Would the payment of a regular income to every citizen work? Would it be a viable step towards reforming the current benefits system? Drawing on a recent report, Stewart Lansley and Howard Reed explain how such a scheme could be made to work.
Support for a universal basic income – the payment of a regular and guaranteed income to a country’s citizens as of right – is beginning to gather pace. Trials are being planned in several countries while Silicon Valley incubator Y Combinator is to test a scheme in California. In the UK, the idea is backed by the Green Party and the SNP, is being seriously examined by the Labour Party, and has support from the Royal Society of Arts and the pro-market think-tank, the Adam Smith Institute.
In the UK, growing interest is being driven by two deep-seated structural trends: the growing fragility of the jobs market and the inadequacies of the existing, increasingly punitive, intrusive, and patchy benefits system. With its built-in income guarantee, a universal basic income (UBI) would help relieve both problems. It would bring a more robust safety net in today’s much more precarious working environment while boosting the universal element of income support and reducing dependency on means-testing. A UBI also offers a way of providing income protection as the robotic revolution gathers pace, and could be used to help ensure that the possible productivity gains from accelerated automation are evenly shared rather than being colonised by a small technological elite.
Despite these benefits, the idea remains highly controversial. Although support spans the political spectrum, the Right and the Left embrace very different visions of a UBI. Left supporters view such a scheme as part of a strong state, and a recognition that all citizens have the right to some minimal claim on national income. Supporters from the libertarian right, and some Silicon Valley enthusiasts, in contrast, favour a basic income as a way of achieving a smaller state.
Some critics view UBI supporters as utopian zealots for a new workless nirvana. Yet one of the central merits of a UBI is that it is non-prescriptive. It offers more choice between work, leisure (not idleness), and education, while providing greater opportunity for caring and community responsibilities. Under a UBI all lifestyle choices would be equally valued. It would value but not over-value work. A UBI would both acknowledge and provide financial support for the mass of unpaid work in childcare, care for the elderly, and voluntary help. By providing basic security it would offer workers more bargaining power in the labour market.
A UBI would, over time, change behaviour, and the results of the national pilots will provide important new evidence of the likely impact. Some might choose to work less, take longer breaks between jobs or be incentivised to start businesses. Some might reject low paid, insecure work leading to a healthy rebalancing of wage structures. Some might retrain or devote more time to personal care or community support, in many cases producing more value, if currently unrecognised, than paid work.
The net effect is more likely to promote than weaken the incentive to work. Indeed, incentives will be stimulated by lowering dependency on means-testing while tackling poverty would become less dependent on the ‘work guarantee’.
But can a UBI be made to work? Critics claim that a UBI is simply not feasible because it would cost too much. Yet new evidence suggests that it could be made progressive and affordable. Our recent report for the think tank, Compass, modelled several different alternatives to see how affordable and feasible such a scheme might be. These simulations show that a full and generous scheme, one that swept away the existing system of income support in one go, would be either too expensive or create too many losers. This is because the current benefits system, partly because of its reliance on means testing, is able to deliver large sums to some groups.
However, our study also found that a ‘modified’ scheme, one that still provided a universal and guaranteed income, albeit at a moderate level, and that initially left much of the existing system intact, would be feasible. Such a scheme – while not a silver bullet – would offer real and substantial gains: a sharp increase in average income amongst the poorest; a cut in child poverty of 45 per cent; and a modest reduction in inequality, all at a relatively modest cost of £8 billion. This model would also strengthen the universal element of the current benefit system, thus reducing the reliance on means-testing.
This approach is not utopian – it is grounded in reality. It offers a piecemeal approach to reform, not wholescale replacement. Such an approach reduces the risks of big bang reform, while offering flexibility for gradual improvements over time. It could, for example, start with a UBI for children. This is evolution, not revolution.
Far from encouraging idleness, a UBI also offers greater flexibility in how to balance work-life commitments in a much more uncertain world and the gradual casualisation of much of the workforce. And far from promoting the end of work, a UBI would aim to tackle the greater risks of a weakened labour market, not aim to replace work. With opportunities likely to become ever more fragile, it is time that policy makers gave much more serious consideration to how a UBI scheme could be made to work.
Note: the above draws on the authors’ report A Universal Basic Income: An Idea Whose Time Has Come?, Compass, 2016.