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Unconditional Basic Income – innovative, but not implementable

    Unconditional Basic Income (UBI) is a scheme that has recently been gaining traction worldwide. Several trials of the scheme and its variations are set to take place in developed nations like Finland, Canada, and Scotland, and in developing nations like India and Kenya. The scheme would guarantee all individuals with a periodic cash payment without a means-test or a work requirement.

    Surely such a beneficial no strings attached scheme would garner overwhelming support from the general public? Unfortunately, it did not. On 5th June, Swiss voters overwhelmingly rejected (77% voted against) a popular proposal which guaranteed all adults a monthly income of 2,500 Swiss Francs (£1,755). This rejection is a reflection of the challenges that exist in implementing such a scheme. Although it may seem fairly straightforward on paper, it is likely to be difficult to draft and implement in practice. It is even more unlikely to be beneficial in the U.K, which already possesses a well-constructed social welfare system.

    Funding is the biggest challenge that such a scheme faces. A recent study by the Organisation for Economic Cooperation and Development (OECD) highlights that funding for a UBI scheme would have to come through either an increase in taxation, a reduction in spending on existing schemes or a reduction in the amount being offered as basic income. Without targeting or much higher spending, there will be an increase in poverty risks, for individuals who may already be receiving unemployment benefits, and for those who belong to extreme ends of the income distribution. Some estimates state that around £44bn, constituting as much as 2.5% of the U.K’s GDP would be required to fund such a scheme.

    There is also the question about the exact amount to be offered under this scheme. Politicians would face a trade-off. They can either set the amount to be high enough to cover the costs incurred by those who gain the most from social welfare programs or it could be set at the minimum affordable limit. If the amount is higher than the minimum, the tax rates to fund the program would be prohibitive. On the other hand, if the amount is too low those in need could see large reductions in their income.

    Besides the issue of funding, the impact of UBI on motivations and incentives, needs to be examined. A constant stream of unconditional payments could eventually reduce the number of active participants in the labour market, a phenomenon observed in previous experiments. A reduction in the number of participants in the labour force is something which the U.K with its growing ageing population, may not be able to support.

    Social issues may also arise as a result of the implementation of UBI. A reduction in the number of hours worked could have an adverse effect on the wellbeing of individuals. Work is often seen to have a social benefit. A reduction in hours worked could directly impact the social aspect of work, and could even result in social isolation. This would be a considerable challenge for the U.K, which was recently called the loneliness capital of Europe.

    In its pursuit of trying to be simple, the scheme glosses over the complications that are likely to exist due to the diversity of the British population, which is composed of various different group including immigrants, single parents, the disabled, elderly etc. These differences will pose a significant challenge in the implementation of UBI. Different households have different needs, which are not taken into account if all individuals were to be paid a lump sum amount. Tough social questions about citizenship and whether immigrants and asylum seekers should be included in such schemes would have to be considered if the UBI is to be implemented in the U.K.

    While the UBI may seem like an innovative idea for the United Kingdom - which is facing the threats to the labour market from an ever growing ageing population - in its present state UBI remains unaffordable and unviable.

    Shruti Dayal

    Shruti Dayal is a CPS Summer 2017 Economic Research intern. She graduated in 2017 with a degree in Economics (Hons.) from the University of Warwick, and is interested in working in consulting and research. 

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