Universal Basic Income: The Time Has Come

Freddie Cooke

Parental pocket money has long been a bastion of British culture. Whoever said that should stop when we reach adulthood?

The 21st century has thrust a different kind of pocket money into frame: Universal Basic Income. Like its older cousin, it has the potential to make its way into the mainstream, and in spectacular style.

What is Universal Basic Income? Guy Standing, lifelong economist and advocate for UBI, defines it as, “a modest amount of money paid unconditionally to individuals on a regular basis; intended to be paid to all, regardless of age, gender, marital status, work status and work history”. A very convoluted way of saying ‘monthly cash from the government’, but you get the gist.

It would be easy to dismiss UBI as a 21st century fad. In true champagne socialist fashion, much of Silicon Valley has jumped on the idea. Mark Zuckerberg, Elon Musk, Richard Branson - the faces at the forefront of modern capitalism have expressed their support. In reality, UBI is far from.

In his 1516 book ‘Utopia’, Thomas Moore advocated for it; Thomas Paine alike in 1797, who argued for a ‘national fund’ in the pamphlet “Agrarian Justice”; and even Dr Martin Luther King who declared his support at a Stanford lecture in 1967. Over the years, Universal basic income has crossed the political cleavage that is left and right. Richard Nixon and Bernie Sanders don’t agree on much, and neither do Friedrich Hayek and Nicola Sturgeon, but they can all unite in preaching the merits of a universal income.

If history allowed, I would certainly like to put them all in the same room to talk it out.

UBI is more than just unconditional cash - its implementation would spell a new, multifaceted chapter in micro and macroeconomic management, inequality reduction, poverty alleviation and social mobility. 

Firstly, UBI would alleviate poverty. Another 200,000 children fell into poverty since 2019 in the UK, taking the count to an embarrassingly high 4.3 million overall. Rather than an unemployment issue, this is one of suppressed wages - 75% of these children live in households with at least one working adult. Hence, A UBI at subsistence level will lift families out of poverty where the free market has failed, while retaining the market forces at play - a quintessentially bipartisan endeavour.

A common argument against UBI however, as put forward by James Heywood from The Centre for Policy Studies, is that firms will simply factor in this government payment, and lower their wages, hence UBI will have a negligible effect on poverty. Yet, this misses the point. 

The very reason Boohoo workers in Leicester have been found to be working for £3.50 an hour is because they lack bargaining power. In fear of loosing their income, workers are prevented from challenging their wages, searching for other employment, or simply leaving their job. A UBI at subsistence level would provide this vital income to fall back on. There is a reason US Presidential candidate Andrew Yang called his $1000 dollar a month proposal for all American citizens a ‘Freedom Dividend’ - UBI has the potential to increase wages by giving workers the prerogative to bargain, an economic freedom fundamental to free labourmarkets.

From a macroeconomic perspective, UBI has the potential to radically reform the economic cycle. If COVID has taught us anything, it has been that western governments are now prepared to be fiscally nimble in their response to recession - world stimuli now exceed $19.5 trillion, some 23% of world GDP. Yet, as ‘The Economist’ rightly observed, COVID relief schemes, “designed to preserve jobs risk creating zombie firms that neither thrive nor go bankrupt, slowing the recycling of capital and labour,” thus hindering the proceeding economic recovery. A guaranteed universal income will enable governments to sustain incomes rather than jobs during recessions, allowing the ‘destruction’ of inefficiently allocated factor inputs needed to ensure economies recover with dynamism and unleash the creativity of the next positive output gap - there is a reason Joseph Schumpeter coined the term ‘Creative Destruction’. 

UBI not only has the potential to prosper in the present, but also to thrive in years to come. Today’s policy is judged by governments using a ‘social discount rate’ - the costs and benefits of the policy in the present relative to those of the future. The very reason that Elon Musk lends his support is due to the impending revolution - automation - concluding that ‘it will be necessary’ as machines begin to outpace humans. Put best by Mark Zuckerberg, UBI will give its recipients, ‘a cushion to try new things’ - a freedom intrinsic to finding employment in a technologically advancing environment.

However, universal basic income doesn’t come without its critics. It will be expensive. Dr Steve Davis, Head of Education at the Institute for Economic Affairs suggests that all income above subsistence level would need to be taxed at 45% to fund the payments. To that I say, solving poverty is expensive. As the Post-War chancellor Hugh Dalton said, transferring £1 of income from the richest to the poorest creates a NET benefit to economic welfare. In a utilitarian sense, UBI is unequivocally moral.

The second criticism is that UBI, alike to much in the public domain, is restricted to philosophical reasoning and economic modelling churned out by 21st century universities, and lacks any practicality in the ‘real world’. This is incorrect - if you live in Atlanta, October is a good month. Every resident, man woman and child, gets $1,606 deposited in their account. Paid out since 1982 to each Alaskan resident, the Permanent Dividend Fund is hailed as the world’s best example of UBI. This is complimented by countless studies, such as that of Finland in 2017, where it was found that UBI had a negligible effect on the incentive to work. In fact, those on UBI worked on average 6 days more than the control group.

The picture is clear. In his recent Reith Lectures, the former governor of the Bank of England Mark Carney argued that we had moved from a ‘moral worth’ to ‘market worth’ society. What before was considered an economic explanation, has today been extrapolated to a moral justification. 

