Some advocate the introduction of a basic income on the grounds of personal freedom. Others suggest basic income as a replacement for the complex social security system, in which claimants are subject to complexity, and the stigma of intrusive scrutiny and means testing – a system in which families can find themselves caught in ‘poverty traps’ because benefit claw-backs erode any increase in earnings. Jobless claimants have no incentive to find jobs or work longer hours because increased earnings can jeopardise their benefit entitlement, even though they face constant pressure to demonstrate that they are seeking employment.
Basic income is also seen as an answer to precarious and poor quality jobs available to the low paid, and the spectre of mass unemployment that is expected to result from the wider diffusion of AI-infused robotics throughout the labour market.
Basic income is a flexible concept. There are several variants of the scheme. They include minimum income guarantees, negative income tax, social dividends and ‘demogrants’ (grants awarded on purely demographic principles). The best known and most developed version of the concept is the universal basis income (UBI), sometimes referred to as a citizen’s basic income.
A UBI is an unconditional guaranteed income paid to every adult citizen or legal resident of the United Kingdom on a monthly or weekly basis. It is intended to replace most existing social security benefits, and to provide at least a subsistence level of resources. The level of the payment could vary with age. It would not depend on prior contributions. Citizens and legal residents would receive basic income automatically without means testing, and it would not be withdrawn in whole or in part if their earnings or wealth increase.
The notion of a basic income payable to all citizens has distinguished antecedents. Thomas More suggested a guaranteed income for all citizens in Utopia (1516) as a means of alleviating poverty and combating crime. In the 18th century, Thomas Spence and Tom Paine independently proposed a similar scheme. Bertrand Russell (1919) foresaw a world where the ‘necessaries’ of life were free to all, regardless of whether one worked or not. People could live without work because they would be paid a ‘vagabond’s wage’ by the state: ‘sufficient for existence but not for luxury’.
In 1795, the magistrates of Speenhamland in Berkshire decided to use local tax revenues to supplement the wages of agricultural workers to provide their families with a subsistence wage. Originally envisaged as an emergency measure, the practice spread to other counties in England, and lasted until 1834. The scheme was abandoned amid claims that it was contributing to idleness and drunkenness. (It also led to employers taking advantage of the scheme to reduce wages.)
It was replaced by the notorious Poor Law of 1834 that led to the establishment of workhouses to force the poor to work. As Charles Dickens described in his novel Oliver Twist, they were little more than prisons where families were separated on entry, and the poor were subjected to institutional humiliation because of their personal circumstances.
The introduction of a basic income would represent a revolutionary change to the current social security system, which has evolved since the 1940s. Post-war British governments have struggled to provide an adequate income to those in need: creating incentives for them to get jobs that enable them to climb out of poverty; simplifying the administration of benefits to enable vulnerable claimants to access benefits; and limiting the size of the bill for the generality of taxpayers.
The social security system and the National Health Service were based on the recommendations of Sir William Beveridge’s report Social insurance and allied services (1942). Beveridge memorably described the ‘giants’ to be vanquished: ‘Want is only one of the five giants on the road to reconstruction. The others are Disease, Ignorance, Squalor and Idleness. Social security must be achieved by cooperation between the state and the individual.’
Beveridge said that the state ‘should offer security for service and contribution’. And that it ‘should not stifle incentive, opportunity, responsibility; in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than the minimum for himself and his family’. Beveridge argued that employment was fundamental to tackling poverty in his equally influential report Full employment in a free society (1944).
Beveridge’s reports captured the imagination of the public, offering hope and fairness for the post-war reconstruction of Britain. Both reports became best sellers.
In contrast, the minority report by Lady Rhys Williams, a member of his government committee on social insurance, advocating a conditional basic income went unnoticed. Her tireless efforts to promote her views kept the idea alive and brought it into the political arena.
Basic income has attracted the support of some distinguished economic theorists. James Meade was a life-long advocate for the introduction of a basic income. He saw it as an integral solution to the problem of reconciling distributional ideals with the market economy. He foresaw in 1984 that automation with ‘flexible, intelligent or semi-intelligent powers of receiving, analysing and responding to data’ would make capital equipment a close and efficient substitute for labour.
Meade forecast that ‘the proportion of the working population required to man the extremely profitable automated industries would be small; wage rates would be depressed; there would have to be a large expansion in the expansion of the production of the labour-intensive goods and services which were in high demand by the few multi-multi-multi-millionaires; we would be back in a super-world of an immiserised proletariat of butlers, footmen, kitchen maids and other hangers-on’ (1964). He declared: ‘Let every citizen in the country receive automatically each week a social dividend’ (1975).
Milton Friedman proposed (1962) the closely related concept of a negative income tax as an alternative to social security. The 1970-74 Conservative government led by Ted Heath proposed the introduction of a negative income tax scheme to replace personal tax allowances with repayable tax credits. The scheme was abandoned because it was realised that the PAYE scheme lacked the data, speed and flexibility to be used to pay social benefits. James Tobin advised George McGovern, the US Democratic Party’s 1972 presidential candidate on the latter’s proposal to pay a ‘Demogrant’ (basic income) of $1,000 a year.
Philippe Van Parijs’s celebrated (1991) article Why surfers should be fed injected a philosophical dimension into the debate. He argued that there was a case for feeding those who spent their days surfing off Malibu beach. He saw a philosophical equivalence between ‘Crazy [who] is keen to earn a high income and works a lot for that purpose. [And] Lazy [who] is far less excited by the prospect of a high income and has decided to take it easy’. He suggested that the decision to work hard to earn a high income is purely a personal preference, that deserves no more weight than the preference of those who choose to surf or indulge in some other form of leisure instead of working.
Van Parijs declared that the introduction of a basic income would be an instrument of ‘real freedom’. He suggested that the government should underpin the theoretical right to choose one’s way of life by offering financial security to those who choose not to work, and instead spend their days surfing. Van Parijs’s arguments stimulated lively academic debate. Not least on the grounds that he had failed to distinguish between leisure through choice and involuntary leisure due to unemployment, sickness and disability.
The current social security system retains many of the key features of the model recommended by Beveridge. The welfare system has changed since it was established in the light of circumstances, new priorities and the growth of the economy. But means testing and the contributory principle have remained at the heart of the system.
