Boris Johnson’s government now has a penchant for embracing policies which, to many, have a distinctively non-conservative feel. High taxes, a big state. What’s next?
An old idea which is currently being given new legs is that of a universal basic income (UBI).
The basic concept is that all citizens of a country receive from the government a fixed amount of money each month. It is not means tested, so rich and poor alike get the cash.
UBI is attracting support from across the political spectrum. Stupendously wealthy libertarians such as Elon Musk, for example, favour the idea because of what they see as the threat to employment levels in the coming wave of automation.
A serious contribution to the discussion has recently been made by five long-established anti-poverty campaigners under the auspices of the think tank Compass. A longer version will be published by the Royal Society of Arts, now headed by Andy Haldane, former chief economist of the Bank of England, in the autumn.
They describe three potential levels of the UBI – modest, intermediate, and full. The amounts vary on age, marital status, and dependent children. For a simple illustration: a single adult under 65 at the “modest” level, an annual payment of £3276 is suggested. For “intermediate”, the figure is £7540, rising to £11,700 for the “full”.
The authors dutifully crunch the numbers through a sophisticated tax and benefits model. They conclude that even at the modest level, UBI would have a big effect in terms of reducing poverty. Income inequality would fall sharply, especially under the “full” proposal.
So what is not to like? Not much, according to a previous Compass report on basic income. No fewer than 75 per cent of those surveyed were in favour. Who wouldn’t be?
But one of the two main problems is startlingly obvious: the cost. Rather mystifyingly, however, the report initially claims that there would be “no net increase in taxation”. A veritable miracle. To be fair, the authors go on immediately to say “the cost of the extra payments would be exactly offset by the extra revenue from internal changes in tax rates and National Insurance Contributions (NICs)”.
The phrase “internal changes” is quite a euphemism for massive hikes. Indeed, the report estimates that in order to fund even the modest UBI, “internal changes” to tax rates would be required which would in fact increase taxes by £160bn a year.
The “full” version needs a tax increase of no less than £510bn – some 25 per cent of the total national income of the UK.
So the cost of even a modest scheme is very high.
The second issue, often raised by opponents of such a scheme, is that it would undermine incentives to work. The authors acknowledge this, and dismiss it in a paragraph by citing a single study on the impact of a benefit sanction scheme.
Rather than wading through impenetrable academic papers, the furlough scheme provides us with a very real world example. Some people did indeed use their time during lockdowns to start new projects or businesses, but many maintained the status quo – being paid to not work.
While the aims of a universal basic income are laudable, the costs are eye-wateringly high; Johnson may need flexibility to steer us through the cost of living crisis, but it must have an anchor in Conservative ideology.