Thinking outside the (money) box: universal basic income

Is a universal basic income (UBI) a viable concept, or would it be economic disaster?

Could it encourage entrepreneurship, or would it lead to benefit dependency? Some trial schemes around the world are leading to interesting conclusions.

In Hamilton, Ontario in Canada, a group of 4,000 people are currently receiving the equivalent of £1,080 a month in a basic income pilot designed to assess whether providing some guaranteed financial support, regardless of circumstance, would be more effective than existing social security services. And Finland is coming to the end of a smaller experiment where a sample of 2,000 unemployed people are given the equivalent of £475 a month. Other schemes have been undertaken across the globe including Macau, Nigeria and Spain.

UBI in the UK?

But would UBI work here? One of the arguments against it is that would be a disincentive to work; might it lead to a benefits-reliant society?

“I think the huge majority of people want to work,’” says Emma Waddingham, Director of Emma Waddingham Consulting, a legal services consultancy.

“They want to contribute to society and they want the integration and satisfaction that work gives you.” Waddingham argues that there are benefits of UBI beyond the financial.

“It’s about wellbeing. Let’s say you have voluntary work or low-paid charity work. UBI means you can carry on those roles, you can contribute to society and you don’t have to leave that role for something which might be higher paid, but which would be less satisfying for you as an individual and less beneficial for society as a whole.”

Providing a financial safety net

UBI could also help kickstart the economy by encouraging more start-ups. “Being an entrepreneur is financially perilous,” Waddingham says. “You would be more inclined to make that leap if you knew there was a financial safety net.”

“In my view the most attractive principle of UBI is the potential simplicity of the system,” says Emma del Torto, Director at HR firm Effective. “Each project is slightly different in the way it is being managed and measured and the ideological intent behind the projects differ also.” For del Torto, “some of the positive outcomes would be potential reduction of in-work poverty; less reliance on food banks; reduction in inequality; and improved health and wellbeing.”

Is it affordable or financially irresponsible?

There is support from left of centre parties in the UK for some form of UBI, with shadow chancellor John McConnell recently suggesting it might appear in the next Labour manifesto, and possible schemes being flagged up in Liverpool and Glasgow. The principal arguments against are on cost. UBI is “financially irresponsible,” says the FT. The Spectator argues that it is unaffordable: “assuming an effective programme would ensure that each individual over the age of 16 had a minimum income at the income poverty line (approximately £16,320), it would cost £850 billion. This is more than 105 per cent of the UK’s current government spending. Set at £20,000, it would cost more than £1 trillion.”

Offering people basic standards of living

But del Torto argues that it’s misleading to describe UBI as a new cost. And UBI does not have to be set as high as the Spectator suggests. It would be an alternative to the benefits system, “the purpose of which is to provide a basic standard of living to people to be able to feed, house and care for themselves and their dependents. In practice, the current system is overly complicated, incredibly bureaucratic and open to abuse. It’s also extremely costly to administer and huge resources are spent annually on enforcement.” Del Torto asks us to consider the recent criticisms about universal credit “and other benefits, including the complexity and uncertainty over sums to be received and when they are to be received, creating a short-term reliance on costly pay day loans. This in turn creates a potential long-term individual debt spiral.”

In response to suggestions of benefits reliance, del Torto points to a study in Iran “that monitored the impact of government-introduced national UBI on the labour supply and reported no empirical evidence of causal link between UBI and labour supply. The study strongly refuted the assumption that ‘cash transfers make poor people lazy’.” Communicating this will be a key point of any UBI strategy.

Alternative thinking

UBI would also enable businesses to recruit more effectively. “Under current benefit rules, unemployed people have to demonstrate they are actively looking for work by making job applications,” del Torto says. “This results in thousands of applications where the applicants don’t really want, or are unsuitable for, the role.” Employers are then faced with “the significant administrative burden of going through these. Often, smaller businesses simply don’t have the resources to undertake this process; and it leaves many feeling negative about the recruitment process.” UBI would solve this at a stroke.

And yet, addressing the cost issue is likely to be central to any push towards making UBI happen. One of the basic principles is that it would be given to all – regardless of an individual’s income or capital assets. Perhaps a better approach to gain traction, would be to make it means-tested – focus directly on eliminating poverty, help get people into work and increase wellbeing for everyone as a result. In the Canada test scheme, the participants are taken from low-income families, those in precarious work or those with long-term health issues. The Finland example selects the unemployed. On closer inspection, these “UBI experiments” are not, in fact, universal at all.

Political asides

It would seem that which side of the UBI fence you stand on depends on your political colour. There’s a further complication for the UK in that it has a large and dense population, whereas the countries trying out UBI tend to have smaller and more thinly-spread populations. They also, as Emma Waddingham points out, “tend to have different tax structures already in place, where you have high-tax, high-benefit systems, that we do not have in the UK.”

But it’s important to puncture the myth that UBI is “free money”. Redistribution leads to less inequality which stimulates more effective economies. A large proportion of the “free money” goes straight back into the economy when it is spent on goods and services. There’s also evidence from previous trials (such as in the 1970s in Canada again) that a basic income substantially reduces hospital visits and need for medication, and reduces reliance on mental health services. The knock-on benefits gradually erode the seemingly high cost of introduction, on several reckonings. All these factors are good for the economy as well as for wider wellbeing.

Mark Blayney Stuart is Business Journalist of the Year, Wales Media Awards 2017 and Former Head of Research at the Chartered Institute of Marketing.