In Stephen O’Brien’s recent post on this website entitled “Why we shouldn’t just jump on the UBI bandwagon”, he makes a series of points in opposition to a Universal Basic Income (UBI). The difficulty with his criticisms is that he argues against a version of UBI almost nobody is proposing. If we are to have a constructive discussion about UBI as a party, we need to make sure that both supporters and detractors are talking about the same thing.
First, the £830-a-month proposal Stephen critiques appears to be plucked out of nowhere. There has been no substantive proposal along these lines made. If we were to agree on the principle of UBI, we would of course need to work out precisely how it would work and the exact level it would be set at. In order to be a “basic” income, however, it is likely that it would need to be higher than this, neutralising any objection that Universal Credit currently provides more than UBI would.
Stephen also makes an assumption that UBI would totally replace all existing welfare benefits full stop. So, in the example he sets up to criticise UBI, he implies that it would abolish all disability benefits. This is a proposal I have never heard being made by anyone who supports the policy. Almost all its major supporters agree that there would have to be uplifts for those with disabilities, and in other categories. Nobody would lose out.
In general, it should be noted that the primary point of UBI is to eradicate economic insecurity. A key cause of economic insecurity is the waiting period for welfare payments, inherent in our current system: the Trussell Trust views it as the reason for a significant proportion of food bank usage, for example. This delay is an in-built feature of the current welfare system, and other programmes like a negative income tax (NIT). UBI abolishes it entirely by giving all people unconditional payments. Under it, nobody ever has to wait to be assessed and processed when they suddenly fall on hard times.
Stephen also says that support should be given to those who are ‘most in need’. UBI does precisely this. It is often ignored by critics that any UBI proposal is accompanied by a concomitant tax proposal, whereby people who earn above a certain threshold (and thus do not need their UBI payments) have them taxed away. This means that millionaires and the well-off do not keep their UBI payments, but the poorest and neediest do – precisely what a welfare system should do, with the added bonus of income security.
Stephen goes on to say that ‘our policy shouldn’t be giving everyone money for nothing’. But Conference has already voted to abolish benefits sanctions, so that is precisely the principle we already support as a party. This is not a radical step. Nor is UBI an idea from the ‘middle class comfort zone’ Stephen talks about, or a vote loser ‘outside of London’. Support for UBI is at an all-time high, with more than half of the public supporting it in the latest poll by YouGov.
In discussions surrounding UBI, I recognise that more work needs to be done on the details, the numbers, and persuading members of the party. Additionally, constructive criticism is good, and allows the policy to be honed. But if we are to have a proper debate on this issue as a party, we need to be on the same page as to what we are actually discussing. Without that, we will be arguing at cross-purposes, and that will do us no benefit at all.
* Harry is Communications Officer for the Young Liberals. He lives in South London, where he is training to be a barrister.
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57 Comments
A really good contribution to the debate. The detail and shape is important and we should not have to keep fighting straw men everywhere.
I do think there are also plenty of people advocating for UBI who have little grasp of what they are advocating for too. These people tend to view it as a seemingly radical idea that fits with how they want the party to be perceived, but then have poor answers on how it would work. This weakens the case for UBI.
I’ve not yet made up my mind on whether we should swing behind it. Partly because the detail is important. Partly because it may fall into the trap of being something that appeals to us more than the country. I note your reference to polling, but let’s not forget that many of Labour’s biggest policy ideas polled well when asked about. An electoral promise of something the public deems unfeasible is different to a liking of an idea. Our big task would be to make it seem feasible.
Have you considered if UBI is compatible with open borders (a long-term Lib Dem policy?) Even ‘just’ £500 per month unconditional payment is a substantial sum in many Eastern European and emerging nations. Its almost an invitation to arrive in the UK with no economic or productive incentive. Based on modern migration trends, can easily see at least a couple of million settling here over 2-3 years due to UBI alone. Will you have infrastructure plans to cope?
This article just proves my point there is no detail untill their is detail is on the UBI’ers to prove the point that there is a worable policy.
Blimey! I’d already written “Not another article about a UBI!” in comment to a later article about a UBI and before I’d noticed this one!
I guess now that Brexit is just about over you need another topic to obsess about!
PT:
What is the matter with you? Of course UBI or any other benefits system is compatible with open borders? Do you imagine that where there are open borders you can simply cross the frontier and demand welfare benefits? Obviously it is nowhere near a possibility anywhere. I have to say, I suspect a Brexit brain in operation.
@martin
Then its not a universal basic income. because not all of of the country’s citizens will be receiving it if someone comes to the UK legally surely they would be entitled no?
On proposals of UBI, I see little in regard to practical implementation at a time when public finances are severely tested.
So far as I can see, Universal Credit could be repackaged as UBI, however introducing Universal Credit during an economic squeeze was a mistake. At such a time the teething problems and the hard cases of those losing out blighted the concept. Unless the proposal is to provide additional money on top of what is already available, so it would be with UBI.
Thanks for this article Harry, unlike Peter I am finding the series of articles on UBI interesting, as I haven’t made up my own mind about it as a viable policy position.
One thing is sure that many people in this country have had a close call with their financial security until the Government stepped in with its various schemes to continue to pay the wages of people who would have been faced with surviving on UC. even with these schemes there are left out groups amongst the self employed who are still struggling.
