by Malcolm Torry | Jul 23, 2020 | Opinion
There is a translation of this review in French
The article by Widerquist and Arndt can be read here; and a pdf can be downloaded here.
Widerquist and Arndt use microsimulation analysis to estimate that the net cost of a poverty-level Basic Income for the United Kingdom (£7,706 per annum for adults and £3,853 for children) is about £67 billion per year or 3.4% of GDP. The paper makes a useful contribution to the current debate about financially feasible Basic Income schemes for the UK.
The authors correctly recognise that their scheme is ‘not optimised for political feasibility’. This is true. British benefits policy is quite path dependent—that is, it tends to continue in its existing direction—mainly because of the extreme complexity of the tax and benefits systems. Change is normally incremental, and this will be particularly true during the next few decades because of the difficulties that the Government has experienced attempting to combine a handful of means-tested benefits into the new means-tested ‘Universal Credit’. Only a Basic Income that made a very small number of changes to the existing systems would be likely to be considered for implementation during the next few decades, whatever the political ideology of the Government. Widerquist’s and Arndt’s scheme makes multiple major changes all across the systems, and so would be unlikely to be considered for implementation.
There are particular aspects of the scheme that would make the scheme even less politically feasible. The authors are commendably honest about the political infeasibility of their suggested 50 per cent basic rate of Income Tax. Equally politically impossible would be the abolition of National Insurance Contributions and National Insurance benefits such as the Retirement Pension, even if that would be replaced by a new Basic Income for elderly people. National Insurance is a concept deeply embedded in the British psyche, and any government that tampered with it would suffer the consequences. It is not insignificant that when the new Single Tier State Pension, which is very close to a Citizen’s Pension, was implemented, a National Insurance Contribution record conditionality was retained. Under the circumstances, the only option is to retain the National Insurance system: although making it fairer, for instance by charging contributions at the same rate across the entire earnings range, rather than at a reduced rate for higher earners, might be politically feasible.
The authors propose a ‘hold harmless’ mechanism to ensure that low income households that would otherwise have suffered losses on the implementation of the proposed scheme would not in fact do so. The losses occur because the authors have decided to abolish all existing means-tested benefits except for Housing Benefit and various disability benefits. The problem is that they have not specified how the ‘hold harmless’ proposal would be administered. The only feasible way of achieving such a mechanism would be to reintroduce a means-tested benefit that would mirror the benefits that had been abolished. It might be objected that simply recording each household’s disposable income at the point at which the scheme was implemented would be sufficient: but that would only tell the administrators how much to pay on the day after implementation. If would not protect households from subsequent differences between the old system and the new once household circumstances started to change. Only a means-tested benefit could do that. The UK Government has found it difficult enough to combine a few existing means-tested benefits into a single new one. To abolish most existing benefits and then to implement a wholly new one with a particular aim, all at the same time as implementing Basic Incomes and changing the tax system, would be administratively and therefore politically impossible.
The paper contains a useful discussion of the difference between the gross cost and net cost of a Basic Income scheme, and quite rightly points out that rather too many commentators fail to understand the importance of the difference. The authors calculate that the net cost of their scheme would be £67bn per annum. This might be only 3.4 per cent of GDP, but it would still have to be found from somewhere. Suggestions are made at the end of the paper, one of which is that the whole £67bn should be paid by the top 30 per cent of earners. No government would want to alienate that group of voters to that extent, rendering the proposal politically feasibility. We are therefore left with sharing the burden across the earnings range, although not necessarily via an additional Income Tax. What the authors don’t seem to realise is that wherever the money was found it would impact household living standards. For instance, let us suppose that additional consumption taxes or a new carbon tax were to be employed to fill the gap. In either case prices would rise, household disposable incomes would be affected, and the statistics given in the paper for poverty levels and household gains and losses would no longer be correct. Only a Basic Income scheme that fully specifies the funding method, and that calculates the reductions in the Income Tax Personal Allowance, increases in Income Tax rate changes, and other changes, that would achieve a net cost of zero, can be sure that statistics on poverty levels, household gains and losses, etc., generated by microsimulation would be those that would be seen when the scheme was implemented. A scheme with a net cost above zero leaves us entirely in doubt as to the effects of the scheme. This means that in the case of the scheme researched for this paper none of the outcome statistics can be believed.
There are two ways of approaching the question of the financial feasibility of Basic Income schemes: 1. to research the effects of a particular scheme and then decide whether it would be feasible, or 2. to set feasibility criteria and then seek a scheme that would fit those criteria. The second of those approaches is the one that follows scientific method and is therefore the method that ought to recommend itself to social science researchers. The paper under review employs the first of the two methods. As far as the author of this review knows, only his own research follows the second method—a fact that never surprises him because the second method can take days of testing of alternative schemes before a scheme that fits the criteria can be found, and there is always the possibility that no scheme will be found that is anywhere near to being feasible. Widerquist and Arndt reference a 2019 paper that employs the second of the two methods. The most recent such research can be found here.
