Universal Basic Income: simple solution to a complex conundrum?

William Craig surveys the arguments and evidence on a topical subject

The enormous upheaval caused by the pandemic has forced us to look at our society as never before and to ask questions about how we interact with each other. Of all the questions, the most overarching one is this: how do we deliver fundamental support to all our citizens when and where they need it? The Westminster government has introduced a series of schemes for personal and business support (see Prem Sikka’s article, this issue), some more practical and, thus, successful than others. It is arguable that, more than any other issue, the supply of spendable cash to individuals and turnover liquidity to small businesses have been amongst the most important aids delivered, especially in smaller communities, where economies of scale and readily available infrastructure are less apparent.

In this context, many commentators from a wide variety of political backgrounds have renewed their interest in the case for introducing some form of universal basic income (UBI) for all citizens in Scotland and further afield. Many see that the case has been strengthened significantly by the coronavirus pandemic, and the strains placed on our overly bureaucratic tax and welfare system. The implications apply to everyone, rich and poor alike and so should the solutions.

The proposition is both a socialist one and a green one, and one which would be acceptable to Gramsci, my arbiter for nearly all social policy dilemmas. It is that, like education, clean water and air, a basic income, which is enough to supply minimum needs should be freely provided by the state to every adult citizen, adjusting existing social security and other means-tested benefits but preserving disability payments and child allowances. This basic income would be a right for every citizen. Income derived from work or entrepreneurial endeavour would then be the just reward of each person for industry and effort, and taxed by the state accordingly.

A more radical view of basic income is that it is the manifestation of the right of every citizen to a share in the prosperity and productivity of the nation, though this idea could not be enshrined in law as our country is without a written constitution. In Scotland, with a productive economy producing around £70bn annually, the idea of paying out around £5,000pa by way of a dividend to citizens each year could be argued as being a modest return, and an efficient way of delivering it.

UBI, citizen’s income and basic income guarantee are some of the best known and widely used terms for the concept of having a governmental public program for a regular payment delivered to all on an individual basis without means test or work requirement, a form of social credit payment. I will use the generic term ‘basic income’ as a cover all. The payment made in such schemes are:

• Unconditional, and could vary with age from 16, but with no other conditions. Under 16s would be covered by child allowances, and pensioners would be taxed on income above UBI. All people would receive the same basic income, whatever their gender, employment status, family structure, contribution to society, fixed overhead costs, or anything else.
• Non-removeable, and would not be means-tested. It is deemed irrelevant if earnings increase, decrease, or stay the same. The basic income will not change and cannot be removed.
• Individual, and would be paid on that basis, not on the basis of a couple, household or family group.
• Non-assignable, payments would be a cash payment to the named recipient and not able to be assigned to any third party; landlord, spouse, debt-collector. It would be paid into a bank account or paid in cash at a post-office.
• As a legal right, every legal resident would receive a basic income, subject to a minimum period of legal residency and continuing residency for most of the year on the same basis as tax residency.

What are the advantages? An unconditional basic income would enable workers to wait for a better job or negotiate better wages. They could improve their marketability by going back to formal education. It would also allow individuals to leave employment, or full-time employment, to care for a relative. It would remove the perceived problem that welfare systems keep people ‘trapped in poverty’. A simple cash payment would also cut down on bureaucracy as it would have 100% uptake at minimal cost. The money paid out would tend to be spent locally, and to generate economic activity in communities. Basic income has a direct effect on child poverty and helps bridge the pension-earnings gap which is at its greatest in Britain when compared to other EU members. And, some countries are concerned about falling birth rates. A guaranteed income would give young couples the confidence they need to start a family. Finally, from a macro-economic viewpoint, it would give society much-needed fiscal ballast during a recession.

What are the disadvantages? If everyone suddenly received a basic income, some fear it would create inflation. Most would immediately spend the extra cash, driving up demand. Retailers would order more, and manufacturers would try to produce more. Where they couldn’t increase supply, they would raise prices. Higher prices would soon make the basics unaffordable to those at the bottom of the income pyramid. In the long run, a guaranteed income would not raise their standard of living. Some say a guaranteed income that’s enough to eliminate poverty would be too expensive and if everyone received a free income, it might remove some of the incentive to work hard.

So, what do the experimental trials tells us? The world’s most robust study of UBI has concluded that it boosts recipients’ mental and financial well-being, as well as modestly improving employment. Finland ran a two-year universal basic income study in 2017 and 2018, during which the government gave 2000 unemployed people aged between 25 and 58 monthly payments with no conditions.