Help was available for those who were unable to work because of infirmity or old age. Workers were insured against the risks of sickness and unemployment, and poverty in old age because they or their employer had paid their national insurance stamp while they were working. In the immediate post-war period, employers and the self-employed literally had to purchase national insurance stamps from the Post Office to affix to national insurance cards. The self-employed were legally obliged to purchase them by midnight of the Saturday of each week of self-employment!
The ability to draw contributory state benefits, such as the retirement pension, is based on the prior payment of national insurance contributions. Tax credits and universal credit are non-contributory, but means tested. Means testing is based on verifiable personal information about the claimant, such as their age, relationship status, health or disability, and their earnings and capital resources. In contrast, a basic income would be paid on an unconditional basis to all of those who are citizens or legal residents.
Guy Standing (2018) has passionately argued for the introduction of a basic income on the grounds that, despite decades of economic growth and rising incomes in the post-war period, ‘inequalities have grown remorselessly, while millions of people in the UK have wallowed in impoverishment’. But there has been a substantial increase in support for pensioners and those of working age, and for children. One of the fastest growing areas of social security in the last 40 years has been expenditure on benefits for those of working age. The £96bn spent on them in 2017/18 was greater than the amount spent on education, defence and policing combined.
Some 1.8m households get more than 80% of their income from benefits. A third of working-age households get tax credits or universal credit. The introduction of child benefit has reduced the number of children living in poverty. There has been a reduction in the number of pensioners living in poverty because of improvements in the state pension and the introduction in 2011 of the ‘triple lock’. (The basic state pension is annually increased by a minimum of either 2.5%, or the higher of the rate of inflation or the growth in average earnings.)
The social security system is capable of being improved. Complexity and fear of intrusive means testing discourage many from taking up the help that is available; others are discouraged from seeking better paid roles or working longer hours. The campaign to introduce a basic income has been boosted by the crippling problems and complexity associated with the most recent reform to the system, namely the introduction in 2011 of the universal credit, which has been plagued from its inception by IT problems, massive overspends and administrative problems. It is practically guaranteed a chapter in any future edition of The blunders of our governments (2013).
There is some justice in Standing’s claim that the roll out of the scheme across the country has spread growing ‘anger and hurt’ and that is ‘a mean-spirited policy coloured by arbitrary sanctions and stigmatisation’. Universal credit has caused some claimants severe hardship. Poor policy design, over-hasty implementation and arbitrary cuts to increases in benefit payments have undermined a programme that was supposed to have improved the efficiency and efficacy of the delivery of benefits to those of working age.
The government has recently announced changes to the scheme and pledged £3bn to ease the impact on those transitioning from the former arrangements and tax credits to universal credit. New claimants won’t benefit from this protection. And some 3.2m vulnerable working families will lose about £2,500 a year compared with the old system. If people’s circumstances change or if they come off benefits and then go back on them, they will lose this transitional protection.
Those who advocate the policy argue it would have many advantages. It would remove or mitigate the inefficiencies caused by the interaction of the social security and income tax systems; and promote a more flexible labour market by permitting the repeal of minimum wage rules, enabling workers to price themselves into employment.
A basic income scheme could also increase the incentive to undertake employment by eliminating or ameliorating the ‘poverty trap’ which currently entitles those on benefits to keep only a small fraction of any additional income, or causes them to lose a suite of benefits if they earn or work more than a specified level. The claw-back rate has been reduced under universal credit, but it is still 65%, and income tax and national insurance can increase the cumulative marginal tax rate to 76.2% (Atkinson, 2015). The only comparatively high marginal rates in the income tax system are faced by those with incomes between £50,000 and £60,000 who are within the scope of the high income child benefit charge, and by those with incomes between £100,000 and £123,000 whose personal allowance is withdrawn.
Other advantages of a basic income scheme include:
Many of the theoretical merits of a basic income are debatable or only valid under specific assumptions. The policy looks less attractive when its political and practical feasibility, fiscal cost and behavioural risks are taken into account. As noted below, it would be ‘impossibly expensive’ (Kay, 2017) to provide a basic income at a level that would enable it to be an alternative to low-paid employment or, for that matter, to the existing social security system.
A basic income would not be an effective tool for reducing poverty compared to the existing means tested system unless it was paid at an extremely generous rate. Payment of a basic income on a universal basis and at a uniform rate to all citizens and legal residents implies that they have identical needs. It ignores that people have different needs, varying with age, health and other personal circumstances. For example, many people with disabilities incur extra costs for food, heating, mobility and personal care.
Means testing and conditionality enable the existing system to tailor the level of support provided to the personal circumstances of individual claimants. The payment of a basic income to all individual adults may be commendable on the grounds of equality. But it is a poor instrument for alleviating poverty. For example, it takes no account of the economies of scale available to those who are cohabitating in the cost of housing and heating bills. The economics of a household differ from those of an individual, while there are wide variations in the cost of housing and accommodation across the country.
If the support currently provided through the means tested housing benefit is taken into account in setting the level of the basic income, the bulk of the assistance would end up in the hands of those who aren’t currently eligible for the benefit. Current claimants who live in areas where rents are low would enjoy windfall gains. But claimants who live in expensive areas would be deprived of the support they need and had previously received. It would be necessary to retain housing benefit or to make means tested supplemental payments to those who need help with their housing costs alongside the basic income.
The complexities of eligibility requirements for claimants of social security are necessary to identify those in special need, and to ensure that payments are made only to them. The identification or ‘tagging’ of those in special need requires potential beneficiaries to apply for the benefits appropriate to them. They have to provide information about their personal circumstances for the assessment of the benefit to which they are entitled. In contrast, with a basic income scheme, a payment is made at a uniform rate to all citizens, whether they need it or not on the assumption that everyone has the same needs.
The possession of an adequate income or wealth would undoubtedly improve an individual’s well-being, standard of living and prospects. The Centre for Social Justice (2018) has argued that the payment of a basic income wouldn’t necessarily alleviate poverty, because ‘poverty is not just an income problem’. The lack of income and wealth are
symptoms
, not the causes of poverty. The roots of poverty are non-financial. They include lack of education or marketable skills, joblessness, divorce and family breakdown, alcohol or drug addiction and debt. The Brookings Institute (2016) noted that: ‘In the end, the biggest problem with a universal basic income may not be its costs or its distributive implications, but the flawed assumption that it cures all’.
