House of Commons Library

Universal basic income

Published Monday, September 12, 2016

MPs will debate Universal basic income on Wednesday 14 September 2016 in Westminster Hall from 4.30 pm to 5.30 pm. Ronnie Cowan MP will open the debate. This House of Commons Library page discusses the issues with and arguments for and against universal basic income schemes, and recent developments.

Universal Basic Income schemes

Under “Basic Income” schemes, a basic minimum income is paid to all citizens by the state, without any conditions attached and regardless of their other resources. All other income received above the basic minimum is taxed.  Such arrangements – or variants thereof – are also sometimes called "Citizens’ Incomes", “negative income tax”, “reverse income tax” or “social dividend” schemes. 

The main problem with such schemes is cost: in order for the minimum income level to be adequate, high tax rates are necessary, and this could exacerbate labour supply disincentives. Some “back of the envelope” calculations illustrate the problem.  There are currently 52.4 million adults aged 18 or over in the United Kingdom, and 12.2 million children and young people under 18.  If each adult were paid a Basic Income of £100 a week, and £50 a week paid for each child, the cost would be £304 billion a year. To put this in context, total spending on benefits, state pensions and tax credits in the UK was forecast to be £217 billion in 2015-16.[1]

Another issue with Basic Income schemes is how to take into account the varying needs of households – eg because of variations in housing costs, or disability. “Fine tuning” a scheme to take such factors into account can mean that the simplicity of the Basic Income is soon lost.

In response to recent parliamentary questions, the UK Government has said that it has not undertaken any research on Universal Basic Income proposals, and has no current plans to do so.[2]

Arguments for and against a full Basic Income

A recent report published by the Fabian Society[3] summarises the arguments for and against a full Basic Income scheme as follows:

Arguments for:

  • Society provides a subsistence income for all, as a fundamental right 

 

  • Employment and progression always (visibly) pay, with consistent, low marginal tax rates and no risk of disruptions to income

 

  • Public interference in the operation of markets and people’s lives is minimised

 

  • National income can be better distributed, in the context of economic dislocation and a decline in the share of GDP going to wages (eg globalisation reducing pay; automation reducing jobs; casualisation; increasing job churn)

 

  • There is a ready-made mechanism for stimulating economic demand if required (‘helicopter drop’ payments)

 

  • Low earners benefit the most (and they are a group that attract public support)

 

  • Women benefit, as each adult in a couple has economic independence and recognition

 

  • The intrusiveness, administrative burden and human costs of benefits (sanctions, low take-up, anxiety etc) virtually disappear

 

  • When all are beneficiaries there will be less negative attitudes to out of work recipients and the conditions they should meet

 

  • Strong incentives for fraud (ie not reporting work or cohabitation) are replaced by a financial reward for these positive choices

 

  • People can choose to spend time caring for children and relatives, for creativity and civic life

 

Arguments against:

 

  • The country would make a fundamental shift away from established and supported principles of social insurance (linked to contribution) and of lifecycle distribution (linked to changing needs)

 

  • There will be entitlement cuts for some, and higher marginal tax rates for others, under any cost-neutral scheme (higher marginal rates in turn reduces the capacity to raise taxes for other purposes)

 

  • There is no financial gain for people out of work. Poverty in unlikely to fall (at least in the first instance – it might if employment participation were to rise)

 

  • There are no conditions relating to work or training, so the system is tolerant of long-term joblessness. This harms life chances and is resented by the public as ‘free-riding’.

 

  • Single adults, including lone parents, are penalised as personal payments don’t take account of economies of scale for couples

 

  • The responsibility of employers to pay wages that reflect living costs could be undermined (workers are prepared to ‘settle’ for less; the political salience of minimum wage undermined)

 

  • Complex means-testing will still be required to meet the extra costs of housing (otherwise a BI treats unlike households alike and/or is unaffordably expensive).