The difficulty I have at the moment with UBI is in selling it to the electorate. yes an individual is likely to react positively to the question would you like to receive free money, but the electorate react differently and would ask about affordability but more importantly about fairness. they would perceive it as unfair that people like Alan Sugar, Richard Branson etc. may also be entitled to UBI. the danger becomes we would be stuck defending and explaining the indefensible and lose the prize of placing a safety net under people in time of need.
I am also reading up on the idea of the Negative Income Tax, which has the potential virtue of ensuring that it only supports people who fall bellow a set level above which people may feel they do not need basic income levels of support.
I wonder if those who advocate for UBI could let us have their views on NIT which seems to me to be a easier policy to ‘sell’ and would achieve the same end as UBI at the level in society were it is most needed.
Hi Stuart – the principle reason I’m not in favour of NIT is that it doesn’t account for situations where people unexpectedly fall on hard times. Under UBI, everyone gets paid every month. So, if you lose your job, you still have your UBI payments, and can just tell HMRC in your next tax return so they don’t recoup them from you. Under NIT however, the payment levels are set at the initial income assessment for that year. So, if you suddenly lose your job and fall below the threshold, you still have to apply for a reassessment, which is just a bureaucratic process as now and will lead to the same problems I identified in my article.
“We need to be clear what we are talking about.”
OK that’s fair enough. But just what are you talking about? We need some numbers as well as words.
The problem is that the UBI looks unaffordable is it is large enough to eliminate poverty but inconsequential, or worse, if it isn’t.
So where is the money going to come from if we are all drawing our UBI and making a bit extra via the black economy because the marginal rates of tax are prohibitively high? Who is going to pay the taxes? Have you ever heard of what happened in Zimbabwe and Venezuela when the Govt just printed the money?
PS I couldn’t resist the last senetence. It’s what I’m usually told when I argue that running a govt deficit is quite normal. Nevertheless taxes do have to be paid and someone does have to work in the legitimate economy. We can’t all live on a UBI.
Martin, we’re not talking about conditional benefits that people will ‘demand’, but rather an unconditional one that’s open to all regardless of circumstances. Why are you comparing the two? And what has Brexit got to do with it? Some very insular thinking you’ve got going there. Doesn’t help the Lib Dem cause. Much like the last election as it happens.
Good points, Harry.
This is an example of a proposed revenue neutral scheme that sets out the distributional benefits https://www.inclusivegrowth.co.uk/basic-income-would-reduce-poverty/
“…as poorer people earn more, their benefits are withdrawn, and they remain poor. Finding a job, or increasing the number of hours of employment, can often make very little difference to disposable income: so for too many households on Jobseeker’s Allowance, Working Tax Credits, Child Tax Credits, or Universal Credit, it is really difficult to climb out of poverty. Work doesn’t always pay very well.
A counterintuitive and rather different response is to give an unconditional income to every individual. Such an income would not be withdrawn as earnings rose, so it would not suffer from the problem that we have identified with means-tested benefits: but it is counterintuitive as a solution to inequality because to give the same amount to everyone sounds as if it would leave the level of inequality where it is. This is not necessarily the case.
Research at the Institute for Social and Economic Research has shown that an unconditional income for every individual in the UK – a Citizen’s Basic Income – of £63 per week for every working age adult, and different amounts for other age groups, if paid for by reducing to zero the Income Tax Personal Allowance and the National Insurance Contribution Primary Threshold, charging National Insurance Contributions at 12% on all earned income, and raising Income Tax rates by only 3%, would considerably reduce both poverty and inequality
The idea of giving everyone some money is sometimes criticised for being too expensive. Not so. The scheme described here would be revenue neutral: that is, no additional public expenditure would be required.
A frequent difficulty with a revenue neutral tax and benefits reform is that there will always be households that will lose money: and rather too often many of the households that lose money are those on low incomes. One of the virtues of the Citizen’s Basic Income scheme described here is that there would be almost no losses of any significance among low income households.
A further significant result is that although the means-tested benefits structure would be left in place, there would be 7% fewer households on means-tested benefits, 15% fewer households would be on more than £100 per month, and 20% fewer households would be on more than £200 per month. There would be a lot of households more able to escape from means-testing than they are now.
But the results that really matter are that the Citizen’s Basic Income scheme would reduce both poverty and inequality.” The detailed results are in the link.
“… a Citizen’s Basic Income – of £63 per week for every working age adult, and different amounts for other age groups,….
What are the different amounts, and for which age groups?
This article at least attempts to consolidate a base for discussion of UBI, and yet as always, the detail of UBI becomes ever more ephemeral with each iteration of ‘Let’s do UBI’ articles?
No voter is ever going to believe that a government is going to give them free money,..(for the rest of their lives !!), without consequences. If you can’t even agree on the UBI detail here in this cozy backwater of LDV, and thus by definition, can’t sell it simply! on the doorstep, it’s frankly D.O.A. as a policy.
@Dilettante Eye “What are the different amounts, and for which age groups?”
Joe did post a link, DE. You only had to click through a couple of times to the actual paper.
Joe writes – ‘paid for by reducing to zero the Income Tax Personal Allowance and the National Insurance Contribution Primary Threshold, charging National Insurance Contributions at 12% on all earned income, and raising Income Tax rates by only 3%’
No one is going to vote for a party that wants to reduce the personal allowance to zero and raise income tax by 3% no matter how worthy the final aspiration.
They are also likely to say don’t give the payment to the wealthy as is implicit in the universal nature of the policy
A rather defensive article which criticises another article for apparently misunderstanding the details of UBI but which then admits “that more work needs to be done on the details, the numbers, and persuading members of the party.” You can say that again!