The introduction of a basic income would undermine a key principle of the Beveridge report, namely that: ‘Social Security … starts from a diagnosis of want.’ Beveridge highlighted that it was more efficient and economical to direct resources to those in greatest need and at the causes of poverty, rather than to distribute money to everyone.
Policies and programmes to alleviate poverty and assist those in need involve trade-offs because of the scarcity of resources. The corollary of untargeted payments is the need to impose high marginal rates of taxation to fund the payments that would have far-reaching significant economic consequences.
The introduction of a basic income would not alter the underlying nature of jobs available in the economy or the current unequal distribution of employment in the economy between individuals and regions and competition for the best roles. The substantially higher level of personal taxes necessary to fund anything but the most token level of basic income could reduce the aggregate level of employment.
Advocates of basic income often argue that it would augment low wages and enable people to price themselves into jobs they might not otherwise be able to take up. But it could undermine rather than enhance low-paid workers’ bargaining power. Some businesses might choose to pay their employees barely more than minimum wages. They could take advantage of the fact that their employees could maintain their standard of living with their basic incomes.
Changes in people’s incomes influence their decisions. Not just about their ability to consume additional goods and services, but also about how much leisure they can afford. Highly motivated individuals, particularly those undertaking jobs they find interesting, might continue working as hard as they did. But those in unattractive precarious, low quality jobs might reduce the hours they work or, if they can now afford it, leave the labour market altogether even though work is often the best route out of poverty.
The reduction in their labour supply would increase wages for such roles in the short to medium term, and in the longer run, it would give employers a greater incentive to automate. The availability of a guaranteed full basic income could potentially have other far-reaching decisions. It could influence life events such as the timing of retirement, education and training and child bearing and child-care.
The introduction of a scheme that would pay an unconditional guaranteed income would torpedo the ‘contributory principle’ that underpins the Beveridge welfare state. The basic income approach flies in the face of post-war consensus in the Beveridge model predicated on the basis that: ‘The state should offer security for service and contribution. The state, in organising security, should not stifle incentive, opportunity, responsibility; in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than the minimum for himself and his family’ (Beveridge, 1942).
The argument that the receipt of a basic income would encourage individual effort is in fact an assumption about the likely behavioural impact of the guaranteed receipt of a minimum level of income. It could just as easily lead to indolence and lack of effort on the part of some of those it is intended to help.
The introduction of a basic income is not the only way of addressing the risks to the employment market from increased automation. It would be widely perceived as an expensive recipe for destroying the work ethic. Many people derive meaning and satisfaction from their work, even if they are not in well-paid or glamorous roles.
It would be more economical and efficient for the government to provide the work force with the lifelong training and development they need to increase their flexibility and maintain their future employability. It could increase its support for University Technical Colleges whose graduates are in high demand by employers. It could cherry-pick from the innovative measures introduced by other countries to address the same problem. For example, it can take a leaf from the Danish government’s book and introduce so-called ‘flexi-security’. This would allow employers to dismiss employees provided they contribute to generous social security and mandatory lifelong learning for future roles for those displaced by automation.
Basic income was often mooted as a plan to replace all or most existing state benefits by a single payment. The cost of introducing the scheme would obviously depend on the level of the payments made to individuals. It is possible to reduce the cost of implementing a basic income scheme by restricting eligibility. The payments could, for example, be made only to working age adults, or at differential levels to different categories of citizens. But such changes would undermine the universality and simplicity of the scheme; they would necessitate greater bureaucracy.
The Centre for Social Justice (2018) has estimated that it would cost about £670bn a year if a basic income was paid at a level equal to the current income poverty level, £16,320 to all working age adults aged between 16 to 64 years. The cost would represent more than 80% of total current UK public spending, even before taking account of the cost of setting up the system and its annual maintenance and running costs.
It is not possible to fund a basic income simply by diverting current spending on social security and abolishing income tax personal allowances. The entirety of the UK social protection and services budget (about £283bn in 2018/19) would not be available to defray part of the cost of funding the scheme. Some £96.5bn of it relates to the provision of the state pension (which is paid on a contributory basis) and £11.5bn to the payment of child benefits. The abolition of income tax personal allowances would ‘save’ (they are in fact treated as tax foregone rather than public expenditure) £107bn.
The government would have to raise the balance of the cost of the basic income payments, some £388bn by substantially increasing taxation on earnings and other income. To put this funding need in perspective, the total revenues from income tax, national insurance contributions and VAT for 2018/19 are forecast to be about £455bn.
The share of GDP required to fund non-welfare related public expenditure (the NHS, education, defence, police) is currently about 25%; social security absorbs about 15% of GDP. James Tobin (1970) devised a formula that expresses the trade-off between the level of basic income and the tax rate as a proportion of GDP on all other income necessary to finance it. He said that if the existing level of government expenditure is x per cent, then a basic income (he called it a demogrant) equal to y per cent of average income would require a tax rate of (x + y).
If the basic income were set at 25% of average income (about £7,000), it would be necessary to levy an average rate tax of 50% on all other income. But this level of income would not be sufficient to replace the current level of social transfers to some benefit claimants. Some households receive a relatively high level of benefit payments. The Coalition government introduced a ‘benefits cap’ in 2013 (apparently in response to tabloid and media stories about the lifestyles of some benefit recipients). It is designed to prevent households from receiving benefits in excess of the median income (then £26,000); the limit for single persons was set at 70% of median income. The cap was applied to some 59,000 cases in its first year.
It would be necessary to offer additional support to those whose personal circumstances currently entitle them to receive more than £7,000 a year. That is to say, the basic income scheme would have to be operated alongside tax credits and universal credit. The basic income scheme would be redistributive, but it would merely ameliorate, not eliminate the impact of means testing. The need to operate three separate systems to relieve poverty could hardly be characterised as a simplification.
The nature, timing and level of any taxes increased or introduced to fund the basic income would have distributive, allocative and behavioural impacts. The government would not be able to raise the funding necessary to introduce a basic income by simply increasing taxes on the wealthy and multinational companies, and tightening the rules to combat avoidance and evasion.
There would have to be significant increases in the rate of income tax and national insurance contributions on earnings. The government would probably also need to raise VAT and corporate and capital taxation. Higher levels of personal and corporate taxation would reduce the savings ratio, and diminish the investment necessary to increase productivity and economic growth.
