Short Read

Shaking the money tree: a Universal Basic Income?

Having featured in several high-profile trials across the world over the last few years, what is a universal basic income and could we ever see its implementation? 

In a highly automated world with few human jobs what would we do to get by? Although this is still a scenario far on the horizon, the threat of automation of work and the bifurcation of the labour force into “safer” non-routine and “less safe” routine jobs within the next 40 years is very real. A 2013 study conducted by Carl Benedikt Frey and Michael Osbourne of Oxford University concluded that 47% of jobs in America were at risk of being automated within the next few decades. 

One possible solution which has gained traction in political spheres over the last few years is the idea of a Universal Basic Income (UBI). The concept is simple: a guaranteed, non-means tested cash handout to every adult citizen in a country. However, the suggestion of a UBI isn’t really anything new. Thomas Paine, one of the US founding fathers, affirmed his approval of a welfare system which would promise every citizen a fixed income in 1797. Then, during the 1970s, US Republican president Richard Nixon attempted to pass a negative income tax bill – a social welfare policy similar to UBI – but failed to get the approval of Congress. After a quiet few decades it has now drifted back into discussion and debate – mostly in Europe.  

In 2016 Switzerland held a referendum on UBI’s implementation, yet 76.9% voted against the measure. Nonetheless experiments and trials on local and regional scales have and continue to take place. The most famous of which recently has probably been in Finland, although nascent schemes have been tested in Canada, Kenya, Italy and India too. Moreover, British politicians are beginning to give the policy some thought. Nicola Sturgeon, First Minister of Scotland, has claimed that the Scottish Government remains open-minded about UBI; whilst just last week Shadow Chancellor of the Exchequer John McDonnell said that Labour was seriously considering to add the promise to launch several pilot schemes in Liverpool, Sheffield and the Midlands to its party manifesto for the upcoming General Election. Additionally, in the US, current Democratic candidate hopeful Andrew Yang’s signature policy is a $1,000 per month payment for all adult citizens. Meanwhile in her 2017 autobiography, Hilary Clinton reflected that she almost ran for presidency with the idea of a UBI for all Americans.  

But what is the actual reasoning behind the concept of introducing what many see as a radical and enormously expensive shake up to current social safety nets? Well, one argument is that it could help reduce factor immobility and hence ameliorate structural unemployment. Structural unemployment – job losses caused by a fall in demand for your set of skills in the economy – has been a particular problem in developed countries over the last few decades. Although millions of US consumers have benefitted from cheaper goods thanks to international trade growth, some workers have lost out having had their job outsourced to Mexico or Asia. Therefore, in combination with the effects of automation growth, there are many western workers left long-term unemployed or underemployed because of a lack of transferrable skills. With a UBI, such people could rely on a steady and guaranteed source of income which hopefully would facilitate and incentivise their investment in retraining their skillset so that they are able to get themselves back into the labour market and move up the income ladder.  

Additionally, UBI’s proponents suggest that it could encourage entrepreneurship (and productivity growth!) as people will have the knowledge of a safety net to fall back upon. Similarly, the idea of a safety net may allow people to spend more time to care for loved ones and will reduce the stress for those working in the gig economy. Some even propose that UBI supports real freedom by giving us the resources to carry out our will. 

UBI would also hugely simplify and improve the current UK social welfare system. By packaging all payments into one lump sum, error and cost of means-checking immediately disappears. More importantly however it would eliminate the disincentivising effect of losing income to tax and withdrawn work payments which may stop people in work wanting to increase their earnings or discourage people from being in paid work at all. Ultimately there is still a problem with in-work poverty in the UK where 60% of people in relative poverty live in working households – UBI could certainly go a way to alleviating this. 

Nonetheless the fundamental problem is cost. Andrew Yang’s idea of paying $1,000 per month to an adult population of just over 253 million would clearly be beyond incredibly expensive, even with the counterbalancing gains in productivity, employment prospects and work incentives. It is of course dependent on the level of the monthly payment, yet, as summed up succinctly by Dr Luke Martinelli of Bath University, “an affordable basic income would be inadequate, and an adequate basic income would be unaffordable.” The removal of all existing benefits would cut costs, but essentially a combination of further cuts and increased tax rates would be required.  

Ultimately, although some of the trials have shown positive results such as improvements in mental wellbeing and time children spend at school, further experiments are required to gain more conclusive proof of the benefits of UBI and to better its design, implementation and cost effectiveness. Free money for all is a catchy idea but it doesn’t grow on trees. 

1 comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: