UBI – the impossible dream becomes a reality
Universal basic income, the idea that everyone should be paid a liveable income by the state, no strings attached, was once for the birds. Now it seems it’s on the brink of being rolled out, says Stuart Watkins
The law for any great social reformer is “First they ignore you, then they laugh at you, then they fight you, then you win”, a quote often attributed to Mahatma Gandhi (wrongly, though he had expressed similar ideas). The battle for universal basic income (UBI) – the idea that everyone should get a regular sum of money to live on from the state with no strings attached – seems like it might be entering the final stage.
The response of governments in the rich world to the Covid-19 pandemic made the idea seem plausible – as businesses were shuttered, states picked up the wage bill for workers, sent them cheques in the post, and boosted benefits for the jobless and the sick. And trials of a basic income proper – or of something resembling it – have been carried out, or are about to begin, in countries around the world.
South Korea’s presidential candidate Lee JaeMyung, for example, was in favour of introducing one nationwide following a six-month trial he introduced while governor of Kyonggi province. (Sadly for UBI enthusiasts, Lee lost narrowly to the conservative candidate in March.) In the US, there are more than 20 trial schemes handing out direct cash payments to poor families – Bloomberg reckons they’ll have handed out at least $35m by the time they end if they run as planned. Similar experiments have been run in Canada, Brazil, Kenya, Iran, Finland, Germany, Spain, the Netherlands, Namibia, India, South Africa, China and Japan. And the idea is washing up on these shores too: the Welsh government has committed to running a trial, and the Scottish government and several English cities are keen too. And why not? Many welfare states already guarantee their citizens access to health and education. Why not to an income too?
What the Alaskan experience teaches us
Perhaps the best place to start to consider the merits of the idea is Alaska, as Martin Sandbu points out in the Financial Times. When oil tax revenues started flowing in 40 years ago, the state set up a permanent fund with the idea of preventing politicians wasting the money and paying out dividends to every citizen. In a good year, such as in 2015, when oil prices were high, the dividend reached $2,072 per person – so more than $8,000 for a family of four.
What the long Alaskan experiment has shown – and it’s a result borne out in most of the long list of studies carried out so far – is that such payments do not lead, as some critics fear, to idleness, or people refusing jobs or wasting the money on frivolities, but to more secure and hence happier individuals, families and societies. For those just about managing, the money comes as a welcome helping hand for meeting the mortgage or putting food on the table. The more well-to-do invest the money in their children’s educations, their properties, or their businesses. Small businesses and community organisations get a boost as people spend their dividend cheques.
In other words, the Alaskan experiment and the studies being carried out around the world all follow faithfully in the social-science tradition of revealing what you might call the bleeding obvious – that more money is better than less, especially if you are poor, and that a windfall is often taken as an opportunity to improve one’s lot, a means to help us acquire all the things money can buy, or establish a more stable base for enjoying all those things it cannot.
A nice Christmas present
What none of these studies really test, however, is the actual proposal. The ideas behind UBI (also known variously as citizen’s, basic or guaranteed minimum income) were first floated in this country around the time of the enclosures. If people were not henceforth to be entitled to enough land to live on, then they should instead, as they flocked into the towns and cities in search of work, be given a sum of money that would achieve the same end.
The argument has been reheated at regular intervals since, employing a similar logic. If new technology and robots are taking all the jobs, as one modern version of the argument goes, then the gains from these technological developments should be shared out to everyone in the form of a basic income. UBI proper is, then, the idea that every citizen should be paid a sum of money sufficient to live on with no preconditions – that is, regardless of willingness to work or any other qualification. And that has never been tried.
By comparison, the Alaskan scheme seems more like a very nice Christmas present. Other trials around the world have generally given sums much smaller than would be required to cover living expenses, and only to a small group of an area’s poorest citizens. Whatever else can be said in favour of these efforts, one cannot say that the UBI proposal has actually ever been tested. Why not, then, actually test it?
What would it cost?
