The Swiss were right to reject UBI

10 June 2016

For every person who voted in favour of introducing a universal basic income (UBI) in Switzerland’s referendum on Sunday, three people rejected it. Despite this dismissal, the centuries-old idea has gained traction in recent years, with thinkers from the left and right calling for an unconditional income for every citizen. The Shadow Chancellor suggested this week that it could find its way into the next Labour Party manifesto.

Proponents of the idea back it for a number of reasons. Universal incomes recognise unpaid work such as looking after children or caring for an elderly parent. In the UK, the ONS estimated the value of unpaid labour at £1 trillion in 2014. A predictable income may also provide a secure base, from which people can take entrepreneurial risks: in Namibia people receiving a basic unconditional income fund micro-enterprises, such as hairdressers and bakeries. A third argument taps into fears about the pace of technological change, with UBI seen as a way to protect those who might be crowded out of the labour market altogether by increasingly sophisticated machines and decision-support. In the USA, for example, self-driving vehicles could displace 3.5 million truck drivers.

Such concerns, however, are not new. The world has experienced relentless technological advance for the last two centuries. As The Economist recognises: “The capitalist system has been remarkably good at finding new ways to work as it gets rid of old ones.” Technology disruptive enough to render large swaths of the population without employment has failed to materialise. Those who believe tomorrow’s world is just around the corner, may soon feel like Eddie Rickenbacker, the pilot who prophesied flying cars by 1944.

Most fundamentally, the programme is unaffordable. To provide a UBI of £10,000, which will allow average households to reach the poverty threshold in the UK (that is, 60 per cent of median household income), the Exchequer would need to collect an extra £376 billion a year. Total tax revenues would have to top 50 per cent of GDP to fund UBI alongside health and other spending. The Government has never received direct revenue of more than 43 per cent of GDP (see chart).

Total direct revenue

A £10,000 income would also be a cut for many who receive social security. The Government currently caps the receipt of Housing Benefit, Child Benefit, Jobseeker’s Allowance, and Employment and Support Allowance (WRAG) – benefits that would be replaced by UBI – at between £20,000 and £26,000 a year. Money would be taken from the poorest in society and given to all – including the richest, whose high-skilled jobs are less likely to be affected by technological change. Any means-tested top-ups, to mitigate this loss of income, would undermine the relative simplicity of UBI administration.

Instead of installing a costly system to pre-empt problems that are yet to arise, policymakers should focus on improving the current welfare system.

For those who need support, social security should be paid more fairly. Thanks to the triple lock (which increases the state pension by the highest of the Consumer Price Index (CPI), earnings or 2.5 per cent), the state pension increased by 2.9 per cent this year. A four-year freeze on many working-age benefits, following two years of one-per-cent increases, will see it grow three times faster than working-age benefits between 2012-13 and 2019-20.

Working-age benefits should also be radically overhauled. A single rate for out-of-work benefit, replacing Jobseeker’s Allowance and Employment and Support Allowance, would reduce disincentives to enter the labour market. A more personalised system could help people with health conditions return to work.

Those who argue for UBI in place of welfare systems that fail to incentivise work, through cliff-edge reductions to payments, for example, should also remember that Universal Credit ensures a smoother transition between welfare payments and work. UBI advocates who argue that tapering income reduces work incentives underestimate the non-monetary benefits work brings.

Ministers should avoid implementing unaffordable and regressive policies that pre-empt an unknowable future. Instead, they must focus on improving the current welfare system. This would better help those capable of working to make the transition into work, and provide support for those who need it.

Alexander Hitchcock, Researcher, Reform

 

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