While support may be high for a policy in principle, I suspect that support will drop like a stone once the details become clear. As George Kendall commented in that other article, we “… would have to allow for the inevitable Tory campaign against it. Something like: “would you be willing to pay an extra £4600/year taxes for a benefit that goes to everyone regardless of their situation?”” I can just see how that would go down in the many Tory-facing marginals we’re likely to face in the next GE!
@ Joe B,
I’ve noticed you haven’t been referencing Pavlina Tcherneva recently. Perhaps you’ve read and listened to what she actually has to say!
“Research Associate Pavlina R. Tcherneva argues AGAINST a universal basic income policy and IN FAVOR of a job guarantee in this interview….” (my Caps)
http://www.levyinstitute.org/publications/the-argument-against-basic-income
Daniel Walker
Good luck selling that Citizens Pension of £40 per week. If you have to explain it simply on the doorstep and can’t, you’ve already lost it.
Theresa May took on the pensioners in 2017 and failed abysmally. Be warned?
So given that you are clearly bang up to date on these UBI details, can you do what no-one else has been able to do, and factor in the personal allowance, State pension, (with triple lock??), and your £40 per week (without a triple lock?), and tell the basic pensioner on the doorstep:
What is the clear weekly amount ( £s and pence! ), of pension an average pensioner (aged 66 not 65!), will actually receive under your version of UBI?
Peter Martin,
I posted a link to an interview with Pavlina Tcherneva when commenting on job guarantees in the last article I posted on this site on the 17th May (five days ago) https://www.libdemvoice.org/a-manifesto-for-a-postpandemic-britain-64507.html
I have great respect for her work as an economic researcher in the area of job guarantees. No one individual gets everything right and that includes Ms Tcherneva when it comes to the minimum income guarantee.
The link to the illustrative scheme above notes “As for the redistribution that would be achieved: it could not be more desirable. There would be substantial proportional increases in disposable incomes for households in the lowest earnings deciles, relatively minor proportional reductions for households in the higher earnings deciles, and significant increases for the ‘squeezed middle’.
If a political campaigner cannot promote a policy that puts significantly more money in the pocket pf lower-income households and the ‘squeezed middle’, maybe they should be thinking about a career change. Just not as a doorstep salesperson because they are not very likely to earn much in the way of commissions or bonuses if they are unable to campaign for a demonstrably more equitable form of taxation and benefits.
@ Joe B,
“No one individual gets everything right ….”
Does that include you? 🙂
If so, what are you most doubtful about?
Peter Martin,
it includes everyone. I am, however, referencing the work of several respected bodies on UBI and pointing out the depth of research that has gone into developing this policy area. That, I submit, is how proposed policy should be interrogated.
In the sphere of economics, I think Keynes had two very good pieces of advice for all students and practitioners in the field.
Firstly, is to make a distinction between risk and uncertainty. In the case of risk all possible future events or consequences of an action or decision are known. However, the events that will actually materialize are unknown beforehand. In these circumstances risk the probability calculus is applicable and provides a sound basis for risk management, cost/benefit analysis, budget planning, etc.
However, quite often in human decisions not all possible outcomes of an action or decision can be known. These are cases of fundamental uncertainty. There are things people simply do not know in advance. In situations of uncertainty the probability calculus has no sound foundation. There is no objective basis for risk management, cost/benefit analysis and other control techniques.
Secondly and following on from this distinction between risk and uncertainty was Keynes comment “”When the facts change, I change my mind. What do you do, sir?”
With these two basic principles in mind it should be clear why no one individual can get everything right as Einstein observed when he told us “No one does anything right in life, until they realize that they are making a mistake”.
So, no response Daniel to my request for some detailed figures?
O.K. so here is my calc for a pensioner under your preferred UBI scheme.
State Pension 134.25/wk …………£6981.00
UBI £40.00 /wk ………………………£2080.00
Total ………………………………£9061
Zero personal allowance
23% tax on first 0 to £43,000 ……………£2084.03 tax
Annual State pension plus UBI final annual figure £6976.97 / 52
Amounts to £134.17/wk under your UBI scheme.
So under your UBI scheme a basic pension is 8p per week worse off!, and year on year that will get incrementally worse as your £40/wk UBI portion is not triple locked.
Indeed, is the triple lock to be kept on State pension under your UBI?
Do you realise that a 1% increase on basic tax rate from 23% to 24% would rob pensioners of a further £1.74 per week ?
This crazy UBI idea is frankly (DoD), Dead on the Doorstep.
@ Joseph B,
“….. pointing out the depth of research that has gone into developing this policy area.”
What depth is this then? As Dilettante Eye points out, above, no-one is prepared to put any figures to what they are proposing. Or even provide figures for a range of possible options of what is being proposed. For example we could have a cost benefit analysis less generous, moderately generous, or highly generous options.
This article, despite saying “we need to be clear what we are talking about” is no exception. I suspect what Harry really means is just the opposite. The UBI only sounds like a good idea if the proponents are as vague as possible.
As Pavlina Tcherneva points out, any UBI has serious macroeconomic defects. It wouldn’t act in a countercyclical manner. The inflationary effect isn’t factored in. What happens when all those on low wages decide they may as well just stay home and collect the UBI? This doesn’t mean the lower paid don’t deserve higher wages but the effect of paying them does need to be considered as PT as done in her work in how the JG should operate.
