The Case for a Universal Basic Income

Photograph Source: Generation Grundeinkommen – CC BY 2.0

In a British election campaign overshadowed by Brexit, one important Labour initiative attracted little or no attention.  Buried on page 60 of the party’s manifesto was a pledge to introduce a pilot scheme to explore Universal Basic Income (UBI), commonly defined as an unconditional cash transfer to all members of a political community, as a matter of right, without means-tests or work requirements.   Giving few details, the manifesto described the program as an innovative way of responding to low pay and job insecurity. It marks the first time a major UK party expressed interest in UBI—though the commitment is echoed by the Green Party, which has promised to implement the policy to all residents of the country by 2025.  Back in May, Shadow Chancellor of the Exchequer John McDonnell revealed that the Party was considering trial programs in Liverpool and Sheffield, a prospect obliterated by the election result. But in Scotland, cross-party planning for UBI pilots has been underway in Fife, North Ayrshire, Edinburgh and Glasgow City since 2017. The steering group will report to Scottish Ministers on their plan in March 2020.

Unsurprisingly, UBI has attracted hysterical denunciations from the establishment press, replete with confident pronouncements that any such program would prove ruinously expensive and discourage people from working. A Daily Telegraph columnist asserted that poorer beneficiaries might spend “their time getting drunk, watching pornography or taking drugs”. The Financial Times claimed that “rewarding people for staying at home, is what lies behind social decay”.

These objections are belied by empirical evidence from the array of conditional cash transfer programs that have surged worldwide since the 2000s. These demonstrate that, as opposed to in-kind transfers or oil and grain subsidies, “just giving money to the poor” has a positive impact on poverty and human capital outcomes. A 2019 World Bank report, “The Changing Nature of Work” concluded that “the available evidence confirms that both a UBI and other forms of social assistance have a limited impact on work incentives”. The Bank released a full book on navigating UBI only this week. There have been 22 UBI-like pilot programs across the world, and more are planned.

The closest model to a sustained UBI program is the Alaskan Permanent Fund Dividend, which is a royalty payment program derived from the state-owned and managed Alaska Permanent Fund. The Fund is an investment of oil and gas royalties established by Republican Governor Jay Hammond in 1976 and paid for by mineral companies. Dividends from the Alaska Permanent Fund—now worth $65 billion—are distributed to nearly all Alaskan citizens and range from about $1000 to $2000 per year. Strikingly, Alaska had the highest poverty and inequality rates of all US states when the fund was established. Twenty years later, they were the lowest.

The Green Party’s manifesto is more specific about its UBI plans than Labor’s. In the Green vision for UBI, transfers will be set to ensure that beneficiaries meet their subsistence needs. Each adult in the UK will receive £89 per week, each pensioner will receive £178 per week, and lone pensioners, lone parents as well as disabled people will receive an additional payment supplement. The cost of the Green Party’s proposed UBI regime, which includes supplements and free childcare, would be £86.2 billion. The plan will replace the existing Universal Credit welfare system (barring the existing housing benefit) and be financed through savings revenue and a carbon tax.

A report on basic income commissioned by the Labour Party lays out their case. According to its author, SOAS Professor Guy Standing, basic income would increase recipients’ agency, health and basic security, as well as reduce poverty and inequality substantially and sustainably. “We are living in an age of economic uncertainty,” he writes, “for which contributory insurance schemes are inappropriate or insufficient”.

The report suggests that a basic income would not require a large increase in direct taxes but could be financed by replacing expensive means-tested benefits, abolishing tax reliefs, converting the existing tax allowance into a payment to every citizen, starting a fund (as in Alaska), and by taxing currently untaxed valuables like data information. Finally, UBI’s recipients, freed from precarity and uncertainty, would use health services less often and be more productive.

That Britain is in urgent need of such a scheme is borne out by Standing’s evisceration of the Universal Credit system instituted by the Conservative-Liberal-Democrat coalition government in 2010. In its manifold cruelties, the system echoes the infamous 1834 Poor Law in its focus on punishing the poor for being poor. As he concludes, the means-testing, behavior-testing, and attitude-testing that currently determine applicants’ suitability is intrusive, arbitrary, expensive, error prone, and excludes a very high proportion of those who are entitled to benefits. Although touted as a means to encourage otherwise idle applicants to find work, it clearly deters any such urge, as the effective marginal tax rate for the lowest earners in the UK is a staggering 80 percent. As an example of the humiliations inflicted via means and “behavior testing” on those seeking help, Standing quotes a woman who told her doctor: “You want to prove to the state that you’re as ill and disabled and incapable as you possibly can; otherwise, your kids might starve.”

A recent press release from the Russell Trust, the UK’s largest food bank network, supports his criticisms of the current welfare regime. Sixty-five percent of the people who came to their facilities for food between April and September this year did so because their Universal Credit welfare benefits were late or delayed. More than ever, people, including those with jobs, rely on food banks to feed themselves and their families—up 73 percent over the last five years. Whereas in 2012 Belfast had only one food bank, in 2018 there were 17.

Over roughly the same period, from 2010-11 to 2015-16, an Observer analysis reveals that the average income of the richest 10% of Britons from property, interest, dividends and other investments—sometimes called unearned income as it does not derive from work—doubled to £38,000.

Charlie Cockburn is a writer who lives in London.

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