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A Basic Income Would Crash on the Rocks of Politics

August 3, 2018 in Economics

By Ryan Bourne

Ryan Bourne

Shadow chancellor John McDonnell says Labour might introduce a
universal basic income (UBI) pilot in its next manifesto. For a
supposedly radical thinker, he’s late to this party. The idea of a
fixed-sum unconditional government cash transfer to all adults is
now the most conventional of blue-sky thinking. In one form or
another, it has been advocated by everyone from the late
free-market economist Milton Friedman to the Green Party; from the Adam Smith
Institute to Ed Miliband.

Only the gold standard or a land value tax are comparable in the
way UBI’s zealots believe this one policy would sweep away most
economic ills.

We are told poverty would be eliminated, job-killing automation
protected against, innovation would flourish, and working improve
dramatically. Opponents aren’t much less hyperbolic. A UBI would
supposedly blow up the public finances, drive mass worklessness,
and undermine families. But this polarised debate hides the messy
truth: the UBI as an idea exposes the current welfare state’s flaws. And
any simple UBI would be crushed on the rocks of politics and its
inherent trade-offs.

The UK’s social protection budget, including tax credits and the
state pension, was £217bn in 2016-17. That amounts to around
£3,330 per year for every man, woman and child.

If one adds in the cost of the income tax personal allowance,
which UBI advocates like to, that would climb to £315bn, or
£4,800. If you added certain benefits in kind, it would climb
further.

Replacing the whole lot with a UBI for every
adult,
and a lesser sum for children, would have some clear
economic advantages. The means testing of benefits and tax credits,
the conditionality, and the raft of programmes with their Byzantine
rules would be abolished. The bureaucracy behind them would be
scrapped too, taking with it some cost and a lot of stress.

Provided that it was not set at an extremely high level, this
need not result in huge swathes of people not working. No doubt
some people would pocket the income and not engage in the formal
labour market, especially if they currently feel compelled to work
to get by. On the margin, more students may prefer to focus on
their studies. More parents might decide to spend time with
children. Those between jobs may take longer to find positions that
genuinely match their skills and talents.

It’s when we get to the
details of the size and scope of the UBI that the idea falls down
and the coalition for it fractures.

Currently though, means tested benefits make poor people richer,
but discourage them from earning more income. They face …read more

Source: OP-EDS

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