 

  • Intrusive capability assessments will still be required, unless disabled people are to be denied extra support to reflect their higher needs and/or lower earning potential

 

Recent consideration of Basic Income schemes in the UK

In its original consultation on Universal Credit, the 2010 Government also sought views on other welfare reform options, including proposals for a “negative income tax” set out by the Taxpayer’s Alliance (see DWP, 21st Century Welfare, Cm 7913, July 2010, Chapter 3).  In the end however, the Government decided that its proposals for Universal Credit represented the best way forward.  UC does however share some features of Citizens Income/negative income tax schemes – eg combining various income streams into a single payment, and using a single, uniform taper.

In the UK, the Citizen's Income Trust promotes discussion about citizens'/basic income schemes.  Its website includes comprehensive links to further resources.  The Trust has also produced a booklet, Citizen’s Income: A brief introduction (2015).

The Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) also published a report in December 2015 which makes the case for a Basic Income; see-

For an alternative assessment of the prospects for a Basic Income scheme see Donald Hirsch’s March 2015 paper Could a ‘Citizen’s Income’ work? published by the Joseph Rowntree Foundation.  The conclusion (pp25-28) gives an assessment of the likely costs and benefits.  See also Tim Blackwell, “Can a basic income work? A citizen's income is a lovely idea in theory. But putting it into practice is tricky,” New Statesman, 8 December 2015.

BBC Radio 4’s “Money Box Live” broadcast a programme on 13 January on Basic Income proposals which included contributions from academics and others (both supporters and sceptics). It can be heard online.

The following articles from the Guardian may also be of interest:

The piece by Tom Clark mentions a book published earlier this year, Can the Welfare State Survive?, by Andrew Gamble, Emeritus Professor of Politics at Queens College, Cambridge; and now a Professorial Fellow at the University of Sheffield Political Economic Research Institute (SPERI).  The book, which argues that serious consideration should be given to the idea of a “citizen’s stipend”, paid universally as of right, was launched at an event hosted by the Resolution Foundation on 9 May 2016.  This was attended by, among others, Karen Buck MP.  The presentations given at the event, and the subsequent audience Q&A session, can be viewed on Youtube.

On Monday 6 June, the think tank Compass published a report by Howard Reed and Stewart Lansley, Universal Basic Income: An idea whose time has come?  The authors conclude that introducing a full-blown basic income scheme (i.e. one that replaces most means-tested benefits) would be “difficult to implement in the present circumstances; it would be too expensive and there would be too many losers among poorer households.” They believe however that it would be possible to implement a “modified” scheme:

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.

See also the piece by Stewart Lansley and Howard Reed, “There’s no mistake: a Universal Basic Income would work,” in Prospect, 6 July 2016 (in response to an article in the same journal by Jon Cruddas and Tom Kibasi, “A universal basic mistake,” 16 June 2016).

 

An editorial in the Guardian on 6 June commented that the proposals in the report represented “evolution rather than revolution.” In light if of the emphatic rejection of more radical basic income plans by the Swiss public in a referendum on 5 June (see below), the paper commented:

Instead of a Swiss-style invitation to walk suddenly away from an unloved waitressing or factory job in order to take up, say, community gardening or some other unprofitable passion, the suggestion here [in the Compass re[port] is for a weekly payment of only about £50 or £60 for an adult. Alone, this would barely be enough to survive on, let alone live comfortably. But the guarantee that this sliver of income at least would be forthcoming might foster security and experimentation, while also establishing, perhaps, a bigger principle. Existing benefits that deal with housing, childcare and the rest of the messy realities that have to be dealt with are retained, sensibly sacrificing simplicity and intellectual elegance in order to protect the poor. Even this relatively modest scheme, however, involves jacking up the main tax rates by several points and withdrawing the personal allowance, no easy sell for Mr [John] McDonnell or anyone else.[4]

For further critical comment see also Robin Wilson’s Social Europe blog, Universal Basic Income: A Disarmingly Simple Idea – And Fad, 9 June 2016

The Labour Party is also reported to be considering a Universal Basic Income as part of its new economic policy; see:

On 31 August 2016 the Fabian Society published a report authored by Andrew Harrop, published, Redesigning social security, for the 2020s.  The author does not believe that there is a strong case for a full basic income scheme at this time, but argues that, as part of a wider package of reforms, a partial basic income scheme that would exist alongside Universal Credit could have merits.  The report states: (pp xix-xx):

