UBI: A shot in foot not a silver bullet

By James Roberts, political director

Last week, Twitter founder Jack Dorsey donated millions of dollars to a political campaign. But this dosh wasn't for the presidential election, or any campaign for that matter. It was to push for the creation of a universal basic income.  

Calls for a basic income are not new and have enjoyed support from both the left and the right. Andrew Yang, the internet-darling Democrat who banked Dorsey's donation, made a $1000 a month basic income a centrepiece of his fight for the presidential nomination. Economist Milton Friedman famously extolled the virtues of a negative income tax, and the TaxPayers’ Alliance has explored similar ideas in the past. But these are almost always based on the premise that a basic income can neither replace work nor exist on top of a comprehensive (and expensive) welfare state. In other words, a period of rising unemployment and economic uncertainty are just about the worst time for a bumper universal dole payment. 

Yet, as recently as last month, MPs were signing letters to the Financial Times calling for just that. They don't seem that bothered by the idea of bringing everyone into the benefits system. This is what happened in Finland, which carried out a two-year trial with unemployed people, in an effort to encourage them into work. The Finnish programme gave each participant €560 a month, or 18 per cent of median monthly wages. It ended in disaster. While the payment increased happiness and wellbeing amongst those who took part, it did not significantly increase their likelihood of re-entering the workplace. In fact, those given the money were no more likely to get a job than those who weren’t. If politicians believe a basic income would support people back into work after the crisis has abated, the nordic case study disagrees.  

Perhaps the intention is a moral one: to ensure no one is left behind. The problem with that, according to the OECD, is basic incomes mean higher levels of taxation, large numbers of winners and losers and less effective targeting of support to the poorest. A gargantuan welfare safety net, with huge holes, is no good to the people who either need it or have to pay for it.

It's easy to see where this path would lead. The MPs' proposals in the Financial Times are slightly less generous than the Finnish example, suggesting a weekly payment of £50 per household, at a total cost of almost £75bn. One can easily imagine a scenario where those same politicians then feel a household with multiple people out of work is not receiving enough. Making these payments available to each individual would then massively increase the cost to around £172.6bn. But further still, surely a family of four cannot make ends meet on just £50 each? So again, worthy politicians call for the levels to be raised: this time to £187 per week, or the same as those promoted by Andrew Yang and co. Suddenly, the UK has sleep-walked into a terrifying total bill of £645 billion each year. 

How on earth would we raise that? In a thoughtful and interesting article published on Wednesday, Steve Jeffels argues the case for a £300bn basic income, and is honest enough to suggest how you'd pay for it: 

"A temporary increase in all tax rates of 50%, so that a 20% income tax rate becomes 30%, along with the abolition of the Personal Allowance, would raise significant revenue. Adjustments would also be required to the State Pension in the interests of fairness, though I will leave others to consider whether VAT should also increase amid fears it could fuel inflation."

Let that sink in. At a time when around 6 in 10 working class voters strongly favour cutting the basic rate of income tax to 15p in the pound, down from 20p now, we'd in fact be taxing them double that. Out goes the personal allowance, bringing more hundreds of thousands more people into tax. Pensions cut and an inflationary hike in the cost of living, with a possible VAT levy. All of this is needed just to cover less than half the £645bn cost we could end up with. This pillaging of the public purse would dash any hopes of a post-lockdown economic recovery, while punishing hard-working taxpayers with an unaffordable bill.

Instead of starting on the slippery slope of benefits for all, governments should be cutting the 50-year record high tax burden. Remember, living standards surged in the 1950s, the decade which featured both the lowest tax burden as a percentage of GDP and the largest single reduction in the burden. A bold move, such as freezing council tax, would be a far more sustainable way of helping households through this difficult period and beyond. Despite what Mr Twitter, Dr Jeffels, or even a hundred misguided MPs think, now is not the time for a universal dole payment. 


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