Could Universal Basic Income work?
By Donald Drysdale for ICAS
12 April 2018
If Universal Basic Income is regarded as Utopian, then Donald Drysdale is all for Utopia. Here he introduces the concept.
An opportunity for change
If the Scottish Government has its way, Scotland could find itself in the vanguard of a new social experiment which might have the potential to transform our society and dramatically simplify the UK’s beleaguered tax and state benefit regimes.
In its Programme for Government 2017/18 entitled ‘A Nation with Ambition’, published last September, the minority SNP administration in Edinburgh pledged that one of its next steps would be to explore a universal basic income (‘UBI’) or ‘citizen’s income’ by funding research into the feasibility of such a system.
In its purest sense, UBI involves government in providing an unconditional income to every individual citizen, regardless of age or circumstances, rather than on a household or means-tested basis. This radical concept has been gathering support globally. Variants of UBI are being trialled in the USA, Canada, Finland, Kenya, Uganda and Spain. Experiments are also likely in the Netherlands, France, Italy and now Scotland.
Work of the Citizen’s Basic Income Trust
The Citizen’s Basic Income Trust (CBIT) is a charity which promotes debate on the desirability and feasibility of UBI, having been studying the concept for more than three decades. In 2017 it published an explanatory booklet which serves as a useful introduction to key aspects of UBI.
The booklet identifies six fundamental ways in which UBI would differ from the UK’s existing tax and welfare arrangements. Legal residence would become the basis of entitlement, subject to a minimum period in the UK. The individual would be the unit for calculating tax and benefits; age, gender, marriage, civil partnership and cohabitation would be neither subsidised nor penalised.
UBI would not be withdrawn by reference to other income or assets owned, so reporting would be minimised; work (paid and unpaid) would be encouraged, and saving for old age would be more worthwhile. With no ‘availability-for-work’ rule, education, training and unpaid voluntary work would no longer be discouraged.
Access to UBI would be unconditional. Every citizen should find it easy to know their entitlement and their obligations, so take-up would be nearly 100%. UBI would be indexed to a measure such as GDP per capita rather than prices, to maintain an acceptable balance between the citizen’s basic income and the higher taxes needed to fund it.
Work of the RSA
The RSA (Royal Society for the encouragement of Arts, Manufactures and Commerce) is a 260-year old charity which exists to enrich society through ideas and action. In recent years it has promoted the concept of UBI, and in December 2015 it published a report ‘Creative citizen, creative state’ making the case for such a system.
The report claimed that there was a compelling case for introducing UBI in the UK, where the welfare state was no longer fit for purpose. It argued that UBI would help individuals to cope as technological progress caused under-employment, unemployment or the need for career changes. It would also create a society in which people could care for their relatives, friends and neighbours without having to account to the state for their actions.
Among questions addressed in the RSA’s 2015 report were whether implementation of UBI could be fiscally neutral, and whether distributional consequences of UBI would be appropriate and politically acceptable.
The RSA concluded that UBI was the best way to incentivise work at every income level. Compared with existing tax credits which involve marginal withdrawal rates around 80% at some low-income levels, even under the new universal credit, the UBI scheme they proposed at that stage involved no dramatic cliff edges.
This February the RSA published a further report entitled ‘Pathways to Universal Basic Income’. Instead of boldly proposing the implementation of UBI, this went off at a tangent by suggesting the creation of a Universal Basic Opportunity Fund (UBOF). This would fund every citizen under age 55 with a £5,000 ‘opportunity dividend’ for up to two years, taken at a time of their choosing over the course of a specified decade.
In my view, the UBOF proposal misses its target. Instead of pressing for a fundamental shift to a fairer, simpler tax and benefits regime under UBI, it offers a temporary measure that would likely be seen as complex and divisive.
Could we afford UBI?
Commentators wonder whether UBI would be affordable. Critics have either questioned its economic feasibility or argued that it is overly-simplistic and Utopian.
The RSA’s 2015 report claimed that the UK-wide scheme it outlined would cost approximately 1% of GDP – well within precedents established by some discretionary tax policy changes – although it had not addressed how pre-existing disability support and housing subsidies would be tackled.
CBIT suggest that UBI would effectively merge the income tax and benefits systems. UBI, paid automatically, would be recouped by levying income tax on all other income and by ending most means-tested benefits. Instead of different regimes for taxpayers and benefit claimants, UBI would treat everyone alike.
While UBI would be funded through higher taxes, even those paying these would receive UBI. However, for taxpayers and practitioners hoping for a simpler regime, the latest RSA report makes some alarming suggestions. These include an annual wealth tax of 1.2% on individuals' net assets over £700,000; a levy on the assets of the FTSE 350 companies; and a tax on usage of public data or on the transfer of data assets to online platforms and others.
Another RSA suggestion is that the UK might borrow £200 billion at current low interest rates to create a Sovereign Wealth Fund. However, I have to question whether interest rates will remain low for a post-Brexit Britain, and whether the necessary investment returns would ever materialise.
UBI in Scotland
The Scottish Government has committed £250,000 of funding for Edinburgh, Fife, Glasgow and North Ayrshire local authorities to conduct feasibility studies and develop UBI pilots.
This funding will be available to cover a two-year period from April 2018 and will help establish a Scottish evidence base, exploring how UBI could be delivered and what the costs and benefits might be.
Political perspectives
Many advocates of UBI are fired by left-wing, socialist objectives aimed at redistributing income and wealth. Paradoxically, the concept also finds support in right-wing political circles where it is seen as having potential to reduce interference by the state.
Among supporters of UBI, some (including the RSA) wish to ease the transition or make it politically more acceptable by grafting changes on to the existing tax and welfare systems. Such an approach would add complexity while restricting potential benefits. Instead, UBI alone would give everyone – including parents, carers and learners – a basic subsistence level of security to pursue their lives without interference, while also providing a clear yet non-coercive incentive either to work or to contribute to society in other ways.
The interest from Holyrood is opportune. Some have seen UK fiscal devolution as a missed opportunity. Devolved administrations are intent on creating new taxes that largely mirror the rules and complexities of pre-existing UK-wide regimes, while Westminster has retained control of many welfare arrangements.
By contrast, UBI might provide an opportunity to fundamentally simplify tax and welfare systems, increase personal freedoms and adjust to new labour market conditions – not only in Scotland but across the UK.
It would take brave politicians to bite the bullet and implement UBI. Any volunteers?
Article supplied by Taxing Words Ltd