Universal Basic Income – do the sums add up?
Current interest in a UBI is ostensibly linked to fears about widespread unemployment in the wake of coming automation (fears which I think seriously exaggerated), but UBI is not really a new concept: it has its origins in the 18th century.
Perhaps surprisingly, the idea has attracted support from across the political spectrum. The left sees it as an anti-poverty device that also offers alternatives to capitalist employment, while Greens have seen it as a way of facilitating more sustainable lifestyles. The right has argued that it offers a simplified alternative to the complicated and bureaucratic welfare state, reducing or eliminating the ‘poverty trap’ associated with means-tested welfare benefits. Given a UBI, some say we could relax minimum wages and some other forms of job regulation to boost employment.
If a UBI were implemented in the UK on a large scale, what would be the implications? First, it would be expensive. Naïve schemes are predicated on scrapping all existing welfare benefits and using the funds to provide a UBI. But this would not provide enough to live on. In the UK, we currently spend about £250 billion on broadly-defined welfare benefits (including the state pension, which accounts for about 45% of this expenditure. The amount could be slightly higher or lower depending on eligibility criteria, but this sum would suggest a UBI of a little under £4000 per year.
However, 12 million people currently receive state pensions: the basic pension is well over £6000, rising to over £8000 as new arrangements take effect. Nearly 5 million people receive housing benefit, averaging about £5000 per year, while the 2.5 million ill or disabled people on Employment and Support Allowance collectively cost about £45 billion in state support. It would not be politically possible to deprive all these people of their current entitlements, especially when a UBI scheme would give the same flat ‘citizen income’ to billionaires. In order that no welfare recipients would lose out significantly when introducing a UBI, we would have to spend much more than we currently do on welfare – perhaps an extra £100 billion – or else cut back the UBI to a much lower level, when it would achieve very little.
Some argue we should instead push the UBI up to a much higher figure. Former Labour leader Ed Miliband has suggested around £10,000 per year, meaning the cost would rise to about £580 billion, well over twice current welfare spending. This would reduce the numbers losing out from scrapping existing benefit schemes, but there would still be difficult cases. Even with a very expensive UBI we would still need a system of means and eligibility testing.
How would people react to a ‘free’ income? Economists point out that a UBI would produce income effects and substitution effects, both of which suggest that labour supply would be reduced. Provision of a non-work income is generally assumed to increase the demand for leisure, while higher marginal tax rates (a likely consequence of introducing a UBI) make an extra hour of work less attractive. If a UBI meant that large numbers of people would want to reduce or give up paid work, the scheme could rapidly become unaffordable as the tax levied on those still working would have to rise further. Belief that this could be avoided by ‘robot taxes’ or property levies requires some suspension of disbelief.
What would the consequences be for immigration? If the UBI was available to all residents, there would be a hugely enhanced incentive for people to move to the UK. If new immigrants were not entitled to the benefit immediately, there would then have to be some back-up means-tested system to prevent destitution. Again the attractive simplicity of the UBI disappears.
There are other concerns. One is acceptability on moral grounds: is it right to oblige people by law to contribute taxes to support those who are under no reciprocal obligation to seek paid work or give anything back to the community? We have no experience of what such a society would be like in the long term.
Families or households, rather than individuals, are what we are generally most concerned with when discussing poverty. But the UBI (a ‘citizen’s income’) focuses on individuals. As the UBI would go to all citizens – including children, though possibly at a reduced rate – there would be millions of pointless transfers. A single earner in a family would pay higher taxes so that the state could pay their partner and children. Over time this could undermine the responsibility of people to their families and increase their dependence on the state.
If the scheme were popular, there might be a constant tendency for politicians to seek electoral support by offering higher and higher levels of payment until the scheme becomes unsustainable. Moreover, whatever idealists say, it is difficult to believe that these politicians would easily resist the temptation to impose particular patterns of behaviour as a precondition of receiving the UBI.
Bossy politicians who claim to know what is best for us are thick on the ground. Nowadays they possess, or could possess, far too much information about how we live our lives. Already, there is the ominous precedent of China’s ‘social credit’ scheme, where citizens are awarded privileges – or have them taken away – for their public and private activities, monitored in ways never previously possible.
Mr McDonnell may not have this in mind, but maybe we should.