The eye-watering sums involved would be one reason. True, as MoneyWeek pointed out at the start of the pandemic, the pile required – think annual costs of more than £260bn, around twice the NHS budget, for a basic income paying only £5,000 a year, or just a third of the poverty line – looked somewhat less towering in relation to those that were already being shovelled out the door to pay for furlough and other pandemic-related economic assistance. But the UBI proposal would be to keep on shovelling for ever, when it seemed far more likely that states would one day have to get a grip on the escalating costs of the crisis.
That day obviously arrived some time ago – furlough and other assistance schemes have ended, and taxes are rising, to say nothing of the less visible consequences. A basic income, whatever the merits of the idea in the abstract might be, is simply not affordable at levels that would come anywhere near providing a liveable income, as economist John Kay has pointed out. And so that is essentially the end of the matter.
But is it though? Martin Sandbu of the Financial Times begs to differ. He proposes “two simple measures” that would lower the cost of a “meaningful
“The Alaskan experience shows that UBI might lead to more secure and happier families”
basic income” to something affordable. He would implement UBI as a “negative income tax”, paid through the monthly payroll, or in some other way for those with different tax or work circumstances. The negative income tax would then work as a flat refundable tax deduction – everyone in effect gets a tax cut, and those without much or any taxable income would get the basic income paid out in cash, or the difference between the basic income and the amount they owe in tax.
A basic income of a third of average household disposable income per capita of £7,150 a year would then cost about 17% of GDP – an amount, as Sandbu says, no government could countenance.
But in this design, much of the bill is not an outlay but a tax cut – it is money the government doesn’t take in, rather than something it pays out, for everyone who owes more tax than the UBI amount. That makes the income tax and national insurance thresholds – whereby earners are exempt from tax up till the threshold amount – redundant. Sandbu’s first measure would then be to scrap those thresholds – the basic income would then replace the zero tax bands on income, so everyone gets the basic income, but is charged tax from the first penny earned. That reduces the cost to less than 10% of GDP.
Sandbu’s second proposal would be to scrap the basic state pension. Many are opposed to UBI for fear that it would replace current benefits (others see this as a positive feature), and hence risks doing more harm that good, but if just this one change was made, it would make no difference to those receiving the benefit as the amount of basic income they would get instead would be almost exactly the same and most recipients are likely to have little other earned income benefiting from the zero tax bands. Subtracting the cost of the state pension would then reduce the cost of UBI to close to 5% of GDP. This is a “large, but conceivable amount to raise”, perhaps through a combination of wealth taxes and other benefit cuts.
“Introducing a form of negative income tax could reduce the cost of a UBI to close to 5% of GDP”
In the grip of the technocracy
Sandbu, then, gives us a glimpse of what “and then you win” looks like in a technocratic age. Whatever your opinion on the merits of UBI, it was once at least a bold utopian vision of what human life, freed at last from the “economic problem”, might look like. Proponents would wax lyrical about a future free from the daily grind, where people would hunt in the morning, fish in the afternoon and write poetry in the evening. Liberated from the need to earn a crust, they would care better for their children and parents, participate more fully in thriving communities, volunteer to help those in need, organise festivals and celebrations, participate joyfully in community theatres or sporting competitions, make music, make merry, create a society where the condition for the full flourishing of all is the nurturing of each individual.
Even if we didn’t believe that such a future was within our grasp, it was good to think with. Why can’t
we live like this? If a basic income won’t get us there, what might? Once the bread is on the table, what is a human life all about? If we didn’t have to work for money, what would our attitude be to work and to leisure? What goals should we be pursuing?
The price of UBI coming close to “winning” is that these questions have once more receded from view and been replaced by a narrow technocratic exercise that, in return for an income that remains a small fraction of the present household average, promises to deliver a simplified and digitised welfare bureaucracy to save on costs and more equally distribute misery, perhaps solving a few of the more heinous problems in society just so long as we can get the details just-so, even if at the risk of transforming the general population into wards of the state and turning a determined blind eye to the law of unintended consequences.