Peter Martin,
Last month Dr Malcolm Torry published a study https://www.iser.essex.ac.uk/research/publications/working-papers/euromod/em7-20.pdf outlining a program for both a temporaty Coranavirus Recovery Basic Income and a subsequent permanent sustainable revenue neutral Citizen’s Basic Income.
The Los Angeles Times has devoted its lead editorial to UBI this weekend https://www.latimes.com/business/story/2020-05-22/covid-19-universal-basic-income
Alaska has had a guaranteed income program since 1982. The Alaska Permanent Fund paid each resident an average of $1,606 in 2019, all out of oil revenues.
In 2017, the Hawaii state legislature passed a bill declaring that everyone is entitled to basic financial security. It directed the government to develop a solution around a guaranteed income and land value taxes.
In Oakland, California, the seed accelerator Y Combinator will pay 100 families between $1,000 and $2,000 a month. In 2019, Stockton, California, began a two-year pilot program. It’s giving $500 a month to 125 local families. It hopes to keep families together, and away from payday lenders, pawn shops, and gangs. About 43% of the recipients are still working. Most of the others were taking care of relatives, disabled, retired, or students.
Canada is experimenting with a three-year universal income program. It’s giving 4,000 Ontario residents living in poverty C$17,000 a year or C$24,000/couple.
On the macroeconomic side, these two economists advocate https://www.apollon.uio.no/english/articles/2017/1_ubs.html devoting a proportion of national income to a minimum income guarantee so that payments and incentives are aligned with economic growth.
@ Joe B,
I’ve taken a quick look at Dr Torry’s paper. His plan for a permanent UBI falls far short of any ambitions Lib Dems might have for using a UBI to take people out of poverty. It’s largely about taking away everyone’s tax free threshold of £12500, incidentally the increase in that was one of the better policies of the coalition govt, and redistributing it as a UBI.
So we have, for 25-65 yr olds the Government handing out a UBI of £60pw which works out at approx £3120 pa. On the other hand everyone, even those younger than 25, has to pay a tax of 25% on all income up to £50,000. All income will mean that a young person doing a paper round or some baby sitting will be taxed at 25%! So someone on £12500 pa will pay £3120 in extra tax and receive a UBI or £3120. What’s the point?
At present the rate is 20% on £12501 to £50000. So it looks like even those on modest incomes of £20,000 pa , or so, will lose out. I would say that that it’s much easier to alienate people by making them poorer than it is to win their support by making them just a tiny bit better off.
But there’s a fair bit more in Dr Torry’s suggestions. If they are what you want then go for it. But they don’t look like a vote winner to me.
Peter Martin,
there is indeed a fair bit more in Dr Torry’s paper.
“To reiterate the conclusions that we can draw: it would be possible to implement a Citizen’s Basic Income scheme, with Citizen’s Basic Income levels of useful amounts, that would be revenue neutral (that is, it could be funded from within the current income tax and benefits system). The increase in Income Tax rates required would be feasible; and the scheme could largely avoid significant disposable income losses for low-income households, and it could also avoid unsustainable losses for any household.
Both poverty and inequality could be substantially reduced; large numbers of households could be removed from means-testing; and means-tested benefit claim values, and the total cost of means-tested benefits, could be reduced considerably. The scheme could provide additional employment market and
business-creating incentives for the large number of households no longer on means-tested benefits (Collado, 2018): an important factor in relation to the rebuilding of the economy following the coronavirus outbreak.
Because the only changes required in order to implement this illustrative Citizen’s Basic Income scheme would be
• payment of the Citizen’s Basic Incomes for every individual above the age of 16
(apart from those between 16 and 19 still in full-time education), calculated purely in
relation to the age of each individual,
• increases in the rates of Child Benefit,
• changes to Income Tax and National Insurance Contribution rates and thresholds, and
• easy to achieve recalculations in existing means-tested benefits claims, the entire scheme could be implemented very quickly, whether or not it had been preceded by a Recovery Basic Income scheme.”
The proposals I have put forward for a minimum income guarantee are in an earlier thread https://www.libdemvoice.org/minimum-income-guarantee-63647.html
@ Joe B,
“the scheme could largely avoid significant disposable income losses for low-income households”
“Largely” and “Significant” ? This is really not good enough. Anything that is politically saleable to nearly all Labour supporters has at least to guarantee that ALL low income households will be protected with a guarantee of no loss in disposable income. Of course, this is the difficulty. To do this will require even higher increases on the tax payable by the more affluent households. This will mean that there will be more resistance in the higher income and more Tory inclined households. I’d be inclined to include most Lib Dem voters in with the Tories. Lib Dem support now largely comes from the higher socio-economic groupings.
UBI is really a non-starter politically.
Peter Martin,
forms of UBI already exist or are being trialled in several countries. It is a national program in Iran and Spain is about to introduce a scheme. Politically it is a cause that is building huge momentum around the world as it will here in the UK. A trial of UBI was in fact included in the last Labour manifesto. “And we will explore other innovative ways of responding to low pay, including a pilot of Universal Basic Income [page 60].”
The inclusion of UBI in the manifeso followed the commissioning of a report from Guy Stranding (who I have referenced earlier). The foreword to the report https://www.progressiveeconomyforum.com/wp-content/uploads/2019/05/PEF_Piloting_Basic_Income_Guy_Standing.pdf
notes:
“Our system of social security is in crisis and has moved far from the scheme devised by William Beveridge, which was intended to banish want forever and provide security from cradle to grave.”