High marginal rates of personal taxation would damage the incentive to work of those whose tax payments currently fund the state and encourage tax avoidance. About 90% of all income tax is paid by the 50% of taxpayers with the highest incomes, and more than a quarter of the total is paid by the richest 1%. It would be short-sighted to ignore how they might react to the prospect of substantially higher income tax rates to fund benefits that are currently at least partially funded by contributions by all those who are in receipt of earnings.
The bulk of public spending goes on the delivery of public services such as health, education, defence and transport. The government provides public goods for which there would be inadequate or no provision by the market economy. In contrast, government expenditure on the provision of a basic income would constitute transfer payments ; they would not contribute to current marketable output. In the same manner as existing social security payments, they would transfer purchasing power. Their main purpose would be to redistribute personal income.
Advocates of basic income and other policies that would substantially increase the level of transfer payments to reduce income inequality often imply that the net effect of such policies would be neutral. They argue that gains and losses across the population add up to zero. They ignore the fact that the government would need to reduce public expenditure on goods and services or increase taxation or government borrowing or both in order to fund higher transfer payments. Higher levels of personal taxation would have behavioural impacts, including changes to the incentive to work, personal consumption patterns and investment decisions.
The UK government would be unable to enact a UK-wide basic income without the formal approval of the governments of Scotland, Wales and Northern Ireland. Unlike universal credit, tax credits, the state pension and child benefit, which are delivered on a UK-wide basis, basic income is not a ‘reserved matter’ under their constitutional settlements. The introduction of a basic income in England could mark the end of a predominantly UK-wide social security system. It would almost certainly lead the territorial governments to demand increases in their block grant funding to establish their own arrangements.
The Scotland Act 2016 gave the Scottish government responsibility for various smaller social security measures. It is also due to be given devolved powers over certain elements of universal credit. The Scottish government is keen to introduce its own basic income scheme. It has committed £250,000 of funding for four local authorities to conduct feasibility studies and develop UBI pilots. If the Scottish government decides to press ahead with its own basic income scheme, it would have to fund it out of its block grant, its share of VAT receipts and the revenues from its devolved taxes.
There is no existing government or private database with details of all UK citizens and legal residents. It would be necessary to create a comprehensive database containing the authenticated names, dates of birth, addresses and banking details of potential beneficiaries of basic income. Some of this information is contained in the IT systems used by HMRC to deliver tax credits and child benefit, and the Department of Work & Pension’s (DWP) universal credit and legacy IT systems. These discrete systems often have little or no interaction with each other within departmental boundaries, let alone with other government departments.
Departments don’t always have the ability to share the information they collate with other government departments. Because of the stringent requirements of taxpayer confidentiality, it would be necessary to enact legislative ‘information gateways’ to enable the government department that draws the short straw for implementing UBI to obtain access to data held on HMRC’s systems.
DWP would almost certainly draw the short straw if a future government chose to implement a basic income scheme. It has a patchy track record of delivery. In 2018, Computer Weekly published a leaked internal document from DWP. It stated that DWP’s ageing IT infrastructure had left it with ‘a legacy of expensive, difficult-to-change systems providing marginal benefits’.
HMRC has considerably more IT and delivery expertise than DWP. It deals with the largest number of citizens and residents through the national insurance and PAYE service (NPS). But if HMRC were given responsibility for designing and delivering basic income, it would detract it from performing its core role of collecting tax.
Any new database containing the sensitive personal details of all British citizens and legal residents would attract the same opposition as the Blair government’s proposals for a national ID card. It would be characterised as ‘big brother’. HMRC, NHS and the Home Office would demand access to the system for their own purposes, as would the police and security services. The territorial departments and local authorities would wish access to data relating to those residing within their jurisdiction. The valuable personal data it would hold would make the database a honeypot for cyber fraudsters and hackers.
The introduction of an unconditional basic income would be characterised as giving people ‘money for nothing’. It would undermine the reciprocity in the relationship between citizens: their duty to contribute to society if they expect society to contribute to them. Proponents of basic income point out that the Beveridge report was implemented at a time when there was economic growth and full employment. It is difficult for workers to contribute to society when the labour market is increasingly dominated by job insecurity, low wages, and the growth of temporary, part-time or poor quality roles. They argue that introduction of a basic income offers better scope for rebuilding the relationship between the citizens and the state.
Tony Atkinson (1996, 2015) has a proposed version of the basic income in which there is an explicit reciprocity between the recipients of a participative income and the state. The payment would be contingent on active social participation, rather than passive citizenship and legal residency. Participation would be defined as employment, self-employment, education or training, job search, caring for children or older or disabled people, and voluntary work.
Atkinson’s ‘participative income’ would complement, not supplant the existing social security transfers. It would involve more administration than a basic income scheme. But participative income would not require any means testing of income or wealth. It would also reduce the number of people who received social security. Those who chose to devote their lives to leisure, such as Van Parijs’s surfers in Malibu would pointedly not qualify for a participative income.
There would have to be a fundamental change in prevailing social attitudes to welfare before a government was able to introduce a basic income scheme. Opinion poll surveys suggest that there is support for providing help to low income households with dependent children, and to those suffering from disabilities. But there would be considerable political resistance to the payment of support to able bodied individuals of working age on an unconditional basis.
The electorate isn’t stupid; it would know that those who pay income tax are the main source of funding the scheme. It would know that the introduction of a universal basic income would entail large increases in personal taxation for many of them. They would lose their tax personal allowances (which are worth up to £5,000 a year for those who are liable to tax at the higher rate of 40%), and they would face substantially increased personal taxation on all their other income.
Basic income would be ‘inefficient, wasteful and costly’ (Paichaud, 2016), not to mention politically controversial, uneconomic and unfocused.
It would be more effective in redistributing income than it would be in providing social security to those in need more effectively than tax credits and universal credit.
Its unpopularity with those who would suffer the greatest losses through the loss of their personal allowances and higher taxation could harden their electoral attitudes about supporting people in need.
A basic income would help people to avoid becoming ‘complete wage slaves and in facilitating an opt-out of the economic struggle for those willing to live on modest means. But, alas public opinion is not yet ready to make such transfers to those to whom it regards as work shy’ (Brittan, 1998).