It’s all very well for technocratic chin-strokers to whip out their pens and calculators and prove that something like a UBI is affordable in principle. But those sensitive to what it feels like once government bureaucrats set about determinedly helping you and solving your problems – the pandemic held lessons for us all – might baulk.
Don’t trust Big Brother
But whether we are talking about the grand utopian vision or technocratic fixes, one of the biggest arguments against UBI has always been that it would destroy the incentive to work – which is a bland way of saying that it would be like lobbing a spanner in the machinery we all rely on to put the dinner on the table, to say nothing of the broader social consequences.
Can giving youngsters the option not to work and more incentive than they already have to disappear into their basements and play video games all day be a good idea? The studies of UBI-like experiments often claim to show no, or at least no very worrying, decline in people’s willingness to work – but again, this is not very surprising when the amounts being doled out are so small, and the scheme is time-limited. It’s quite a leap from there to wanting to run the same experiment with every man, woman and child in the country, promising them a fixed income for life, in perpetuity, regardless of behaviour. Any parent would surely think twice about such a scheme for their children, yet technocrats seem relaxed about Big Brother snatching the power of discrimination and judgement away from parents and doling out the pocket money to everyone.
A UBI would also, of course, change incentives for employers, who would be relieved of the responsibility of providing a living wage for their workers. This is sometimes seen as a positive feature – enterprises doing socially valuable things will need to find less money to stay in business. But the risk is clear – that, over time, more and more people will become dependent on the state for their living, even as their alternative sources of income shrink.
Friedrich Hayek warns of the dangers of this in his classic book The Road to Serfdom. In a competitive society, if someone fails to satisfy our wishes, we can turn to another, he wrote. But if we face a monopolist, we are at his mercy. Hayek was warning of the consequences of an authority directing the whole economic system. But we would surely be no less at the mercy of one that was responsible for our income. Just how long would it be before that authority would seek to use its power to encourage behaviours of which it approved and prevent those it disliked? The appeal of China’s social-credit system is not limited to openly authoritarian systems, after all, as the pandemic showed. How long before the U in UBI would be replaced with strings? And how long before those strings throttled our liberties? As Hayek says, even in the best of worlds our ability to exercise freedom of choice in how and for whom we work will be very limited. But we should think twice before abandoning what liberties and choices we do have in a misjudged pursuit of social and economic perfection.
A better way forward
In the end, the debate over UBI will turn, as Sandbu admits, not solely on the trials and the evidence, or on grounds of affordability, but on how we view human nature and the role of government. Even those with presumably very different ideas from MoneyWeek’s readers can see the point: “It is necessary and possible to raise funds to bring greater security, opportunity and power to all people, but the money needed to pay for an adequate UBI scheme would be better spent on comprehensive reforms and building the infrastructure and values essential for a just and environmentally sustainable economy”. That is from Stewart McGill of the Communist Party, writing in the Morning Star – not a publication often quoted in these pages. We of course differ from McGill in the precise meaning he attaches to his words. But he’s not wrong.
There is a reason why historically trade unions have been against, or at the least cautious, about such innovations as national minimum wages and universal basic incomes. When economic times are good and productivity and profits are rising, unions exist to help make sure that the workers’ share of the pie keeps pace with the growth. When times are bad, they seek to make sure that the losses are not unfairly loaded onto those least able to bear them. They will also be concerned with limiting job losses and pay cuts when there are other options. Only the craziest ideologues are unconcerned with local knowledge and economic circumstances and push always for the impossible in the belief that in that struggle a new utopia will be forged. The likelier result will be, to quote Marx, the common ruin of the contending classes.
Good trade unionists realise that minimum wages are a blunt tool that can do more harm than good in some circumstances. They tend also to advocate using specific tools for specific jobs when it comes to tackling issues with the social safety net too. Against the utopian plans of the technocrats, we should hope instead for a reinvigoration of the trade unions and civil society – work that is perhaps now just beginning (see page 14).
“Can giving youngsters more incentive than they already have to play video games all day be a good idea?”