The payments of €560 per month were not means-tested and were unconditional, so they were not reduced if an individual got a job or secured a pay rise. The study was nationwide and selected recipients could not opt out of the measure of the employment and well-being of basic income recipients against a control group of 173,000 people who were on standard state benefits.

Between November 2017 and October 2018, people on basic income worked an average of 78 days, which was six days more than those on unemployment benefits and there was a greater increase in employment for people in families with children. These findings suggest that basic income does not seem to provide a disincentive for people to work.

UBI can be implemented nationally, regionally or locally. An unconditional income that is sufficient to meet a person’s basic needs is sometimes called a full basic income while if it is less than that amount, it is sometimes called partial. Where the level is set will depend upon economic strength and in that sense must be ‘affordable’. However, this would be a judgement for economists in relation to overall economic policy. A welfare system with some characteristics similar to those of a UBI is a negative income tax, often favoured by right-wing economists – like Milton Friedman – in which the government stipend is gradually reduced with higher labour income. Some welfare systems are regarded as steps on the way to a basic income but, because they have conditions attached, they are not basic incomes. If they raise household incomes to specified minima, they are called guaranteed minimum income systems. For example, Bolsa Família in Brazil is restricted to poor families, and thus means-tested, and the children are obligated to attend school as a condition of receipt.

Closer to home, there has been growing enthusiasm for at least trialling a UBI in some parts of Britain with Brighton and Hove council recently being put forward as a trial subject and a petition calling for the council to request a trial in co-operation with the Westminster government has attracted widespread local support. Moves are afoot in Liverpool, Sheffield and Hull for similar local initiatives, and this form of local action shows enthusiasm for such new ideas in much the same way as Bristol has championed the idea of a local currency, the Bristol Pound which has been successfully trading for nearly eight years.

Indeed, our own First Minister has become an enthusiast for such a system but sees it would require the cooperation of the Westminster government to be able to be run effectively, perhaps as a pilot, in Scotland. A recent report from Reform Scotland, a non-party thinktank, suggested adults could be given £5,200pa – £100 per week but would lose the personal tax allowance as a consequence. Thus, as a standard basic rate taxpayer in employment or self-employment, you lose £2,500 and gain £5,200 per year. A net improvement with no administrative complexity. Reform Scotland said the scheme would cost the Scottish government £20.4bn pa but suggested raising over £18bn through scrapping personal tax allowances alongside some traditional, means-tested benefit payments such as the fatally flawed Universal Credit. This as currently envisaged would leave a funding and affordability gap of £2.4bn per year in Scotland. This can be filled by either raising tax on earned income, by cutting expenditure in other parts of the budget, or by reducing the basic income by around 12% to £4600 or £88 per week. Obviously, a combination of these solutions could achieve an equitable result but at the cost of administrative complexity.

It is useful that the evaluation of the Finnish study is now available and is being examined by the EU Commission, and a variety of governments across the world including policy-makers at Westminster and Holyrood. The Finnish trial was the world’s first UBI experiment that was spread across a nation, statutory and based on a field experiment. As participation was not voluntary, it is possible to draw more reliable conclusions about effects of the experiment than is the case when based on voluntary participation.

Generally, recipients were more satisfied with their lives and experienced less mental strain than the control group who were excluded from the trial. They also had a more positive perception of their economic welfare. Participants were more satisfied with their lives and experienced less depression and sadness. They also had a more positive perception of their abilities; memory, ability to concentrate and to learn new skills. For some, the experiment offered new opportunities of participating in society for instance through voluntary work or informal care and seems to have increased activity of different kinds among those who were already active. However, for those who were in a challenging life situation before the experiment, the basic income does not, in and of itself, seem to have solved their problems.

Gramsci’s concern that in developed economies, without fundamental revolutionary change, the bourgeoisie simply expand to absorb those workers who are able to marginally improve their condition, is addressed in both the idea and practice of UBI. As a dividend share in the state’s wealth as of right, it is a revolutionary concept, but also as it is universal, automatic, and equal for all citizens it gives relative economic power to the poorest unconditionally.

For more on Finnish trial: https://www.newscientist.com/article/2242937-universal-basic-income-seems-to-improve-employment-and-well-being/#ixzz6M8Da4Ael

William Craig is a retired law academic having worked at the University of Aberdeen (1991-2008) and Robert Gordon’s University (RGU, 2009-2017). He was the Universities and Colleges Union (UCU) branch president at RGU and served on the union’s Scotland Executive.