Some advocate the introduction of a basic income on the grounds of personal freedom. Others suggest basic income as a replacement for the complex social security system, in which claimants are subject to complexity, and the stigma of intrusive scrutiny and means testing – a system in which families can find themselves caught in ‘poverty traps’ because benefit claw-backs erode any increase in earnings. Jobless claimants have no incentive to find jobs or work longer hours because increased earnings can jeopardise their benefit entitlement, even though they face constant pressure to demonstrate that they are seeking employment.
Basic income is also seen as an answer to precarious and poor quality jobs available to the low paid, and the spectre of mass unemployment that is expected to result from the wider diffusion of AI-infused robotics throughout the labour market.
Basic income is a flexible concept. There are several variants of the scheme. They include minimum income guarantees, negative income tax, social dividends and ‘demogrants’ (grants awarded on purely demographic principles). The best known and most developed version of the concept is the universal basis income (UBI), sometimes referred to as a citizen’s basic income.
A UBI is an unconditional guaranteed income paid to every adult citizen or legal resident of the United Kingdom on a monthly or weekly basis. It is intended to replace most existing social security benefits, and to provide at least a subsistence level of resources. The level of the payment could vary with age. It would not depend on prior contributions. Citizens and legal residents would receive basic income automatically without means testing, and it would not be withdrawn in whole or in part if their earnings or wealth increase.
The notion of a basic income payable to all citizens has distinguished antecedents. Thomas More suggested a guaranteed income for all citizens in Utopia (1516) as a means of alleviating poverty and combating crime. In the 18th century, Thomas Spence and Tom Paine independently proposed a similar scheme. Bertrand Russell (1919) foresaw a world where the ‘necessaries’ of life were free to all, regardless of whether one worked or not. People could live without work because they would be paid a ‘vagabond’s wage’ by the state: ‘sufficient for existence but not for luxury’.
In 1795, the magistrates of Speenhamland in Berkshire decided to use local tax revenues to supplement the wages of agricultural workers to provide their families with a subsistence wage. Originally envisaged as an emergency measure, the practice spread to other counties in England, and lasted until 1834. The scheme was abandoned amid claims that it was contributing to idleness and drunkenness. (It also led to employers taking advantage of the scheme to reduce wages.)
It was replaced by the notorious Poor Law of 1834 that led to the establishment of workhouses to force the poor to work. As Charles Dickens described in his novel Oliver Twist, they were little more than prisons where families were separated on entry, and the poor were subjected to institutional humiliation because of their personal circumstances.
The introduction of a basic income would represent a revolutionary change to the current social security system, which has evolved since the 1940s. Post-war British governments have struggled to provide an adequate income to those in need: creating incentives for them to get jobs that enable them to climb out of poverty; simplifying the administration of benefits to enable vulnerable claimants to access benefits; and limiting the size of the bill for the generality of taxpayers.
The social security system and the National Health Service were based on the recommendations of Sir William Beveridge’s report Social insurance and allied services (1942). Beveridge memorably described the ‘giants’ to be vanquished: ‘Want is only one of the five giants on the road to reconstruction. The others are Disease, Ignorance, Squalor and Idleness. Social security must be achieved by cooperation between the state and the individual.’
Beveridge said that the state ‘should offer security for service and contribution’. And that it ‘should not stifle incentive, opportunity, responsibility; in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than the minimum for himself and his family’. Beveridge argued that employment was fundamental to tackling poverty in his equally influential report Full employment in a free society (1944).
Beveridge’s reports captured the imagination of the public, offering hope and fairness for the post-war reconstruction of Britain. Both reports became best sellers.
In contrast, the minority report by Lady Rhys Williams, a member of his government committee on social insurance, advocating a conditional basic income went unnoticed. Her tireless efforts to promote her views kept the idea alive and brought it into the political arena.
Basic income has attracted the support of some distinguished economic theorists. James Meade was a life-long advocate for the introduction of a basic income. He saw it as an integral solution to the problem of reconciling distributional ideals with the market economy. He foresaw in 1984 that automation with ‘flexible, intelligent or semi-intelligent powers of receiving, analysing and responding to data’ would make capital equipment a close and efficient substitute for labour.
Meade forecast that ‘the proportion of the working population required to man the extremely profitable automated industries would be small; wage rates would be depressed; there would have to be a large expansion in the expansion of the production of the labour-intensive goods and services which were in high demand by the few multi-multi-multi-millionaires; we would be back in a super-world of an immiserised proletariat of butlers, footmen, kitchen maids and other hangers-on’ (1964). He declared: ‘Let every citizen in the country receive automatically each week a social dividend’ (1975).
Milton Friedman proposed (1962) the closely related concept of a negative income tax as an alternative to social security. The 1970-74 Conservative government led by Ted Heath proposed the introduction of a negative income tax scheme to replace personal tax allowances with repayable tax credits. The scheme was abandoned because it was realised that the PAYE scheme lacked the data, speed and flexibility to be used to pay social benefits. James Tobin advised George McGovern, the US Democratic Party’s 1972 presidential candidate on the latter’s proposal to pay a ‘Demogrant’ (basic income) of $1,000 a year.
Philippe Van Parijs’s celebrated (1991) article Why surfers should be fed injected a philosophical dimension into the debate. He argued that there was a case for feeding those who spent their days surfing off Malibu beach. He saw a philosophical equivalence between ‘Crazy [who] is keen to earn a high income and works a lot for that purpose. [And] Lazy [who] is far less excited by the prospect of a high income and has decided to take it easy’. He suggested that the decision to work hard to earn a high income is purely a personal preference, that deserves no more weight than the preference of those who choose to surf or indulge in some other form of leisure instead of working.
Van Parijs declared that the introduction of a basic income would be an instrument of ‘real freedom’. He suggested that the government should underpin the theoretical right to choose one’s way of life by offering financial security to those who choose not to work, and instead spend their days surfing. Van Parijs’s arguments stimulated lively academic debate. Not least on the grounds that he had failed to distinguish between leisure through choice and involuntary leisure due to unemployment, sickness and disability.
The current social security system retains many of the key features of the model recommended by Beveridge. The welfare system has changed since it was established in the light of circumstances, new priorities and the growth of the economy. But means testing and the contributory principle have remained at the heart of the system.