At this time there is not a good case for integrating universal credit, tax allowances and child benefit into a single flat-rate payment for each individual (ie a ‘basic income’). There is growing interest in the idea, which has the merit of reducing the employment disincentives, complexity and intrusion associated with means-testing. But a basic income has significant disadvantages – any revenue neutral reform would create many losers and would not reduce poverty or improve the incomes of those with least today. Reform would be very unlikely to eliminate the need for means-tested and condition dependent benefits, especially with respect to housing.

Instead, the tax-free allowances and child benefit should be converted into an ‘individual credit’ for all adults and a ‘child credit’ paid to the main carer. Unlike a basic income, this payment would sit alongside universal credit and as a result would significantly reduce poverty and increase low and middle incomes. The credits would be paid on a flat rate basis either through PAYE or in cash. These new credits would take the strain off universal credit by providing another mechanism for supporting the incomes of poorer households. To avoid creating cash ‘losers’ the credits would need to be phased in, over a number of years, by gradually lowering the tax-free allowances and introducing a cash credit of the same value. Eligibility for the adult credit should depend on paying direct taxes or on productive participation in society – and new migrants would only gradually gain access to the credit, after paying taxes.

In an interview in the Independent, the Shadow Chancellor John McDonnell said that Shadow chancellor John McDonnell said that he was confident he could “win the argument” on Universal Basic Income, and cited the Fabian Society report.  The paper reported:

When asked whether he would fight the next general election on a platform that advocates the radical policy, Mr McDonnell, who is also chairing Jeremy Corbyn’s campaign to remain Labour leader, responded: “I think we’ve got a long way to go in developing the proposal and the argument but I think we can win the argument on it."

Mr McDonnell added that he would “make sure we take into account the experiments that are going on at the moment, developing the ideas that the Fabian society have put forward”, before campaigning on the issue.

“What people are anxious about at the moment is around levels of poverty increasing, levels of inequality and at the same time people not being able to get some of the basics in life and that’s why there are large numbers of people turning up at foodbanks,” he added.

“The Fabian society has just introduced a report today which is looking at reforms to the welfare state and it’s recommending a form of initial basic income for us to explore so we’re going to take that into account. When we look at the experiments that are taking place across Europe at the moment we’ll review those then consider what are options are.

“The reason I’m interested in it goes back a long way. I was at the TUC when we were campaigning with Child Poverty Action group to bring in child benefit… child benefit is a form of basic income. So I think there are opportunities there that it could simplify the welfare system but in addition it could tackle the issues around poverty.”[5]

Developments abroad

To date, no country has fully embraced the idea of a Basic Income, but there have been some limited experiments, and some countries have looked into the feasibility and desirability of such a scheme. New trials are also planned in some countries (see “State handouts for all? Europe set to pilot universal basic incomes,” Guardian, 2 June 2016).

In 2002, the Irish Government published Basic Income: A Green Paper, which gives an overview of the pros and cons.

More recently, there has been a lot of interest in developments in Finland.  The Finnish Government has commissioned Kela (the country’s Social Insurance Institution) to undertake a preliminary study to explore possibilities regarding Basic Income schemes.  The objective is to identify and compare different models.  A review of existing information and experiences with Basic Income models trialled in other countries was to be presented to Government ministries and agencies in spring 2016.  Following on from this, an analysis of experimental models and study designs would be produced in the second half of 2016, and it is planned to begin a Basic Income experiment in 2017.  For further information and comment see-

In the City of Utrecht in the Netherlands, a smaller scale experiment is due to get underway in January 2017, involving social assistance recipients.  The experiment – Weten wat werkt (“Know what works”) – is expected to last two years and will look at how different groups respond to different sets of rules.  The City’s website states [translated from Dutch]:

We want to know what works better for people on social assistance. We also focus on finding work, but also how the participants experienced different rules. And the impact of the rules, for example, debts or health.