Widerquist and Arndt are to be commended for contributing to the UK’s strong research tradition on the financial feasibility of Basic Income schemes. If further research were to take account of the hesitations discussed in this review, and were to employ the second of the two methods outlined in the previous paragraph, then their future research would make an even bigger contribution.
by BIEN | Apr 21, 2020
What is a Basic Income?
A Basic Income is a periodic cash payment unconditionally delivered to all on an individual basis, without means test or work requirement.
Sometimes called Universal Basic Income, a Citizen’s Income, or a Citizen’s Basic Income, it is not the same as a Minimum Income Guarantee; A Basic Income does not reduce as one earns more. For more information: About Basic Income
Why do we need it?
Because someone’s Basic Income would never be taken away, it would
- provide a secure financial platform to build on
- enable the employment market to become more flexible at the same time as enhancing income security
- give to everyone more choices over the number of hours for which they were employed
- enable carers to balance their caring and other responsibilities
- make it easier to start new businesses or to go self-employed, and
- encourage personal freedom, creativity, and voluntary activity
Because everyone would get a Basic Income, it would
- create social cohesion, and
- carry no stigma
Because the Basic Income would never be withdrawn, it would
- reduce the poverty trap for low income families, enabling them to lift themselves out of poverty by seeking new skills, better jobs, or additional hours of employment
- reduce the unemployment trap, so getting a job would always mean additional disposable income
Because Basic Income would be simple and efficient, it would
- be easy to understand
- be cheap to administer and easy to automate
- not be prone to errors or fraud
Many current benefits system are no longer fit for purpose. They assume that everyone has a stable single employment, that household structures don’t change, and that individuals’ circumstances change very rarely. Our lives are no longer like that: and as technology and the employment market continue to change, our benefits systems will become even less appropriate.
In a context of rapid change, the only useful system is a simple one. A Basic Income is as simple as it gets.
For a list of 101 reasons for a Basic Income, see Malcolm Torry’s book, 101 Reasons for a Citizen’s Income.
Why pay money to the rich when they don’t need it?
It is efficient to pay the same level of income to everybody of the same age and then tax it back from those who don’t need it. The alternative is to means-test incomes so that only those who are poor receive them: but that results in complexity, stigma, errors, fraud, and intrusive bureaucratic interference in people’s lives.
Would Basic Income be financially feasible?
Tests for a Citizen’s Basic Income scheme’s financial feasibility might be listed as follows:
- Revenue neutrality ( – that is, it would be funded by making changes to the current tax and benefits system), or sustainable additional funding should be shown to be feasible
- Poverty and inequality need to fall
- Low income households should suffer no significant losses at the point of implementation, and no household should suffer unmanageable losses
- Income Tax rates should rise by a clearly manageable amount
- A significant number of households should be released from means-tested benefits
Would people still work?
If by ‘work’ we mean ‘paid employment’, then the answer is yes. In the short to medium term, we are unlikely to see a Basic Income that would be sufficient to live on, so everyone would need additional sources of income. And because Basic Incomes would not be withdrawn as earnings rose, any family taken off means-tested benefits by their Basic Incomes would experience a reduction in withdrawal rates, and would experience more incentive to seek employment, or to start their own business, than they do now.
If by ‘work’ we mean purposeful activity of any kind, then the answer is again yes. By providing a secure layer of income, a Basic Income would enable people to readjust their employment hours in order to undertake additional caring and community work.
Why pay money to people who do nothing?
In many countries we are already paying means-tested benefits to people who do nothing, and the complexity and sanctions associated with those payments demotivate people and can tip their families into poverty. A Basic Income would take a lot of people off means-tested benefits, and so would encourage economic activity. Pilot projects in India and Namibia showed that in countries with less developed economies, and without comprehensive benefit systems, even quite small Basic Incomes increase economic activity among households with the lowest disposable incomes.
Would immigration go up?
As with other benefits, a government would be likely to require a period of legal residence before someone could receive a Basic Income. Because Basic Income would provide everyone with a secure layer of income, and therefore a greater employment incentive than means-tested benefits, anyone coming into the country would be even more likely to contribute to the economy than they are now.
Would wages fall?
Means-tested benefits function as dynamic subsidies – that is, they rise if wages fall, which can encourage wage-cutting. A Basic Income would not rise if wages fell, so employers would experience more resistance if they attempted to cut wages.
