The Shadow Chancellor, John McDonnell is pushing to place Universal Basic Income on the next Labour manifesto. UBI is a welfare benefit that gives every UK citizen an equal, pre-calculated sum of money, regardless of their earned income. It’s advocates claim that it is one of the best means of combating poverty caused by unemployment linked to the Fourth Industrial Revolution.
Recent estimates suggest up to 10.4 million jobs in the UK could be lost due to new technology, automation, AI and robotics. A Centre for Cities report earlier this year suggested that cities in the North East and Midlands such as Sunderland and Mansfield are most at risk. Their dependence on retail, transport and logistics industries mean that up to 29 per cent of jobs in both cities could go.
Those least at risk are the cities of Oxford and Cambridge where high tech knowledge-based businesses are thriving.
At first glance UBI looks like a suitable solution — a stable and persistent minimum income for all households, reducing food insecurity, the risk of missing rental payments and providing protection against redundancy.
However, it is far from clear that the predictions of mass worklessness will become a reality. After all, the Luddites’ concern that the automated textile equipment would lead to mass unemployment was misguided. Improving efficiency in textile production has given birth to the clothes retail and fashion industries (and the millions of jobs they have created).
Recent research has found that improvements in technology will create as many new jobs as it destroys. A study by Deloitte estimated that since 2001, technology has displaced around 800,000 jobs but produced around 3.5 million. These new jobs are across the income spectrum, from well-paid software engineers and specialist lawyers, to jobs along the supply chain in the retail, food, drink and hospitality industries.
Warren Buffett is optimistic about the effect of the Fourth Industrial Revolution on jobs. As he stated recently, allowing machines to replace low skilled labour frees up people to pursue alternative more productive vocations. He claims that the perceived threat from technology is not new and has actually been of benefit to multiple industries before.
So, if we are not headed towards an era of mass technological unemployment, what is the point of UBI?
But it isn’t just that UBI is a solution in search of a problem. Were it introduced, it could pose a real risk to the economic fabric of the nation. Research recently released by the Centre for Social Justice found a number of problems inherent in the design of UBI.
First, providing a lump sum to everybody in the UK is a fiscal non-starter. If the Government were to offer £16,000 to every working age person it could cost a total of £669.1bn. To put that in perspective, it equates to approximately 14 times the Government’s defence expenditure for 2018/19.
And although the UBI scheme is designed to be as fair as possible, it is unlikely to have a material impact on inequality or improve the sense of inequity that exists in our economy at the moment. No-one can imagine a low-income household finding it fair that they receive the same level of Government assistance as a high-income household.And who could blame them?
Moreover, under some circumstances, UBI would leave the most disadvantaged families worse off. CSJ calculations show that under Universal Credit, a single unemployed parent with two children would receive £426 more than they would under a generous UBI package (and £10,506 more than they would under a more affordable UBI programme).
Then there is the impact of UBI on incentives to work. Charles Wyplosz, a Professor of International Economics at the Graduate Institute of International and Development Studies warns us of detaching income from work. By definition, UBI provides income to everybody no matter the amount that they work. Wyplosz argues that, “If universal basic income cuts the link between income and efforts, there will be less or no effort at all. Gradually, [the] economy will become less effective and revenue will inevitably decline”.
It really is hard to see UBI being anything other than a disastrous policy. Not only are there good reasons to be sceptical about the predicted problem it is there to solve, UBI threatens to bankrupt the country, increase inequality and prevent those most in need from receiving vital financial support.