Help was available for those who were unable to work because of infirmity or old age. Workers were insured against the risks of sickness and unemployment, and poverty in old age because they or their employer had paid their national insurance stamp while they were working. In the immediate post-war period, employers and the self-employed literally had to purchase national insurance stamps from the Post Office to affix to national insurance cards. The self-employed were legally obliged to purchase them by midnight of the Saturday of each week of self-employment!
The ability to draw contributory state benefits, such as the retirement pension, is based on the prior payment of national insurance contributions. Tax credits and universal credit are non-contributory, but means tested. Means testing is based on verifiable personal information about the claimant, such as their age, relationship status, health or disability, and their earnings and capital resources. In contrast, a basic income would be paid on an unconditional basis to all of those who are citizens or legal residents.
Guy Standing (2018) has passionately argued for the introduction of a basic income on the grounds that, despite decades of economic growth and rising incomes in the post-war period, ‘inequalities have grown remorselessly, while millions of people in the UK have wallowed in impoverishment’. But there has been a substantial increase in support for pensioners and those of working age, and for children. One of the fastest growing areas of social security in the last 40 years has been expenditure on benefits for those of working age. The £96bn spent on them in 2017/18 was greater than the amount spent on education, defence and policing combined.
Some 1.8m households get more than 80% of their income from benefits. A third of working-age households get tax credits or universal credit. The introduction of child benefit has reduced the number of children living in poverty. There has been a reduction in the number of pensioners living in poverty because of improvements in the state pension and the introduction in 2011 of the ‘triple lock’. (The basic state pension is annually increased by a minimum of either 2.5%, or the higher of the rate of inflation or the growth in average earnings.)
The social security system is capable of being improved. Complexity and fear of intrusive means testing discourage many from taking up the help that is available; others are discouraged from seeking better paid roles or working longer hours. The campaign to introduce a basic income has been boosted by the crippling problems and complexity associated with the most recent reform to the system, namely the introduction in 2011 of the universal credit, which has been plagued from its inception by IT problems, massive overspends and administrative problems. It is practically guaranteed a chapter in any future edition of The blunders of our governments (2013).
There is some justice in Standing’s claim that the roll out of the scheme across the country has spread growing ‘anger and hurt’ and that is ‘a mean-spirited policy coloured by arbitrary sanctions and stigmatisation’. Universal credit has caused some claimants severe hardship. Poor policy design, over-hasty implementation and arbitrary cuts to increases in benefit payments have undermined a programme that was supposed to have improved the efficiency and efficacy of the delivery of benefits to those of working age.
The government has recently announced changes to the scheme and pledged £3bn to ease the impact on those transitioning from the former arrangements and tax credits to universal credit. New claimants won’t benefit from this protection. And some 3.2m vulnerable working families will lose about £2,500 a year compared with the old system. If people’s circumstances change or if they come off benefits and then go back on them, they will lose this transitional protection.
Those who advocate the policy argue it would have many advantages. It would remove or mitigate the inefficiencies caused by the interaction of the social security and income tax systems; and promote a more flexible labour market by permitting the repeal of minimum wage rules, enabling workers to price themselves into employment.
A basic income scheme could also increase the incentive to undertake employment by eliminating or ameliorating the ‘poverty trap’ which currently entitles those on benefits to keep only a small fraction of any additional income, or causes them to lose a suite of benefits if they earn or work more than a specified level. The claw-back rate has been reduced under universal credit, but it is still 65%, and income tax and national insurance can increase the cumulative marginal tax rate to 76.2% (Atkinson, 2015). The only comparatively high marginal rates in the income tax system are faced by those with incomes between £50,000 and £60,000 who are within the scope of the high income child benefit charge, and by those with incomes between £100,000 and £123,000 whose personal allowance is withdrawn.
Other advantages of a basic income scheme include:
Many of the theoretical merits of a basic income are debatable or only valid under specific assumptions. The policy looks less attractive when its political and practical feasibility, fiscal cost and behavioural risks are taken into account. As noted below, it would be ‘impossibly expensive’ (Kay, 2017) to provide a basic income at a level that would enable it to be an alternative to low-paid employment or, for that matter, to the existing social security system.
A basic income would not be an effective tool for reducing poverty compared to the existing means tested system unless it was paid at an extremely generous rate. Payment of a basic income on a universal basis and at a uniform rate to all citizens and legal residents implies that they have identical needs. It ignores that people have different needs, varying with age, health and other personal circumstances. For example, many people with disabilities incur extra costs for food, heating, mobility and personal care.
Means testing and conditionality enable the existing system to tailor the level of support provided to the personal circumstances of individual claimants. The payment of a basic income to all individual adults may be commendable on the grounds of equality. But it is a poor instrument for alleviating poverty. For example, it takes no account of the economies of scale available to those who are cohabitating in the cost of housing and heating bills. The economics of a household differ from those of an individual, while there are wide variations in the cost of housing and accommodation across the country.
If the support currently provided through the means tested housing benefit is taken into account in setting the level of the basic income, the bulk of the assistance would end up in the hands of those who aren’t currently eligible for the benefit. Current claimants who live in areas where rents are low would enjoy windfall gains. But claimants who live in expensive areas would be deprived of the support they need and had previously received. It would be necessary to retain housing benefit or to make means tested supplemental payments to those who need help with their housing costs alongside the basic income.
The complexities of eligibility requirements for claimants of social security are necessary to identify those in special need, and to ensure that payments are made only to them. The identification or ‘tagging’ of those in special need requires potential beneficiaries to apply for the benefits appropriate to them. They have to provide information about their personal circumstances for the assessment of the benefit to which they are entitled. In contrast, with a basic income scheme, a payment is made at a uniform rate to all citizens, whether they need it or not on the assumption that everyone has the same needs.
The possession of an adequate income or wealth would undoubtedly improve an individual’s well-being, standard of living and prospects. The Centre for Social Justice (2018) has argued that the payment of a basic income wouldn’t necessarily alleviate poverty, because ‘poverty is not just an income problem’. The lack of income and wealth are
symptoms
, not the causes of poverty. The roots of poverty are non-financial. They include lack of education or marketable skills, joblessness, divorce and family breakdown, alcohol or drug addiction and debt. The Brookings Institute (2016) noted that: ‘In the end, the biggest problem with a universal basic income may not be its costs or its distributive implications, but the flawed assumption that it cures all’.