“Something must be done to reform our social security system to provide security to all our citizens and basic income could be the way to do it. If it helps to abolish sanctions and render food banks unnecessary that alone would a major achievement. But much more than this is at stake. By providing our citizens with security for their basic needs of a home, subsistence and health we lay the foundations for a prosperous and sustainable economy for the benefit of all.”
and concludes: “Rather than jobs per se, the primary challenge is to build a new income distribution system, recognising that the old one has broken down irretrievably. The rentiers are running away with all the revenue thrown up by rentier capitalism, and real wages will continue to lag. Putting people into static low-wage jobs is no response.”
@ JoeB,
The Torry plan doesn’t take anyone out of poverty and it doesn’t even guarantee that those already on a low disposable income won’t end up on an even lower disposable income. So what’s the point?
Beveridge, rightly, wanted to abolish “idleness” too. But the thinking of many so-called progressives is that idleness is somehow OK. They’ll be protected from poverty on their £3120 pa!
Well they won’t! That will only happen if we utilise all available talents rather than writing many off as unemployable.
Pavlina Tcherneva has debunked the Guy Standing’s UBI plan too.
https://ideas.repec.org/a/bpj/bistud/v7y2012i2p66-87n5.html
@Joe Bourke
Do any of these UBI trials also trial the taxation that would accompany them? If not, they aren’t really trialling the UBI models, are they?
I’m not saying that trialling UBI without extra taxation gives us no information. In fact, I’d quite like to see one happen in the UK. It would raise the profile of the issue, inevitably create debate on the taxation issue, and get us a much clearer idea of what the public might support. To their credit, a trial is all that most academic advocates for UBI are asking for.
My deep concern is that advocates in the Lib Dems seem to want to go much further. After the catastrophe of the radicalism of the Revoke policy, we might repeat the error with another high-profile policy that turns out to be against public opinion. I fear that could be the death of the party.
I think Peter is being a little unfair on Torry. An important part of his scheme is to retain existing benefits in addition to a smaller UBI. This makes it less regressive than many other UBI models. But it still involves enormous tax increases, and I doubt the public would support it.
Peter Martin,
you ask what is the point. The Torry study shows a 22% increase in disposable income for the bottom decile of income, 8% for 2nd decile, 5% for the 3rd. Only the top decile of income earners sees any material decrease in income.
The report notes “this is the kind of redistributive pattern that we might wish to see generated by a Citizen’s Basic Income scheme. Given that low-income households have a higher propensity to consume than higher-income households, the additional income that lower-income households would receive would increase demand in the economy. The scheme would also benefit the disposable incomes of mid-range income households. Only those with the highest incomes would experience average disposable income losses.
You say that despite having it in the Labour party manifesto ” nearly all Labour supporters want at least to guarantee that ALL low-income households will be protected with a guarantee of no loss in disposable income. ” Would that include the labour supporters across the North of England that just gave Boris Johnson a 50 seat majority?
The UBI should be introduced at a subsistence level and coupled with job guarantees. All the evidence from around the world shows that a subsistence level minimum income guarantee has no impact o work incentives. You are using the same spurious argument that the Tories use to cut back unemployment insurance.
A minimum income guarantee; a green jobs program powered by renewable energy and clean technology; and land reform to develop adequate affordable housing are the way forward for a healthier population and sustainable economy.
George,
in the Torry plan the tax increases are offset by the additional income all lower and middle-income earners receive as UBI. Only the top 10% of income earners would see any significant loss of income and that is in the range of 7%. I think the public knows a good deal when they see it.
The Bank of England is reportedly mulling over the introduction of negative interest rates. How is that going to go down with the public when not only can you not earn any interest on savings, you have to pay your bank or building society for the privilege of saving money with them?
Dilettante Eye.
this is the calculation based on the Torry proposal:
State Pension 134.25/wk …………£6981.00
Pensioner UBI £30.00 /wk ………£1560.00 (tax free)
Total ………………………………£8541
£4,000 personal allowance
25% tax ……………£745.25 tax
Annual State pension (net of tax) plus UBI final annual figure £7795.75 / 52
Amounts to £149.92/wk i.e. an increase of £15.67 per week.
Joe Bourke
Great, so you change the UBI calculation goalposts?
So why give a Malcom Torry (version March 2018) link at 21st May 6.43pm, only to do your calculations based on a revised (version April 2020) Malcom Torry UBI.?
Was the (March 2018) Malcom Torry proposal just a teaser, or is it just that no-one has a flying clue (including Malcom Torry!), where this is going.?
You can’t keep doing this UBI version ‘hopscotch’. Sooner or later, a UBI version will have to be chosen and made policy!, and that is when the real scrutiny begins on the doorstep.
@ Joe B,
I’m not sure what income decile someone earning £25k would be in, but this a lot less than either the median or average income. Let’s take a look at how they would fare:
Currently they pay income tax at 20% on £12500 = £2500
Under Torry’s UBI plan they pay 25% tax on it all = £6250 but they receive back £3120 in UBI which means they effectively pay £3130 in tax.
An average salary is more like £35,000
Currently they pay £4500 in tax
Under Tory’s UBI it would be £8750. Less £3120 UBI makes £5630
People on these kind of incomes can’t be considered the super rich. Your target voter will be earning similar amounts. They aren’t stupid and they’ll spot that you’re proposing to give something with one hand but you’ll be taking away more with the other.
Dilettante eye,
this is the explanatory note to the calculation in the 2018 paper.
