Universal Basic Income: An idea whose time has come?

Universal Basic Income: An idea whose time has come?
Compass
May 2016

 

Executive summary

 

This paper examines the desirability and feasibility of introducing a universal basic income (UBI) scheme in the UK. It examines the merits of such a scheme, how it might be implemented and what role it might play in the search for a good society, one that is more equal, sustainable and democratic. In particular, it presents the results of a number of simulations of how such a scheme would work in practice, including its cost, distributional impact and feasibility. The analysis has been commissioned by Compass. It has been funded by the Joseph Rowntree Foundation and uses the Landman Economics tax-benefit model. 

 

There are very strong arguments in favour of a UBI. Such a scheme would overcome many of the problems with the existing and increasingly complex, punitive and unpopular system of social security, which in multiple ways has become a weak tool for social protection but a strong tool for waste and the humiliation of those on the very lowest incomes. A UBI would provide a much more secure income base in an age of deepening economic and social insecurity and unpredictable work patterns. It would offer much greater financial independence and freedom of choice for individuals between work and leisure, education and caring while recognizing the huge value of unpaid and voluntary work. 

 

Central to the case for a UBI is the way it would help prepare us for a world in which the new technological revolution, driven by artificial intelligence and robotics, will, over time, transform the nature of work and the type and number of jobs. A UBI offers a powerful way of protecting all citizens from the great winds of change to be ushered in by the fourth industrial age, and of sharing the potentially massive productivity gains that it will bring. 

 

The big issue with a UBI is not whether it is desirable but whether it is feasible. Would it be affordable, and could it be introduced in a way that prevented losses among the poorest sections of society? Who would gain and who benefit? In an attempt to provide some answers to these questions, we have undertaken a series of simulations of how variants of such a scheme might work in practice. All the schemes modelled are real UBIs in that they are paid to everyone, without condition, and cannot be withdrawn. The amount paid is obviously crucial but can be scaled up. 

 

We have examined two UBI models: a full scheme (that replaces most means-tested benefits) and a modified scheme (that leaves existing means-tested benefits in place, at least initially). The results of our simulations show that: 

 

• a full scheme that replaced all or most of the existing system would be difficult to implement in the present circumstances; it would be too expensive and there would be too many losers among poorer households 

 

• it would be possible to implement a modified scheme, which would raise average incomes at the bottom, reduce poverty levels, significantly for children, and reduce the level of inequality, all at a manageable cost. 

 

While a modified scheme would be a hybrid, at least initially retaining most elements of the existing system, it would contain a genuine unconditional income and deliver many of the benefits of a full scheme. It would constitute an extension of universality in social security and reduce the volume of means testing by around a fifth. It could be implemented quickly and could be treated as essentially transitional, as a first step towards the implementation, over time, of a full or near-full scheme. 

 

Such a scheme would have an estimated net annual cost of around £8bn, just under 0.5% of gross domestic product (GDP). This is a relatively modest sum in relation to the huge benefits of such a scheme and the reduction in poverty and inequality that it delivers. Moving towards a fuller scheme would involve additional costs over time. Perhaps the most effective way of meeting such costs would be by creating a targeted UBI social wealth fund, a collectively owned pool of financial funds and assets.  The returns from such a fund could be used to help finance some or all of the additional costs associated with a more generous UBI scheme.

 

The principle of a UBI is now being increasingly widely accepted and is gaining support across the political spectrum in the UK and other countries. In the UK, several high profile organisations have now backed the principle of a basic income including the Royal Society of Arts. In 2015, the longstanding right-of-centre think tank, the Adam Smith Institute, called for the introduction of a negative income tax to replace tax credits, Jobseeker’s Allowance and other means-tested benefits.  The 2016 conference of the Scottish National Party has backed the principle of a UBI, as has the Green Party, while some Liberal Democrats have called for a UBI to become party policy.  The new shadow chancellor, John McDonnell, has expressed interest in the concept in the past and more mainstream MPs such as Jonathan Reynolds MP have come out in support of UBI.

 

The idea of a UBI has been steadily rising up the political agenda and has a growing number of advocates. In 2010, Iran became the first country in the world to establish a nationwide basic income where it is financed from oil revenues.  The Alaskan scheme has been in place for a quarter of a century, but pays an annual dividend, not a weekly income. There have been pilot schemes in the USA, Canada, Namibia and India. 

 

In Switzerland, a national referendum on the implementation of a scheme is to be held in 2016. The Canadian province of Ontario is to trial a scheme in the same year, while there are plans to launch limited local schemes in Finland, the Netherlands (prompted in part by the broadcast of two Dutch documentaries about basic income, which have raised public awareness of the idea) and France. 

 

These forthcoming overseas experiments are helping to build momentum in support of an idea that, until recently was confined mostly to a few think tanks, commentators and academics. It is now time for a national debate on the issue and for Britain to follow the lead being taken elsewhere to launch its own pilot scheme.

 

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