The introduction of a basic income would undermine a key principle of the Beveridge report, namely that: ‘Social Security … starts from a diagnosis of want.’ Beveridge highlighted that it was more efficient and economical to direct resources to those in greatest need and at the causes of poverty, rather than to distribute money to everyone.
Policies and programmes to alleviate poverty and assist those in need involve trade-offs because of the scarcity of resources. The corollary of untargeted payments is the need to impose high marginal rates of taxation to fund the payments that would have far-reaching significant economic consequences.
The introduction of a basic income would not alter the underlying nature of jobs available in the economy or the current unequal distribution of employment in the economy between individuals and regions and competition for the best roles. The substantially higher level of personal taxes necessary to fund anything but the most token level of basic income could reduce the aggregate level of employment.
Advocates of basic income often argue that it would augment low wages and enable people to price themselves into jobs they might not otherwise be able to take up. But it could undermine rather than enhance low-paid workers’ bargaining power. Some businesses might choose to pay their employees barely more than minimum wages. They could take advantage of the fact that their employees could maintain their standard of living with their basic incomes.
Changes in people’s incomes influence their decisions. Not just about their ability to consume additional goods and services, but also about how much leisure they can afford. Highly motivated individuals, particularly those undertaking jobs they find interesting, might continue working as hard as they did. But those in unattractive precarious, low quality jobs might reduce the hours they work or, if they can now afford it, leave the labour market altogether even though work is often the best route out of poverty.
The reduction in their labour supply would increase wages for such roles in the short to medium term, and in the longer run, it would give employers a greater incentive to automate. The availability of a guaranteed full basic income could potentially have other far-reaching decisions. It could influence life events such as the timing of retirement, education and training and child bearing and child-care.
The introduction of a scheme that would pay an unconditional guaranteed income would torpedo the ‘contributory principle’ that underpins the Beveridge welfare state. The basic income approach flies in the face of post-war consensus in the Beveridge model predicated on the basis that: ‘The state should offer security for service and contribution. The state, in organising security, should not stifle incentive, opportunity, responsibility; in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than the minimum for himself and his family’ (Beveridge, 1942).
The argument that the receipt of a basic income would encourage individual effort is in fact an assumption about the likely behavioural impact of the guaranteed receipt of a minimum level of income. It could just as easily lead to indolence and lack of effort on the part of some of those it is intended to help.
The introduction of a basic income is not the only way of addressing the risks to the employment market from increased automation. It would be widely perceived as an expensive recipe for destroying the work ethic. Many people derive meaning and satisfaction from their work, even if they are not in well-paid or glamorous roles.
It would be more economical and efficient for the government to provide the work force with the lifelong training and development they need to increase their flexibility and maintain their future employability. It could increase its support for University Technical Colleges whose graduates are in high demand by employers. It could cherry-pick from the innovative measures introduced by other countries to address the same problem. For example, it can take a leaf from the Danish government’s book and introduce so-called ‘flexi-security’. This would allow employers to dismiss employees provided they contribute to generous social security and mandatory lifelong learning for future roles for those displaced by automation.
Basic income was often mooted as a plan to replace all or most existing state benefits by a single payment. The cost of introducing the scheme would obviously depend on the level of the payments made to individuals. It is possible to reduce the cost of implementing a basic income scheme by restricting eligibility. The payments could, for example, be made only to working age adults, or at differential levels to different categories of citizens. But such changes would undermine the universality and simplicity of the scheme; they would necessitate greater bureaucracy.
The Centre for Social Justice (2018) has estimated that it would cost about £670bn a year if a basic income was paid at a level equal to the current income poverty level, £16,320 to all working age adults aged between 16 to 64 years. The cost would represent more than 80% of total current UK public spending, even before taking account of the cost of setting up the system and its annual maintenance and running costs.
It is not possible to fund a basic income simply by diverting current spending on social security and abolishing income tax personal allowances. The entirety of the UK social protection and services budget (about £283bn in 2018/19) would not be available to defray part of the cost of funding the scheme. Some £96.5bn of it relates to the provision of the state pension (which is paid on a contributory basis) and £11.5bn to the payment of child benefits. The abolition of income tax personal allowances would ‘save’ (they are in fact treated as tax foregone rather than public expenditure) £107bn.
The government would have to raise the balance of the cost of the basic income payments, some £388bn by substantially increasing taxation on earnings and other income. To put this funding need in perspective, the total revenues from income tax, national insurance contributions and VAT for 2018/19 are forecast to be about £455bn.
The share of GDP required to fund non-welfare related public expenditure (the NHS, education, defence, police) is currently about 25%; social security absorbs about 15% of GDP. James Tobin (1970) devised a formula that expresses the trade-off between the level of basic income and the tax rate as a proportion of GDP on all other income necessary to finance it. He said that if the existing level of government expenditure is x per cent, then a basic income (he called it a demogrant) equal to y per cent of average income would require a tax rate of (x + y).
If the basic income were set at 25% of average income (about £7,000), it would be necessary to levy an average rate tax of 50% on all other income. But this level of income would not be sufficient to replace the current level of social transfers to some benefit claimants. Some households receive a relatively high level of benefit payments. The Coalition government introduced a ‘benefits cap’ in 2013 (apparently in response to tabloid and media stories about the lifestyles of some benefit recipients). It is designed to prevent households from receiving benefits in excess of the median income (then £26,000); the limit for single persons was set at 70% of median income. The cap was applied to some 59,000 cases in its first year.
It would be necessary to offer additional support to those whose personal circumstances currently entitle them to receive more than £7,000 a year. That is to say, the basic income scheme would have to be operated alongside tax credits and universal credit. The basic income scheme would be redistributive, but it would merely ameliorate, not eliminate the impact of means testing. The need to operate three separate systems to relieve poverty could hardly be characterised as a simplification.
The nature, timing and level of any taxes increased or introduced to fund the basic income would have distributive, allocative and behavioural impacts. The government would not be able to raise the funding necessary to introduce a basic income by simply increasing taxes on the wealthy and multinational companies, and tightening the rules to combat avoidance and evasion.
There would have to be significant increases in the rate of income tax and national insurance contributions on earnings. The government would probably also need to raise VAT and corporate and capital taxation. Higher levels of personal and corporate taxation would reduce the savings ratio, and diminish the investment necessary to increase productivity and economic growth.