“The calculation is as follows: Income Tax Personal Tax Allowance in 2017-18 was £11,500. Removing the allowance would mean additional Income Tax of 11,500 x 0.2 = £2,300 being paid. The Primary Earnings Threshold for National Insurance Contributions was £157 per week. Reducing the threshold to zero would mean additional National Insurance Contributions of 157 x 52 x 0.12 = £979.68. The total additional payment would be 2,300 + 979.68 = 3,279.68, which translates as £63.07 per week: so a Citizen’s Basic Income of £63 per week would compensate for the loss of the Income Tax Personal Allowance and the reduction of the Primary Earnings Threshold to zero. ”
The basic income in both cases 2018 and2020) is tax-free. Redo your calculation in your comment above and you will find pensioner income is increased by £9,12 pw in the 2018 paper and is now (in the 2020 paper) being increased by £15.67 per week.
That’s not moving the goalposts, that is simply reading what is actually being proposed under various schemes.
Torry is producing illustrative schemes. The reason he gives in his 2020 paper for maintaining a small personal allowance is as follows:
“Most previous illustrative Citizen’s Basic Income schemes have assumed that the Income Tax Personal Allowance and the National Insurance Contribution Primary Earnings Threshold could be reduced to zero to help to pay for the Citizen’s Basic Incomes. This is no longer assumed here. In the new economic circumstances that will follow the coronavirus crisis, we shall need to encourage occasional and part-time employment, and the founding of new enterprises. This process would be assisted by retaining a small Income Tax Personal Allowance, and also a small National Insurance Contribution Primary Earnings Threshold.
(For the purposes of this exercise, the Income Tax Personal Allowance and the Primary Earnings Threshold will be aligned so that Income Tax and National Insurance Contributions would begin to be paid at the same earnings level.)”
The level of allowance (if any) is of course decided by the Chancellor in each years budget.
Peter Martin,
Torry’s 2020 UBI plan based on a 25% income tax rate includes a personal allowance of £4,000. So no they do not pay tax on all of it. You are right, people aren’t stupid. Most can read, do sums, balance a chequebook and figure out that if they are having tax deducted of £2,500 now, they are better off under UBI when they will only have £2,130 (£5250 tax less £3120 UBI) deducted from their £25k salary.
@ JoeB,
I was going off the figures given on page 10 of the link you gave.
It says 25% ” Income Tax, basic rate (on £0 – 50,000)”
So you’re saying it should be £4000 – £50000 ?
I agree it makes a difference. As the title of the OP says we need to be clear just what we mean. And do our calculations correctly and with the right starting figures too!
Peter Martin,
yes, the report (pages 9 and 10) notes “The scheme is funded by reducing the Income Tax Personal Allowance from £12,500 per annum to £4,000 per annum; by reducing the National Insurance Primary Earnings Threshold from £170 per week to £77 per week; by charging National Insurance Contributions at 12% on all earned income above the Primary Earnings Threshold; and by setting Income Tax rates as shown in table 5.”
Proposed income tax rates and taxable income bands in table 5 are:
Income Tax, basic rate (on £0 – 50,000) 25%
Income Tax, higher rate (on £50,000 – 150,000) 45%
Income Tax, top rate (on £150,000 – ) 50%
The first seven income deciles all see increases in net disposable income (extra money in their pocket) with the big increases going to the bottom deciles. It is not until the 8th decile (£810pw, £42k per year) that there is a slight half-percent reduction in after-tax income. At the 9th decile (£982 pw, £51k per year) there is a 2.8% reduction; and at the top income decile (£1,564 pw, £81k per year) the reduction is 7.1%.
Joe has said that “The UBI should be introduced at a subsistence level and coupled with job guarantees.”
£3120 pa is certainly no more than subsistence level! It wouldn’t even pay the rent for most people. It falls far short of expressed hopes of using a UBI to end poverty so I’d say we’d need to extend the discussion to include those job guarantees to do that.
But, it’s good that we’re discussing figures at last.
Torry’s paper includes simulations for both a Recovery Basic Income be implemented to assist with economic recovery once the crisis is abating and a revenue neutral permanent basic income. The paper concludes:
“• a Recovery Basic Income scheme, with a working age adult Basic Income level of a significant amount, would be able to be implemented once the required administrative infrastructure was in place;
• because of the scheme’s considerable net cost, the Recovery Basic Income would have to be regarded as a short term economic stimulus measure rather than as a
permanent fixture;
• a permanent revenue neutral Citizen’s Basic Income would be both feasible and useful once the coronavirus crisis had abated;
The permanent basic income is both a supplement to existing benefit payments and a measure designed to make the current system of income tax and national insurance more progressive without putting any additional burden on public finances.
Coupled with the existing benefit system it can take significant numbers out of means-tested benefits reducing the number of households subject to means testing from 30% to 22.5%. The job guarantee properly implemented and with an adequate level of work allowance can ensure that virtually all households with a working partner can escape poverty.
The TUC has developed a workable plan that needs to be put in place as the furlough comes to an end https://www.tuc.org.uk/research-analysis/reports/new-plan-jobs-why-we-need-new-jobs-guarantee
“Government should provide funding to offer a new jobs guarantee. This scheme would provide a minimum six months job with accredited training, paid at least the real living wage, or the union negotiated rate for the job.”
This is what the party should be focusing on – policies to prevent a 2nd wave of the coronavirus and deal with the 1970s style stagflation that we are about to see return with a vengeance.
