

It reduces government bureaucracy and does away with the tendency for governments to use welfare payments for social engineering through attaching conditions to them. It supports individual autonomy by enabling people to pursue their own goals and projects. Consequently, it makes the discovery procedure aspect of market exchange work better. It eliminates the perverse incentives and dependency traps created by means-tested benefits. It is an individualist measure that reduces individual dependency on both government discretion and employment. And it is a complement to a flexible labour market, with much casual and irregular employment, and helps it to work better.

However, for a UBI to attract support on these grounds, it would have to be a radical version, which replaced all existing benefits and transfers and was set at a subsistence income level. A partial top-up measure would not bring the described benefits, while still being very expensive.

Many free-market advocates will be sceptical. This idea divides both left and right with supporters and critics on both sides. Many of the objections are practical and focus on things such as cost, while others express concern about how the politics of a UBI would play out in the future, with competition to bid the level up to an unsustainable level.

The main objections, however, are principled and raise questions that go beyond the purely economic (at least, as that is understood today). One big objection is that a UBI will undermine the incentive to work, with a significant number of people choosing to live as couch potatoes. This is seen as problematic not only for economic reasons but because regular, structured and collective work is a vital part of a fulfilled and meaningful life, with its absence producing all kinds of pathologies.

Another objection is to the individualistic nature of the UBI and questions are posed about how it affects the household and the family, given their central place in human life and flourishing. Other alternatives to both a UBI and the status quo have been suggested, such as Universal Basic Services, or mutual aid.

Undoubtedly, we will soon be having a national conversation about welfare reform in which UBI will be central. This will raise profound questions and all should take part, regardless of their particular take.

 

For more detailed analysis, see Redefining the State of Welfare.

This blog post first appeared on CapX.

Head of Education

Dr Steve Davies is the Head of Education at the IEA. Previously he was program officer at the Institute for Humane Studies (IHS) at George Mason University in Virginia. He joined IHS from the UK where he was Senior Lecturer in the Department of History and Economic History at Manchester Metropolitan University. He has also been a Visiting Scholar at the Social Philosophy and Policy Center at Bowling Green State University, Ohio. A historian, he graduated from St Andrews University in Scotland in 1976 and gained his PhD from the same institution in 1984. He has authored several books, including Empiricism and History (Palgrave Macmillan, 2003) and was co-editor with Nigel Ashford of The Dictionary of Conservative and Libertarian Thought (Routledge, 1991).


3 thoughts on “The pandemic will shake up the welfare state – and UBI will be a central part of the debate”

  1. Posted 28/05/2020 at 13:29 | Permalink

    I like the UBI idea, but it needs to completely replace the entire benefits and personal tax allowance system including old age pensions. Grafting it onto the existing system would be inordinately expensive and further complicate an already Byzantine web.
    Set it at £5k pa for adults and £2k pa for children.
    Anyone currently receiving (or who has accrued) a state pension > £5k pa gets to keep it, everyone else gets UBI.
    All income over and above UBI gets taxed (ie abolish all personal tax allowances).
    No council tax charged on Band A or B properties.
    Everyone is entitled to a council house, but pays 35% of income (ex-UBI) for it.
    Broadly net neutral in fiscal terms. But it would never work politically: those who gain will keep quiet, those who lose will howl.

  2. Posted 02/06/2020 at 12:03 | Permalink

    The UBI idea is perhaps viable in it’s potential to replace government run welfare, but many will not be happy when the richest also receive. This is why Milton Friedman proposed the Negative income tax, basically you have a income tax threshold, and if you fall below receive 50% of the gap between you and the threshold, guaranteeing that work always pays and that the richest in society are net contributors.

  3. Posted 03/06/2020 at 19:34 | Permalink

    At the risk of sounding like a scratched record, Friedman proposed that the NIT should operate at the household level. It would be universal across households and you could call it an income credit if you are below the threshold. Indeed, you might want to call it “universal credit”

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