Universal basic income? Maybe, but how?

Submitted by Matthew on 13 April, 2016 - 9:13 Author: Matt Cooper

Earlier debate on this issue here.

The universal basic income (UBI) is the proposal that every adult should receive an unconditional cash benefit.

The benefit is given even when the individual is working; it is given if they are looking after children, studying or spending their time on anything else they chose. UBI could, to a degree, replace some state benefits. The idea is that it is not means tested, but it could be counted as taxable income and clawed back from higher earners.

The idea of UBI is distinct from a means-tested guaranteed minimum income from benefits as it is a payment to all. Thomas Paine suggested a limited form of UBI in Agrarian Justice in 1797, but the idea probably emerged in its modern-form in the confusion of socialist ideas that emerged among non-revolutionaries in reaction to the Russian Revolution.

In Britain the idea was popular with left-wing social democrats like the labour historian GDH Cole. The idea emerged again in centre and centre-left politics in Europe in the 1970s and 1980s. Most of its advocates saw it as a progressive reform within market capitalism, against both the socialist left and the emergent neo-liberalism. In Britain it appeared as an oddball social liberal idea, pushed by a committee in the National Council for Voluntary Organisations.

The idea has attracted more widespread interest in recent years. The policy is already supported by the Greens, and last month the Scottish Nationalist Party voted for a version of UBI. It has been seriously discussed in Finland by the centre-right government and is being introduced in the Dutch city of Utrecht by the centre-left Liberal Democratic administration (at around £660 per month). Thus, in February, when the Shadow Chancellor, John McDonnell, announced Labour was considering the policy, it was not a lunge to the left. Not so strange also that the Fabian Society, that old social-liberal think-tank embedded in the Labour Party, has moved towards the idea in an article on their website by Nicholas Harrop.

Harrop argues that income tax-free earnings allowance (currently £11,000) and similar allowances for National Insurance can be considered a transfer of money to middle and higher earners. This may seem counter-intuitive but the model makes good sense. Currently, someone who earns nothing will not receive any benefit from the Income Tax allowance, while those earning above £11,000 will receive a tax bill reduced by £3,166 a year. This is seen most clearly when the allowances change. In 2010 income tax/NI allowances were worth £1,921 to higher and middle earners; by 2020 this figure will be £3,500 a year. At the same time many of those on benefits will see below-inflation increases and some receiving in-work benefits will see their income fall. Harrop shows that if all the taxes and benefits are considered, in 2020 the poorest fifth of households will receive around £10,000 (much of it in benefits) and the richest fifth will receive £9,200 (mainly through various tax exemptions). Thus the poorest and the richest receive the same tax exemption/cash benefit.

Removing tax allowances and other exemptions, and abolishing most means-tested benefits, to replace them with a UBI at £10,000 per household would therefore be a revenue neutral move. Taxing it would be at a rate where those higher up the income scale would lose much of it, and if those lower down the income distribution paid less it would be mildly retributive, although Harrop is timid about suggesting this. Is this an idea socialists should support?

If UBI replaced many means-tested out-of-work benefits, things would better than they are now. Set at a high enough level it would alleviate much in-work poverty. It would allow people to take a more rational attitude to balancing work with caring responsibilities.It could redistribute wealth and create a little more equality. But ultimately this is, at best, a mildly redistributive policy, and in its more attenuated forms not even that. It could be at the heart of a decently redistributive policy if we had a government that fought for it to be so. Paine’s 1797 proposal was to funded by taxing the inherited wealth of the landed elite and that was its strength. The Fabians’ UBI would do nothing to address the inequalities of property at the heart of capitalism.

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