11 May 2020

UBI: The idea whose time hasn’t come – and never should

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Since this pandemic began, the siren calls pulling us toward the rocks of a Universal Basic Income have been growing ever louder, with the First Minister of Scotland, a Labour Leadership contender, and a grand coalition of over 170 MPs and Lords all joining the chorus. “It is an idea whose time has come”, the parliamentarians tell us.

But while their intentions are laudable, the prescription is misguided. In essence, UBI is an astonishingly expensive scheme that fails to protect people from destitution.

Let’s start by setting out what Universal Basic Income (UBI) is: a universal payment made to all citizens by right that covers basic needs, and which would then replace current social security payments with a simpler system that requires far less administration.

To see why this is the wrong response to this this pandemic, let us consider the impacts of a specific UBI proposal from Reform Scotland, which they state will, “support people through the Coronavirus crisis”. They propose that we replace most social security payments with a flat payment of £5,200 to each adult and £2,600 to each child, which is equivalent to around nine months of Universal Credit payments for a two-parent, two-child family who have lost their jobs.

The problem with this Covid-specific UBI is that it means giving every adult, including billionaires, £5,200 a year while pushing a two-parent household into destitution if they can’t find work over the next nine months in a pandemic-crippled economy. When the price of an extra five grand is the possibility of penury, is it worth it?

Before you answer, there’s one crucial detail that I should have mentioned regarding the UBI proposal – it’s five times more expensive than the current system. 

The case for UBI only worsens when we look at who has been most severely affected by this pandemic. Highly paid workers have been able to continue working through the lockdown by Zooming into their virtual offices, while many of the low-paid have been laid off as their sectors have been shut down. Shutting down sectors where low-paid individuals work and then introducing a UBI that does not support them during a long downturn means rewarding the rich for the privilege of being kept alive by the sacrifices of the poor. If that sounds perverse, that’s because it is.

In the long run, UBI suffers from the same fundamental flaw – it’s an extraordinarily costly way to not insure people from the risk of falling into poverty. This is not a bug, but a feature of the UBI model – its universal, flat-rate payments do not incorporate the different needs of different people.  The most complete modelling of UBI that I have seen, by Luke Martinelli at the University of Bath, shows that a UBI that does not consider the needs of disabled people would mean significant increases in poverty and inequality.

Martinelli does construct a Universal Basic Income model that includes extra disability payments. In fairness, that does substantially reduce poverty and inequality, but it also rather defeats the whole premise of UBI as a flat-rate, simple system.

Then there’s the cost of such a system. In order to make this version of UBI cost neutral, you need to abolish the personal income tax allowance and raise all income tax rates by eight percentage points. Nut, meet exorbitantly priced sledgehammer.

I do not oppose UBI because it implies higher taxes. I oppose UBI because I want to see an end to poverty in this country. And we already have a system that could tackle poverty more effectively at a much lower cost – Universal Credit. UC has made social security simpler by operating, effectively, as a negative income tax. Unlike UBI, the problems with UC are bugs in the system, not features of its original design; the sanctions, waits, and cuts that have made UC the source of so much criticism can all be abolished without altering the fundamental design of the system.

And some of this work has already begun – the Chancellor recently reversed some cuts and increased Universal Credit’s standard allowance by £1,000 for the next year. I would like to see him go much further and increase Universal Credit payments to the point where they abolish poverty, all without spending billions to give thousands to millionaires in the process. Now there’s an idea whose time has come.

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Jeevun Sandher is an Economist undertaking Doctoral Research and the co-host of Politics JaM.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.