Building on the RSA’s proposal, Jonny Ross-Tatam sets out the Buchanan Institute’s case for a Universal Basic Income.
An effective welfare system should provide a secure financial foundation on which everyone can build their lives and reach their potential. It should provide a stable safety net in the hard times, reward work and largely leave people to get on with their lives. A growing consensus of policy makers and politicians, from across the political spectrum, believe this is not the case with much of the current UK welfare system. Critics from the right take aim at its ‘high marginal deduction rates’ – the amount of money lost in benefit withdrawals and tax payments for every extra pound earned – as high as 83% for low earners and over 90% for some lone parents. Those from the left criticise the punitive and intrusive nature of its system of harsh sanctions. Others, its high bureaucratic hurdles, often too lethargic to respond to a flexible labour market in which a significant portion of the UK’s workforce move frequently in and out of work.
Our economy is changing fast and has changed dramatically since the Second World War, when William Beveridge designed much of the current UK welfare system. Full employment and ‘jobs for life’, synonymous with the post-War economy, have been replaced with a rise in part-time flexible work, self- employment, the burgeoning ‘gig economy’ and, for many, increasing job insecurity. Rapid technological change also threatens to undermine many of the current job options available to the working-age population. Our current welfare system, designed in the 20th century, is not fit for purpose in a 21st century economy.
This is why the Buchanan Institute, Scotland’s first student-led think tank has joined this debate with our upcoming publication, ‘A Secure Foundation to Build our Lives: making the case for a Universal Basic Income’. It is our contention that replacing an array of means-tested benefits with a Universal Basic Income (UBI) – a flat-rate payment paid to all citizens or taxpayers, regardless of circumstances – is the most radical, pragmatic and effective way of achieving a 21st century welfare system that works. A UBI would ensure a guaranteed and reliable safety net for those in insecure and flexible work; a secure financial foundation from which individuals can retrain for new jobs or start a business; and as it is never withdrawn when circumstances change, it ensures low marginal deduction rates, always making work pay. It would also provide a stable financial foundation for vital voluntary contributions such as caring for friends and relatives, which will become increasingly important as the population ages.
Fears of a UBI stopping people working have seemingly been disproven with pilot tests in Canada, Namibia and India, where labour activity and entrepreneurship actually increased in some cases. Further to this, with low marginal deduction rates meaning workers keep more of the extra money they earn, recipients will be rewarded for increasing their employment hours and earnings.
A Universal Basic Income (UBI) is not a new idea, but it has recently been gaining renewed traction. Across the world governments, politicians and policy makers are looking towards a UBI as the best way to contend with the challenges posed by the 21st century economy. In Finland, the Netherlands and Canada, governments have commissioned UBI pilot experiments, while a coalition of Silicon Valley tech entrepreneurs and policy makers are funding similar trials in the USA. The governing parties in both Finland and Canada have introduced a UBI on their manifesto, while Fife Council have expressed interest in conducting the first pilot experiment in the UK. An idea possibly dating back to 1796, when it was advocated by Thomas Paine, has started to enter the policy and political mainstream in 2016, because of its potential for solving many common problems we face in the 21st century.
The RSA’s proposal for a UBI (in ‘Creative Citizens, Creative State’), written by Anthony Painter and Chris Thoung, provided an important and valuable contribution to this debate. The Buchanan Institute is highly supportive of the RSA’s UBI proposal as it 1) is fiscally sound, practically achievable and within reasonable budget constraints, 2) ensures that the least-well-off, particularly low-earners with children, are well supported, and 3) ensures low marginal deduction rates for the vast majority of earners. We believe that these are criteria which all UBI proposals should fulfil.
The Buchanan Institute’s proposal seeks to build on the previous proposals produced by the Citizen’s Income Trust (CIT) and the RSA. The Buchanan Institute has, however, proposed the following modifications to the RSA’s recommendations:
- Provide the UBI for all children, not just the first two. The RSA proposed reducing the UBI child payments, potentially to zero, after the first two children. While this may align with current political expectations, we consider this unfair to children born in large, and particularly low income, families.
- Aware of the financial implications of the above change, we propose to reduce the higher rate of UBI payment for the first child (aged 0-4) from £4,290 to £3,839. We then propose that the lower rate of £3,387 is paid for all subsequent children aged 0-4. This means that parents with young children would still be significantly better off when compared to the current situation, but slightly worse off than under the RSA scheme.
- For 18-24 year-olds, and 17 year-olds in full-time higher education, to receive the full adult rate of £3,692. This would more fully support young adults in pursuing education, training and work. It is not clear that young adults would require less support than those over 25 years-old. This would also enable the full adult rate to replace the basic rate of student maintenance loans. Extra student finance should be maintained to make up the difference between the UBI and the current basic loan payments, as well as keeping an additional maintenance grant for low income students.
After the shortfall between the costs of the UBI and the savings made, through replacing a range of means-tested benefits, the Buchanan Institute’s UBI proposal is estimated to cost at least an additional £14.1 billion and at most an additional £19 billion per annum. This is more than the RSA proposal, estimated to cost between £9.8 and £16.4 billion, but is still within the range of spending choices made by the current and previous UK governments. For instance, in 2015-16, the Government had, during a period of austerity, found scope for three big tax cuts equalling £19.5 billion p.a. A UBI at the levels proposed by both the RSA and the Buchanan Institute is, therefore, both affordable and achievable with the necessary political will.
What organisations like the CIT, RSA and Buchanan Institute have shown is that a Universal Basic Income is not a utopian idea, but a practical, pragmatic and potentially highly effective solution for building a welfare system that is fit for the 21st century. Finding the best possible solutions to the challenges posed by the 21st century economy will need both radical thinking and sober analysis of the evidence. That is why we echo the RSA’s recommendation for a UBI pilot scheme for the UK. We hope that governments across the world will follow the example set by the Canadians, Finns and Dutch and start paying serious consideration to testing and implementing an idea whose time may just have come.
The Buchanan Institute’s publication: ‘A Secure Foundation to Build Our Lives’ is due to be released in mid-January 2017. If you wish to see the final copy before then, please email: [email protected]
As the challenges we face in the world are more complex and systemic than ever before, we need radically new approaches to the way in which we view the role of business from extractive to regenerative.
Productivity growth determines real wage growth; the contemporary 'productivity puzzle' is on track to cause Britain’s worst real-wage squeeze in modern history, but what exactly is the 'productivity puzzle'?