David Adams 8 Feb 2017 09:30am

Could a universal basic income work in the UK?

As the cost of living outstrips the rise in wages, and the welfare state creaks under the strain, David Adams looks at the concept of basic, or citizen’s, income, and asks how it will work and if we will ever see it implemented in the UK or elsewhere

Caption: David Adams looks at the concept of basic, or citizen’s, income, and asks how it will work.

There are a number of different ways one might structure and fund a basic, or citizen’s, income. In essence the idea is that every individual would receive an unconditional income as a right of citizenship. It would probably vary with age, but everyone of the same age would receive the same income, regardless of gender, family structure, employment status, wealth or (although this may be a major stumbling block in countries like the UK) housing costs.

Those who back the idea – and they include advocates from across the political spectrum – say it could advance social justice and replace existing, often inefficient and sometimes counterproductive, welfare and means-tested benefits systems. It could address the way tax and benefits systems discriminate against those (often women) who do not work full-time throughout their working life. It might also mitigate the effects of advances in automation that will eliminate some jobs.

But could the practical, political and cultural obstacles that stand in its way be overcome? And is there a chance we will see it implemented, within the UK or anywhere else, in the foreseeable future?

The basic income is under consideration, in different forms, in various parts of the world. A pilot scheme will run in Finland during 2017, paying participants between €500 and €700 per month. There may also be a pilot scheme in France within the next two years. And in June 2016, Swiss citizens voted in a referendum on a proposal to introduce a citizen’s income. They rejected an open question on the ballot paper by a large margin – a result of 77% against – but the vote might have been closer, some say, if supporters had not suggested it should be set at a very generous SFr2,500 per month (about £1,755).

If a basic income were ever introduced in the UK it would be at a much lower level. The Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA), published a report backing a basic income in December 2015. It proposed a model that would cost the equivalent of 1% of GDP, and pay (based on 2012/2013 prices) £3,692 per year to citizens aged 25 to 65 and a pension of £7,420. Children aged up to four would receive £4,290, for an eldest child, and £3,387 for younger siblings, with the income then dropping to £2,925 per year for people aged between five and 24.

The Citizen’s Income Trust (CIT) has campaigned for the introduction of a basic/citizen’s income for over 30 years and is part of a European network of similar organisations (BIEN). In 2016, CIT director Malcolm Torry wrote a report for ICAEW considering four possible models for implementation of a citizen’s income (see also p.74).

The first was a “big bang” introduction of payments generous enough to replace all means-tested benefits and ensure no household incurred financial losses under the new system.

Second, a model funded by the current tax system and implemented alongside existing means-tested benefits. This would pay working age adults about £60 per week.

Third, a model to be phased in very slowly by introducing the citizen’s income for all 16-year-olds, year after year. They would not have a personal allowance for income tax or a lower threshold for National Insurance (NI) contributions.

And finally, a voluntary model inviting those aged between 60 and retirement age to join a pilot scheme, again giving up income tax personal allowances and a NI lower earnings threshold.

Of the two models that would introduce the basic income in the shorter term, Torry’s conclusion is that the first would not be economically or politically feasible at present, but that the second could be, “if a government were to conclude that, once implemented, the citizen’s income scheme would be popular”. That might be a big “if”, of course.

The only political parties in the UK with a policy to introduce a basic income do not currently have any chance of implementing it. The Green Party would introduce a basic income of roughly £80 per week for working age adults, while abolishing most benefits, except for disability benefits and a new version of housing benefit.

This could be funded in various different ways, according to Jonathan Bartley, co-leader of the party and its work and pensions spokesman. He suggests significant funds could be raised through more progressive taxation, abolishing most existing benefits and income tax allowances, altering National Insurance contributions and some tax reliefs, and replacing existing state pensions with a non-contributory citizen’s pension.

“[It] would avoid the poverty trap in which an increase in wages leads to a massive loss of benefits,” he says. “It would reward people for all the work done outside the formal economy, and most of this work is done by women.” It is, he insists, “an idea whose time has come”.

Meanwhile, in March 2016 the Scottish National Party (SNP) Conference backed a motion stating that a basic income could “provide a foundation to eradicate poverty, make work pay and ensure all our citizens can live in dignity”. It also agreed that the basic income could be used within the welfare state of an independent Scotland.

The Green Party won’t be in government any time soon and there is not yet a date for another referendum on Scottish independence. But if Labour were to return to government within the next few years it is just possible the party will adopt the policy. In September 2016, a public debate on the basic income was held at the Labour Party conference and shadow chancellor John McDonnell also suggested it could indeed be an idea whose time has come.

On the political right, the basic income is seen as a way to remove much, perhaps all, of the existing benefits system. Sam Bowman, executive director of the Adam Smith Institute, points out that a basic income is very similar in practice to the Negative Income Tax proposed by Milton Friedman over 50 years ago.