” deal with the 1970s style stagflation that we are about to see return with a vengeance.”
I’ve written previously that this is possible but no-one can know that. It really depends on how aggregate demand compares with aggregate supply.
Both aggregate demand and aggregate supply are, and will continue to be, down for obvious reasons. But which will be down the most?
Peter Martin,
yes it does depends on how aggregate demand compares with aggregate supply. As this US author writes ” I fear that in 2021 we will see not only high unemployment but high inflation as well. (Complication: Official statistics may classify disemployed workers as “out of the labor force” because they’re too scared to hunt for a job). At this point, I would not be surprised by 10% unemployment and 6% inflation for 2021.” https://www.econlib.org/i-fear-stagflation-and-general-price-controls-are-coming/
His conclusion is also a fair one;
“Optimists will say, “Price controls?! Come on, U.S. policy-makers learned their lesson last time.” I cannot assent. Few policy-makers even remember the 1970s. Many of those who do remember what happened failed to absorb the textbook explanation. Many of those who absorbed the textbook explanation at the time have forgotten it. And once price controls get on the agenda, the few policy-makers who know the damage they’ll cause will probably go with the demagogic flow. I doubt even the CEA will loudly protest: “Price controls would normally be a bad idea, but given our nation’s ongoing emergency…” Tell me I’m wrong, please.”
From what I am seeing we are going to have a very rapid rise in unemployment on top of what we have already seen as the furlough program is would down. This will be particularly concentrated in the hospitality, retail and leisure sectors. Although, initially we may see a release of pent-up demand as the lockdown eases, this will be a ‘dead cat bounce’ that sets off inflation. We can expect that this will be soon followed by the set-in of the paradox of thrift and stalled business investment and – the conditions for stagflation – i.e. aggragate supply falling further than aggragate demand.
This is a tricky problem that requires both increases in interest rates to stem inflation and fiscal measures to support employment (not repeating the mistakes of the 1980s) putting a heavy strain on public finances.
@ Joe B,
“As this US author writes…..”
Unless he has an accurate crystal ball he won’t know any better than anyone else. There can’t be any arguments to authority at the moment. There is no authority. So all that anyone can say is there is a risk. You should have included the word ‘possibly’ before the word ‘about’.
“This is a tricky problem that requires both increases in interest rates to stem inflation and fiscal measures to support…. ”
If you want to crash the property market and bring down the economy with it, then start raising interest rates. There is a big risk that is going to happen anyway. Your suggestion is to have fiscal and monetary policy working against each other. We’ve had enough of that! Mind you it’s usually been the otherway around.
Just leave interest rates as they are and tax those who have done well in the lock down to support those who haven’t and at the same time to control AD.
I am pleased to see Jane Dodds arguing for UBI. It seems to be forgotten that it was a policy under the SDP/Liberal Alliance for a “Basic Citizen’s Income”, a policy dropped partly because of the public reacting aggressively towards press and Tory exaggerations of benefits cheats. It’s time had not come, but it has now. Never before in history has an economic revolution happened so rapidly and disruptively or to be so potentially comprehensive.
Previously, the Industrial revolution galloped pace over decades. This one will peak it’s changes potentially in just 5-10 years on the back of Corona and Brexit fall outs. The previous Industrial Revolution machines took physical tasks, liberating people to work in brain related tasks and creating new jobs .
This Information Revolution takes both white collar work, such as lawyers, medical consultants and even learning creative tasks, while robots and automation take manual jobs such as driving, farming jobs, warehousing, retail and deliveries. The technology will create more jobs, but this time it will be able to do many of those also.
A Citizens Income could be great for many people, in liberating them from the daily grind of 9-5, while allowing them to become entrepreneurs in their chosen field, to work helping people, to pursue hobbies, develop skills and artistry. Of course some will not like what is likely to be a lower overall income, but the alternative total Unemployment model and haranguing claimants cannot be sustained much longer.
Peter Martin,
Keeping interest rates low and increasing taxes (with the banker’s bonus tax and withdrawal of the personal allowance for high earners) was tried after the 2007/2008 financial crisis . It had little macroeconomic impact. Inflation rose to 4.8% by Sep/Oct 2008 as unemployment kept rising. The ensuing recession eventually saw inflation fall back for a time in 2009 only to begin rising again towards 4% by the end of 2011 until ongoing spending restraint brought it back down. Subsequent tax increases like VAT and a 50% top rate were more than offset by increases in the personal allowance and reductions in the rate of corporation tax.
In the 1970s the top rate of tax was increased to 83% with a 15% surcharge on investment income bringing the top rate to 98%. Confiscatory rates of taxation didn’t help then either. Neither did price and wage controls as the author of the piece above notes. In theory, limiting wage increases can break the cycle of wage inflation and help to improve the economic situation. In practice wage control is fairly difficult to implement and had little impact in solving stagflation.
The appropriate response to a fall in aggregate supply is supply-side measures to increase aggregate supply i.e. restore total factor productive capacity and increase productivity levels. This is where targeted investment and industrial/environmental strategy is required, but it takes time and probably means higher costs for manufactured goods. Shorter-term measures that include fiscal programs like job guarantees are necessary mitigation that need to be put in place quickly. They are not, however, longer-term solutions to structural weaknesses and a dearth of domestic investment in capital resources.
This FT article discusses the issue of disrupted supply chains from China and reshoring https://www.ft.com/content/5f4ef4f6-8ad6-11ea-a109-483c62d17528. There may be benefits in more resilience in strategic industries to bringing back manufacturing but it comes with a price.