Participants will be assigned to one of five groups. The first (control) group will continue to receive their social assistance payments and be subject to existing conditionality rules.  A second group will receive the payments but not subject to any obligations.  Other groups will receive the basic payment unconditionally and an additional monthly bonus payments subject to meeting certain requirements (e.g. undertaking voluntary work).  A fifth group will receive the basic payment unconditionally and may keep (part of) income from work.

For further information see:

On 25 February 2016, in its announcement on its 2016 Budget the Government of the Canadian province of Ontario said that it intended to discuss with stakeholder groups how it might pilot a Basic Income scheme.  It received some coverage in the UK media (see below), but the announcement was only made in passing and the plans appear to be at an early stage.  The Budget document announced:

  1. One area of research that will inform the path to comprehensive reform will be the evaluation of a Basic Income pilot. The pilot project will test a growing view at home and abroad that a basic income could build on the success of minimum wage policies and increases in child benefits by providing more consistent and predictable support in the context of today’s dynamic labour market. The pilot would also test whether a basic income would provide a more efficient way of delivering income support, strengthen the attachment to the labour force, and achieve savings in other areas, such as health care and housing supports. The government will work with communities, researchers and other stakeholders in 2016 to determine how best to design and implement a Basic Income pilot.

For further information see:

However the proposals were comprehensively rejected, with nearly, 77% of voters opposed the plan, with only 23% backing it. According to the BBC, the proposal had little support among Swiss politicians for the idea and not a single parliamentary party came out in favour. The impact on work incentives and immigration appear to have been major concerns.[6]

An article in the Economist in 4 June 2016, “Sighing for paradise to come: Arguments for a state stipend payable to all citizens are being heard more widely,” covers the developments and debates in the above counties, gives a historical perspective to basic incomes, and considers the arguments for and against.

Early Day Motion

On 8 June 2016 the Green MP Caroline Lucas tabled an Early Day Motion (EDM 164 2016-17) calling on the Government to fund and commission further research on Basic Income models:

BASIC INCOMESession: 2016-17

Date tabled: 08.06.2016

Primary sponsor: Lucas, Caroline

Sponsors: Gray, Neil; Huq, Rupa; Edwards, Jonathan; Ritchie, Margaret; Crawley, Angela 

That this House notes the growing crisis of low pay and precarity in a labour market increasingly characterised by casualised forms of employment, such as zero-hours contracts that offer little in the way of pay, predictable hours or long-term security; further notes the evident inability of our bureaucratic and costly social security system, with its dependence on means-testing and often arbitrary sanctions, to provide an adequate income floor; believes that a universal basic income, an unconditional, non-withdrawable income paid to everyone has the potential to offer genuine social security to all while boosting entrepreneurialism and the creation of small businesses; welcomes the ongoing exploration of the concept of such a basic income by the think tank Compass, the Royal Society of the Arts, the Citizen's Income Trust and others; further welcomes the planned practical experiments in Finland, the Netherlands and Canada; and calls on the Government to fund and commission further research into the possibilities offered by the various basic income models, their feasibility, their potential to guarantee additional help for those who need it most and how the complex economic and social challenges of introducing a basic income might be met.

It currently has 35 signatures.

The UK Government has said recently that it has not undertaken any research on Universal Basic Income proposals, and has no current plans to do so.[7]

References:

[1]     See Commons Library briefing CBP-7252, Welfare Reform and Work Bill 2015-16

[2]     PQ 40099, 15 June 2016; PQ 42464, 19 July 2016

[3]     Andrew Harrop, Redesigning social security, for the 2020s, 31 August 2016.  The table is in Appendix 7

[4]     “The Guardian view on a universal income: the high price of free money

[5]     “John McDonnell: I will win the argument to give every citizen in the UK a basic income,” Independent

[6]     “Switzerland's voters reject basic income plan,” BBC News, 5 June 2016

[7]     PQ 40099, 15 June 2016; PQ 42464, 19 July 2016

 

Commons Debate packs CDP-2016-0167

Authors: Steven Kennedy; Alex Adcock

Topics: Benefits administration, Benefits policy, Working age benefits

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