NOW IS THE TIME FOR UNIVERSAL BASIC INCOME — TODAY!
When I first gave any serious thought to UBI, I believed it was an original thought and that I had come up with the inklings of a brilliant idea which needed working on — one day! I had no idea that it had been around for a very long time. It is believed that Thomas Payne may have proposed one of the earliest versions.
However, since then a number of countries have tried out different versions, mainly based on relatively small numbers of people often in desperate need caused by unemployment or some other personal problem, limited to a small area of the country, and/or for a limited time frame. Often an inappropriately small amount of money was involved. To the best of my knowledge no country has implemented a full and potentially permanent system of UBI.
Most countries that have trialled any such system have abandoned it, usually prematurely, following the election of a less sympathetic government; arguing that the scheme is a disincentive to work, bad for the economy and is in any case far too expensive to operate nationally. I believe this is wrong and, on the contrary, the biggest disincentive to work exists now to a much higher degree than would be the case with UBI. It could prove to be self-financing, as well as a very simple fair way of redistributing some of the country’s wealth. The likely result from the latter being an immediate boost to GDP caused by the more rapid movement of the redistributed cash through our economic system. Every £1 taken from a very wealthy person and given to a relatively poor one is much more likely to be spent — and quickly.
More serious trials are being attempted in Kenya right now, conducted by the charity DirectGiving, whereby a large number of villages are being used and divided into three. One group is used as a control base with no UBI being paid at all, a second is paid UBI but the recipients have been told payments will cease after 2 years and the third group will get theirs for a minimum of 12 years. The results are being continuously monitored with interim results published from time to time.
So far, the results are encouraging, showing that almost every recipient uses the money responsibly and effectively to pay for education, build homes or to start a business. This is an extremely useful test to see if it helps to reduce poverty in a relatively undeveloped country and to determine the behaviour of the recipients of the UBI. It may be that those knowing the UBI will be limited to 2 years will behave differently to those knowing it will be paid for many years! We do not know but this trial will give some excellent data to judge the effects elsewhere.
But this is a trial conducted by a charity (working with the government) & using money donated to the charity. Attempting the same thing in a modern developed industrialised nation may prove very different, and, because the funding would have to be generated internally through taxation, the cost of the exercise would need to be justified.
I would argue that it is affordable, would generate faster growth of GDP and would be a good tool for redistribution of wealth, which in itself would be a healthy action to take for the sake of the economy.
So how would it work?
It would be totally universal. Everyone paying tax or any potential tax payer in this country would be entitled to the payment. Every adult and every child, clearly with some rules regarding accountability as a taxpayer would qualify automatically without any means testing. The rules would be simple to operate and easy to enforce. Fraud, inasmuch as it happens now, would be far easier to detect, not least because the complexities of our existing benefits system means that few understand it in its entirety.
Every single taxpayer would be subject to the same tax rules, with no special exceptions made to cater for extremely wealthy individuals simply to attract them to live here. Without their special tax status, they may decide to move elsewhere, but the contribution they make to the wellbeing of the country is likely to be negligable.
The payment would replace all other forms of benefit payment and state pensions. Creating a very simple and easy to operate system would reduce the administration costs relating to benefits hugely.
The amount paid would not be huge but would be linked to the single persons tax free allowance. It would be designed to be a “survival” amount but not generously so.
The amount would be per adult — so two people living together would get the same amount each and as a household get double that of a person living alone.
Every child would get a lower amount based on a proportion of the adult figure — say 20%. This would be paid to the parents, but taxable as if it were the child’s income. There may need to be a limit on the number of children in any one family who would be entitled to the UBI
The tax regime would operate more or less the same as now, UBI would all be taxable, and added to any other income for calculating tax payable. But there would be no very high automatic marginal rate of tax that currently disincentivises people from working.
Taxation could however be simplified by getting rid of NI and changing the tax rates to maintain the current level of tax raised per person.
Additional rates of taxation would be introduced which would only apply to higher earners to help cover the cost of the UBI and as an attempt to redistribute some of the nation’s wealth in a fairer way.
Overall the total burden on the state would seem untenable amounting to in excess of £500 billion, but by the time all other pension payments, child benefits and other benefits have been deducted, as well the reduction of administration costs the figure would be reduced by almost 50%.
Much of the UBI would be recovered by the normal tax system where those already earning pay standard rates of tax, and in many cases, paying at the higher rates once the UBI is added to their income.
New rates, for those with high incomes would be introduced to ensure that they fully repaid the UBI and, at very high levels of income, actually make a net contribution to the tax take of possibly several times the amount of UBI.
Other than the adjustment to recover differing amounts of UBI from high income individuals, the same tax rules would apply across the board to everyone. Simplicity is called for with potential administration savings for HMRC and far less scope for fraud and tax avoidance
Clearly the numbers need looking at in some detail and I do not have access to them in a format where I can build an accurate model. I just know that it is possible and would also be desirable.
Anyone facing loss of a job or struggling to make a reasonable income from self-employment, or off work due to illness would at least have this as a cushion until they could improve their situation. It would break down barriers and remove any stigma related to those unable to find work, compared to those in work, because everyone would receive the UBI every month as a regular payment.
No one need feel like a second-class citizen because they were “on the dole” or disabled or simply unable to work. It would remove the current disincentive to find work caused by the way benefits are removed at, what is effectively, a very high marginal rate of tax, and that is before the extra costs of working i.e. travel etc. are taken into account.
A very substantial proportion of the UBI payments would go straight back into the economy, boosting GDP and manufacturing industry because of extra demand.
The payment would become a safety net for anyone regardless of their working habits, zero hours, gig economy, traditional or self-employed.
It will take a courageous government to action such a plan, but I am convinced that not only will it work, but that as a nation we will all feel better about ourselves.
And economically, I believe there is nothing needed more just at this moment in time. And we need it to start today!