Bowman suggests that a basic income could be a more effective mechanism for offering financial support to the lowest paid than the current in-work benefits system or a minimum wage. He would like to introduce it, or a negative income tax, as a replacement for almost all benefits, with the exception of disability benefit.

He would want to introduce these changes in a revenue-neutral way, but admits there would be losers as well as winners, particularly as he would recommend a lower income than the £60 or £80 per week envisaged by CIT and the Greens.

He is not overly concerned by the idea that some people might choose not to work at all as a result. “You probably would get some people who wanted a life of playing video games and living on £3,000 or £4,000 per year, but if you hate work so much that you’re willing to live a life like that, good luck to you!” he says.

Another factor forcing some to take the basic income seriously is the probable impact of increased automation in the workplace. Research conducted at the University of Oxford in 2013 estimated that as many as 47% of jobs in the US could be replaced by robots and automated technology over the course of the next two decades; while a 2016 report from the World Bank suggests automation could wipe out up to two thirds of all jobs in developing countries.

In his bestselling book Rise of the Robots: Technology and the Threat of a Jobless Future, US futurist Martin Ford argues that automation threatens many white collar, as well as blue collar, jobs; and outlines his fears that this could lead to a complete restructuring of society. Such ideas also tie in with the warnings made by economist Thomas Piketty in his book Capital, about the economic and social consequences of a deeply unequal capitalist system.

At ICAEW, interest in the basic income is closely related to the changes that automation is bringing to the world of work, with debate on the feasibility of such a scheme forming part of a broader programme on the future of work and society, according to head of sustainability Richard Spencer.

“At the moment we tend to value people based on whether they work or not,” he says. “Yet in the future, artificial intelligence and technology could mean there simply won’t be work for everyone. But rather than seeing these developments as leading to ‘the end of work’, do we need to enrich our notion of work and change our vision of what makes people valuable?”

However, there is also a strong case to be made against the basic income – and plenty of reasons to suppose that it is unlikely to be introduced in many developed countries any time soon.

Dr Luke Martinelli, research associate for the Institute for Policy Research (IPR) at the University of Bath, is studying the potential fiscal and economic impacts of a basic income, asking whether it would be possible to control costs, ensure favourable distributional consequences for the poorest in society, maintain incentives to work, and simplify the existing system.

Feasibility microsimulations show that if these goals are to be achieved, taxes would have to rise considerably and elements of the existing benefits system would need to be retained, says Martinelli. But microsimulations looking at a system without means-tested benefits show “significant increases in poverty”, as some people lose out when those benefits are removed.

In a paper written for the Joseph Rowntree Foundation in 2015, Professor Donald Hirsch, director of the Centre for Research in Social Policy at Loughborough University, argued that implementation of the basic income in the UK would probably only be possible if there were “three seismic shifts in attitudes and policy”: an acceptance of the right to a guaranteed level of financial support from the state with no work-based conditions attached; an acceptance of substantially higher tax rates (“potentially 40% on all income, or at least 50% if means-tested housing support were to be abolished”); and perhaps also a reduced role for the state in ensuring support for the most vulnerable citizens.

For Hirsch, the two insurmountable problems are the lack of conditionality and the big increases in tax that would probably be needed to pay for the system. “It’s about peoples’ willingness to hand over a certain amount of money to people less well-off than themselves – or more well off than themselves,” he says. “If it’s politically impossible to put income tax up by 1p, then how will you be able to raise it by 8p, or 15p?”

As for the arguments put forward by Bowman, Hirsch says this would amount to “an incredibly harsh form of rough justice”.

“Some people would have severe needs that would not be met,” he says. “I don’t think that would be better than what we have now. I think we’d be going back to about 1800 in terms of the misery we would see.”

It is still possible that a government with a basic income policy will be voted into power somewhere within the next few years, insists Torry. Yet even he admits that the arguments against, from left and right, along with popular opinion, could make it very difficult to achieve politically. “The biggest obstacle is that we’ve been means-testing benefits for 400 years,” he says. “There’s still, in our minds, the idea that there are deserving and undeserving poor.”

“The idea you can receive a benefit without even pledging that you’re going to try to get a job precludes support among a lot of conservative-minded people,” says Martinelli. “Then, on the left, people may ask, why subsidise the middle class with a universal income? If we’re really concerned about alleviating poverty and prepared to spend billions on doing so, are there better ways of doing it?”

Of course, cultural beliefs are not set in stone. Martinelli says he cannot see a basic income being implemented in the UK in the foreseeable future, but that he can imagine a set of circumstances in which popular support for the idea might grow.

“It is plausible to suppose that more people, in circumstances of economic instability and with an archaic and intrusive benefits system, may find this idea more attractive in future,” he says. “But I wouldn’t bet on it.”

Torry understands why the odds are still against the introduction of a basic income. And yet, he concludes: “I suspect that sooner or later we’re going to need it.”