Is Universal Basic Income A Solution?

One of the ideas knocking around on the libertarian left is the promotion of Universal Basic Income. This suggests that we get rid of the existing tax and benefits system and instead replace this with a given amount of money given to all. The argument for this is that it is universal so everyone gets it and also that since it is not based on the need to work (as various forms of unemployment benefit are) it provides individuals with choices in their life.

This idea has been most notably promoted by the Green Party of late but also by left-liberal publications such as The Guardian:
https://www.theguardian.com/commentisfree/2017/feb/01/the-guardian-view-on-basic-income-a-worthwhile-debate-not-yet-a-policy

However as the Guardian pointed out the key problem with the idea is feasibility. Defenders of the idea (most notably the version supported by the Citizen’s Basic Income Trust (formerly CIT) are that:
(1) The cost is negligible
(2) The benefit will be significant

I think both of these claims are very hard to square with the details of any scheme that is currently presented. The Scheme adopted by The Green Party proposed a UBI of £72 per week which is less than the amount paid out to those over 25 on Job Seekers Allowance (JSA) of £73.10. It might be argued that those under 25 get less JSA, but then they also get less on the latest CIT schemes as well - so much for the Universal Basic Income.

When the Green Party rolled this proposal out it caused problems because it quickly became clear there were problems with their costing and also as The Guardian pointed out:
"35.15% of households would be losers, with many of the biggest losers among the poorest households. [...] The trust’s research shows that for the two lowest disposable income deciles, more than one-fifth would suffer income losses of more than 10%" (Guardian, 27.1.15)

So they have gone back to the drawing board and the CIT have now claimed to produce a revenue neutral scheme that avoids these problems. Here is Malcolm Torry:
"Income Tax Personal Tax Allowance in 2015/16 was £10,600. Removing the allowance would mean additional Income Tax of £10,600 x 0.2 = £2,120 being paid. The Primary Earnings

Threshold for National Insurance Contributions was £155 per week. Reducing the threshold to zero would mean additional National Insurance Contributions of 155 x 52 x 0.12 = £967.20. The total additional payment would be £2,120 + £967.20 = £3,087.20, which translates as £59.37 per week: so a Citizen’s Income of £60 per week would compensate for the loss of the Income Tax Personal Allowance and the reduction of the Primary Earnings Threshold to zero"

Clearly it is true that if the system changes and you lose £59.37 and gain £60 you do gain but it does not exactly seem like a revolutionary gain. Also notice that the UBI has now gone down from £72 to £60 (again only for those over 25) a cut of 16%. To achieve this all the thresholds for personal allowances for income tax and NI have been removed (explained above in the quote using 15/16 figures) and the overall gain from introducing this system is 63p per week.

So when you take into account the claims made I am not sure 63p per week counts as significant benefit.

Also bear in mind the key claims of advocates of this sort of thing is that it avoids means testing, is available to all and is unconditional.

However not strictly true since the details show: Child Benefit and State Pensions remains in place and these are not unconditional benefits. The amount paid to those between 16 and 24 is £40 per week which is less than the £60 per week so there is now age discrimination (does not sound as universal as some would claim) and also higher levels are paid for the first child so there is also discrimination based on order of birth.

It is possible to argue that these inequalities are defensible but this should be done honestly and without the claim that everyone will be paid the same - because that clearly is not true. The reason is the cost. So those who seek to present this as a jazzy new idea that is better than the clunky old Beveridge system should be honest.

It will still lead to poor people losing out:
Imagine if you earned £14000 in 15/16 (someone on minimum wage ). You would pay £680 Income Tax (20% above the £10600.00 threshold) and £712.80 NI (12% above the threshold of £8060). This gives a final income of £12607.20

Now imagine that they introduce their £60 per week UBI. To do this they will remove the Personal allowances on both Income Tax and NI. They would also increase the Income tax Basic rate to 23%.
You would then have £14000 plus your UBI of £3120 making a total of £17120 - assuming no behavioural change. However your tax would be £3937.60 and your NI would be £2054.40. Your final income would then be £11128.00.

Congratulations you have turned the welfare state upside down to ensure that there is a gain for some of 63p per week but for those on about half average earnings the loss would be about 12%.

The authors themselves admit that 16.9% of households would lose out and over 3% of those in the bottom 20% would lose more than 5% of their income.

Exactly how this counts as a great benefit to society is a bit of a mystery to me.

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published this page in Members Blog 2018-03-15 18:18:07 +0000

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