High marginal rates of personal taxation would damage the incentive to work of those whose tax payments currently fund the state and encourage tax avoidance. About 90% of all income tax is paid by the 50% of taxpayers with the highest incomes, and more than a quarter of the total is paid by the richest 1%. It would be short-sighted to ignore how they might react to the prospect of substantially higher income tax rates to fund benefits that are currently at least partially funded by contributions by all those who are in receipt of earnings.
The bulk of public spending goes on the delivery of public services such as health, education, defence and transport. The government provides public goods for which there would be inadequate or no provision by the market economy. In contrast, government expenditure on the provision of a basic income would constitute transfer payments ; they would not contribute to current marketable output. In the same manner as existing social security payments, they would transfer purchasing power. Their main purpose would be to redistribute personal income.
Advocates of basic income and other policies that would substantially increase the level of transfer payments to reduce income inequality often imply that the net effect of such policies would be neutral. They argue that gains and losses across the population add up to zero. They ignore the fact that the government would need to reduce public expenditure on goods and services or increase taxation or government borrowing or both in order to fund higher transfer payments. Higher levels of personal taxation would have behavioural impacts, including changes to the incentive to work, personal consumption patterns and investment decisions.
The UK government would be unable to enact a UK-wide basic income without the formal approval of the governments of Scotland, Wales and Northern Ireland. Unlike universal credit, tax credits, the state pension and child benefit, which are delivered on a UK-wide basis, basic income is not a ‘reserved matter’ under their constitutional settlements. The introduction of a basic income in England could mark the end of a predominantly UK-wide social security system. It would almost certainly lead the territorial governments to demand increases in their block grant funding to establish their own arrangements.
The Scotland Act 2016 gave the Scottish government responsibility for various smaller social security measures. It is also due to be given devolved powers over certain elements of universal credit. The Scottish government is keen to introduce its own basic income scheme. It has committed £250,000 of funding for four local authorities to conduct feasibility studies and develop UBI pilots. If the Scottish government decides to press ahead with its own basic income scheme, it would have to fund it out of its block grant, its share of VAT receipts and the revenues from its devolved taxes.
There is no existing government or private database with details of all UK citizens and legal residents. It would be necessary to create a comprehensive database containing the authenticated names, dates of birth, addresses and banking details of potential beneficiaries of basic income. Some of this information is contained in the IT systems used by HMRC to deliver tax credits and child benefit, and the Department of Work & Pension’s (DWP) universal credit and legacy IT systems. These discrete systems often have little or no interaction with each other within departmental boundaries, let alone with other government departments.
Departments don’t always have the ability to share the information they collate with other government departments. Because of the stringent requirements of taxpayer confidentiality, it would be necessary to enact legislative ‘information gateways’ to enable the government department that draws the short straw for implementing UBI to obtain access to data held on HMRC’s systems.
DWP would almost certainly draw the short straw if a future government chose to implement a basic income scheme. It has a patchy track record of delivery. In 2018, Computer Weekly published a leaked internal document from DWP. It stated that DWP’s ageing IT infrastructure had left it with ‘a legacy of expensive, difficult-to-change systems providing marginal benefits’.
HMRC has considerably more IT and delivery expertise than DWP. It deals with the largest number of citizens and residents through the national insurance and PAYE service (NPS). But if HMRC were given responsibility for designing and delivering basic income, it would detract it from performing its core role of collecting tax.
Any new database containing the sensitive personal details of all British citizens and legal residents would attract the same opposition as the Blair government’s proposals for a national ID card. It would be characterised as ‘big brother’. HMRC, NHS and the Home Office would demand access to the system for their own purposes, as would the police and security services. The territorial departments and local authorities would wish access to data relating to those residing within their jurisdiction. The valuable personal data it would hold would make the database a honeypot for cyber fraudsters and hackers.
The introduction of an unconditional basic income would be characterised as giving people ‘money for nothing’. It would undermine the reciprocity in the relationship between citizens: their duty to contribute to society if they expect society to contribute to them. Proponents of basic income point out that the Beveridge report was implemented at a time when there was economic growth and full employment. It is difficult for workers to contribute to society when the labour market is increasingly dominated by job insecurity, low wages, and the growth of temporary, part-time or poor quality roles. They argue that introduction of a basic income offers better scope for rebuilding the relationship between the citizens and the state.
Tony Atkinson (1996, 2015) has a proposed version of the basic income in which there is an explicit reciprocity between the recipients of a participative income and the state. The payment would be contingent on active social participation, rather than passive citizenship and legal residency. Participation would be defined as employment, self-employment, education or training, job search, caring for children or older or disabled people, and voluntary work.
Atkinson’s ‘participative income’ would complement, not supplant the existing social security transfers. It would involve more administration than a basic income scheme. But participative income would not require any means testing of income or wealth. It would also reduce the number of people who received social security. Those who chose to devote their lives to leisure, such as Van Parijs’s surfers in Malibu would pointedly not qualify for a participative income.
There would have to be a fundamental change in prevailing social attitudes to welfare before a government was able to introduce a basic income scheme. Opinion poll surveys suggest that there is support for providing help to low income households with dependent children, and to those suffering from disabilities. But there would be considerable political resistance to the payment of support to able bodied individuals of working age on an unconditional basis.
The electorate isn’t stupid; it would know that those who pay income tax are the main source of funding the scheme. It would know that the introduction of a universal basic income would entail large increases in personal taxation for many of them. They would lose their tax personal allowances (which are worth up to £5,000 a year for those who are liable to tax at the higher rate of 40%), and they would face substantially increased personal taxation on all their other income.
Basic income would be ‘inefficient, wasteful and costly’ (Paichaud, 2016), not to mention politically controversial, uneconomic and unfocused.
It would be more effective in redistributing income than it would be in providing social security to those in need more effectively than tax credits and universal credit.
Its unpopularity with those who would suffer the greatest losses through the loss of their personal allowances and higher taxation could harden their electoral attitudes about supporting people in need.
A basic income would help people to avoid becoming ‘complete wage slaves and in facilitating an opt-out of the economic struggle for those willing to live on modest means. But, alas public opinion is not yet ready to make such transfers to those to whom it regards as work shy’ (Brittan, 1998).