Thankfully for UBI, it wins on both the moral and economic. Not only that, but UBI has done what Keir Starmer grapples with night and day - appeasing both the political left and right. Karl Widerquist, Co-Chair at Basic Income Earth Network, chooses UBI since he believes, ‘It’s wrong for anyone to come between someone else and the resources they need to survive’ - you don’t have to have read Karl Marx’s Communist manifesto to appreciate the socialist parallels. Yet UBI also bears resemblance to Friedman’s ‘Negative Income Tax’ and Von Hayek’s ‘Guaranteed Minimum Income’ - unconditional government cash is anti-paternalism at its finest. 

And lastly beyond the long words and academic studies, UBI wins out on the logic. In an age of democracy, as HD Lee put it in his narration of Plato’s ‘The Republic’, governing involves, ‘Selling the right lie to the people.’  (A skill to which Boris Johnson has mastered)

With UBI, there is no lie. A YouGov Poll last April found that 51% of us support a universal basic income. After all, who wouldn’t want unconditional monthly cash?

Universal Basic Income: Misplaced Hope for Misjudged Ends

Anoushka Chawla

The most persuasive argument in favour of Universal Basic Income is that it decreases inequality. Reducing inequality is something that I am sure most of us would like to achieve. However, UBI is the equivalent of simply sticking a plaster on a festering wound. This metaphorical ‘wound’ being the widening gap between rich and poor - according to the UN, more than 70% of the global population living in countries where the wealth gap is growing – something in need of dire treatment, not a band aid.  I will argue that while a UBI could temporarily reduce the impacts of inequality, it is by no means a long-term solution to the problem it seeks to solve and thus implementing it would be a gross waste of time and resources. 

Universal Basic Income is a redistributive measure. This means that the effects of poverty are lessened through state taxes and benefits or, in this case, a lump sum of money paid to everyone on a monthly basis. I propose instead to prevent poverty before state redistribution, including measures such as increasing the national minimum wage (currently at £8.91) and gradually supressing wages in high end jobs. This is the more sustainable route as it alters the distribution of income instead of relying on redistribution, a secondary measure, and greatly reduces dependability on government handouts. 

Furthermore, UBI is completely unnecessary in a well-functioning welfare state. In a country such as the UK, the rich are taxed a greater proportion of their income while the poor receive benefits on a variety of criteria, such as unemployment, disabilities and children. Instead of just the people who need it receiving aid, it would be given to everyone, dramatically increasing government expenditure. The logical way to finance this would be through taxing the rich, with the amount taxed leading to a net negative effect on the wealthiest. Not only does giving someone money only to take more away seem like a waste of time, but it would be politically impractical as any government seeking to implement this would lose support and funding. In many cases, people may simply choose to leave the country to a place where taxes are lower.

The current high earners in the UK are taxed 45% – any higher and more than half of their income earned past the threshold would be lost. There is no doubt this would lower incentives to perform well at work, lowering productivity in the economy; while this on its own may not be too impactful, if it is compounded with the fact that a UBI is bound to lead to a rise in voluntary unemployment (as benefits are higher than the cost of working), incentives to work are decreased at both ends and the economy would suffer. 

In addition, the opportunity cost of a Universal Basic Income is high. The money and time that would be spent detracts from building hospitals, schools and other such infrastructure. These all contribute to a better standard of living in the long term by increasing health, education and mobility, which is much more effective than a flat rate payment that could not be used in the best way. Improving the quality of labour on the whole in turn increases productivity, benefitting everyone. Education, healthcare and mobility are more empowering for those in poverty than a relatively small amount of money, therefore social investment in areas that are actually proven to improve quality of life and reduce inequality should be prioritised over the short-sightedness of a UBI. 

Arguably, the places that most need a Universal Basic Income are developing countries with extreme poverty and no effective benefits/taxes. However, implementing a UBI even in the places where it has the potential to improve lives most is ill-advised. Often the reason for such widespread poverty in the first place is inefficient tax collection and corruption. Moreover, the sum would have to be paid in cash due to a lack of digital finance infrastructure, greatly increasing the margin for error. A government that has failed to collect the correct amount of taxes in the past would not be able to cope with handing out flat rate payments to a largely undocumented population whilst also increasing taxes to finance them, not to mention that it may be withheld in the first place. 

Finally, a Universal Basic Income may lead to increased exploitation by TNCs. Wages are already notoriously low in developing countries (sweatshop workers in Bangladesh paid less than 3 cents an hour), so a monthly rate would be justification for even cheaper labour. This is obviously not the intention of implementing a UBI, but an inevitable after effect. Returning to my earlier point, it would be far more effective to reduce the wage gap pre-distribution, using the resources allocated for the UBI to instead introduce a universal, higher minimum wage that not only increases incentive to work but gets to the crux of the problem – income inequality. 

In conclusion, the problems that those who propose UBI aim to solve would be better managed by decreasing the wage gap before state benefits and taxes. The main problems with implementing the UBI that I have addressed are: a high opportunity cost, unpopularity, reduced productivity, costly distribution and potential exploitation. Referencing the metaphor once more, we should prevent the wound from getting too big instead of desperately trying to plug the bleeding with a Universal Basic Income.