Some wages might rise. Because everyone would have a secure financial platform on which to build an income strategy, some workers would be more able to leave undesirable jobs in order to start their own businesses, or to learn new skills and seek new jobs; and workers would be able to spend longer looking for a job that they might want, rather than just any job. Either currently undesirable jobs would have to improve, or wages would have to rise in order to attract workers.
Some wages might fall. Because everyone would have a secure income layer, some people might decide to take a desirable job even if it didn’t pay very much. Wage levels for desirable jobs might therefore fall.
Would a Basic Income threaten the welfare state?
If a revenue neutral Citizen’s Basic Income scheme were to be implemented, then no cuts to public services would be required. The amounts of means-tested benefits received by households would fall, but only because those households were already receiving Basic Incomes. Benefits specifically designed to cover the additional costs of disability, and benefits to cover the differing housing costs in different areas, would continue.
Would a Basic Income cause inflation?
Inflation occurs when the amount of money available to spend is greater than the value of the economy’s productive capacity. In that situation, if the amount of money keeps growing, then each unit of money can buy progressively less, so money loses its value, sometimes rapidly. A Basic Income scheme paid for purely by making changes to the current tax and benefits system would not add to the money supply, so inflation would not occur. If the amount of money available to spend was below the productive capacity of the economy, then a government could create money until the gap was filled, and that new money could be used to pay a Basic Income: but if inflation started to occur, then money creation would have to stop, and new taxes would have to be used to pay for the Basic Income.
Has a Basic Income ever been tried?
Short pilot projects have taken place in Namibia and India, and something like a Basic Income has been implemented by accident in Iran. Experiments with the similar but different Minimum Income Guarantee and Negative Income Tax in the United States and Canada during the 1970s showed useful social outcomes and very little withdrawal from employment. The similarities between the economic effects of a Minimum Income Guarantee and Basic Income would suggest that the results of the Minimum Income Guarantee experiments would be replicated if a Basic Income were to be implemented; and the differences between them mean that the effects are likely to larger for Basic Income than for the 1970s experiments. Basic Income pilot projects and similar experiments continue in the United States, Uganda, Kenya, Spain, and the Netherlands, and experiments are planned for Scotland.
Further reading
More detailed responses to questions can be found in chapter 10 of Malcolm Torry, Why we need a Citizen’s Basic Income: The desirability, feasibility and implementation of an unconditional income, Policy Press, 2018.
Recently published introductions to the subject are as follows:
Louise Haagh, The Case for Universal Basic Income, Polity, 2019
Annie Miller, A Basic Income Handbook, Luath Press, 2017
Guy Standing, Basic Income: And how we can make it happen, Penguin, 2017
Malcolm Torry, Why we need a Citizen’s Basic Income: The desirability, feasibility and implementation of an unconditional income, Policy Press, 2018
For a detailed treatment of feasibility, see Malcolm Torry, The Feasibility of Citizen’s Income, Palgrave Macmillan, 2016
For chapters on many aspects of the Basic Income debate by world experts, see The Palgrave International Handbook of Basic Income, Palgrave, 2019
by Karl Widerquist | Jan 13, 2020 | News
The Ethics of UBI in a Changing Economy
King’s College London
London, UK, April 24, 2020
Submission link: https://easychair.org/conferences/?conf=eubi1
Abstract registration deadline: February 28, 2020
Submission deadline: February 28, 2020
Final paper submission: April 10, 2020
The Department of Political Economy at King’s College London will host a full day interdisciplinary workshop on “The Ethics of UBI in a Changing Economy” in London on April 24, 2020.
The workshop focuses on Universal Basic Income from the interdisciplinary point of view of Philosophy, Politics, and Economics. Suggested topics include but are not limited to
- Sufficiency, equality, and the threshold for UBI
- Political economy and the institutional challenges of the Fourth Industrial Revolution
- Unemployment and the citizen: conditional benefits or universal dividends?
- Enhancing freedom and autonomy in a changing economy
- Relational equality and democratic empowerment
- Open borders and the limits of the welfare state
The workshop tackles the theoretical issues surrounding the normative justification(s) for UBI and evaluate the practical feasibility of UBI in comparison to competing policy responses from a political economy perspective.
The organizers invite abstracts from scholars in various disciplines, including but not limited to political economy, citizenship studies, philosophy, and political theory. We especially welcome contributions from underrepresented groups in academia.
To apply, send your abstract of 300 words through easychair (first time users may have to register): https://easychair.org/cfp/EUBI1
The deadline for abstract submission is February 28, 2020. Limited conference stipends will be available to speakers. The results will be announced within two weeks of the deadline. Accepted attendees will be asked to submit a manuscript (5000 words) by April 10, 2020.
If you have any further questions about the workshop, please send an email to the following address: otto.i.lehto@kcl.ac.uk. (Please do NOT use this email address to submit abstracts or papers.)