@ JoeB,
Interest rates weren’t just “kept low” after the 2008 GFC, they were deliberately lowered by Govt and the BoE . The base rate went from approx 5.75% to 0.5%. Longer term rates were lowered by QE which was the whole point of it. The motivation was to switch the borrowing requirement from Govt to the private sector. The austerity program which was supposed to reduce the Govt’s deficit was simply a counter inflation measure.
The BoE is still thinking along the same lines with much recent talk of negative interest rates. They should leave them where they are and stop stoking up ever greater amounts of private sector debt which will only create an even bigger problem of debt deflation in a few years time. Control the economy by fiscal measures. There’s no real supply side problem other than that caused by the inability of companies to operate due to the Covid 19 problem. More investment won’t change that.
Peter Martin,
We know what happened in the UK in the 1920s after the Geddes Axe in 1921 and going back on the gold standard in 1925- debt deflation. We know that it was the debt deflation from 1926 that brought Hitler to power in Germany.
We also know that the UK (outside the Northern industrial areas and South Wales) after exiting the gold standard fared much better in the 1930s great depression than the United States and other developed economies, where debt deflation set-in.
The post-war period saw rapid nominal growth in the UK, but real growth was half that of European and Asian competitors and accompanied by regular sterling crises. ending in the stagflation of the 1970s and the hollowing out of British Industry ever since.
Japan’s lost decade in the 1990s and struggles to restart its economy after the property and stock market crash that brought-in debt deflation give a good indication of the problems to be faced in an aging society. Even with massive monetary and fiscal stimulus after the Kobe earthquake and Fukushima disaster. economic and wage growth has remained anemic for much of that time.
Debt doesn’t go away, it just moves from the private sector to the banking sector and then to the public sector (i.e. taxpayers). Who pays for it are small savers that have cash in banks and building societies and the pension funds of workers.
Nominal interest rates below inflation are a sign of a weak economy. The longer they are kept low the weaker and more indebted the economy becomes and the greater the prospect of damaging debt deflation becomes. Price stability is a key element of a functioning economy. You cannot maintain price stability with continual large monetary and fiscal interventions distorting financial markets. Debt deflation can turn recessions into depressions. High inflation reduces the burden of debt, but lowers the living standards of and pensioners and low-income wage earners alike while doing so. Stagflation is not inevitable but if you have to choose between two unpalatable alternatives, it is not as bad an outcome as debt deflation and depression. We will just have to learn to live a little simpler with a more equitable distribution of production; not waste so much fuel and plastic; and have less reliance on the constant expansion of consumption and GDP at the expense of the natural environment.
@ Joe B,
“Nominal interest rates below inflation are a sign of a weak economy”
This isn’t true. They have rarely been higher than inflation since WW2. It’s true for all the developed economies too. The USA, Germany, Australia etc.
This obsession we have with fiddling around with interest rates is relatively new. It’s the so-called New Keynesianism which isn’t Keynesian at all. The idea is that interest rates can be reduced to stimulate the economy. That part works for a while. The problem is that the level of private debt rises and another reduction is needed. If there’s some concern that private debt levels are too high rates can’t simply be increased because the economy doesn’t just slow it crashes. This is what precipitated the 2008 GFC. See how interest rates in the USA were increased steadily in the years before 2008. It was the same story in the UK too.
https://www.visualcapitalist.com/chart-the-downward-spiral-in-interest-rates/
Peter Martin,
it is not a matter of opinion, it is a matter of the record that negative interest rates coincide with a weak economy.
This is a chart for the UK https://www.longtermtrends.net/real-interest-rate/ Real interest rates became negative during the high inflation of the 1970s/early 1980s and returned to positive territory as the UK came out of recession, With the exception of a dip in 1995 they stayed positive until the financial crisis and have stayed negative ever since.
The US has a similar pattern https://www.longtermtrends.net/real-interest-rate/ Negative interest rates during the high inflation 1970s and then turning positive until the onset of the financial crisis where they have largely stayed ever since.
Interest rates in the US were dropped to 1% after the dotcom collapse in an effort to reboot the economy. Coupled with the repeal of the Glass-Steagal Act during the Clinton administration these very low-interest rates created the conditions for the sub-prime mortgage crisis that was the catalyst for the world-wide banking crisis and subsequent sovereign debt crisis i.e. debt moving from the private sector to the banks and then to the public sector to be paid for by taxpayers and small savers.
Both periods of negative interest rates coincide with a tight squeeze on living standards with wage growth lagging inflation in the UK for much of the period. These are the consequences of an economy weakened by excessive money creation and debt.
@ Joe B,
Both your links are for the USA. I must admit that interest rates are positive there more than I would have thought.
However the graph still doesn’t support your argument that the negative rates are a sign of weak economy. If you look at what was happening when the US economy was very weak, in the early 30’s, (just click on the 100 yr tab) we see real rates of interest of 13.8%. So why bother investing your money, creating jobs and taking a risk when you can just buy some Govt bonds and collect your winnings risk free?
Peter Martin,
this is a link for the UK https://data.worldbank.org/indicator/FR.INR.RINR?locations=GB pretty much same pattern as the US.
Low nominal interest rates were ineffective in spurring economic recovery during the great depression in the US. Interest rates had been cut to 0.5% bud disinflation was over -10% in 1932. No business is going to borrow money for investment when the burden of debt is increasing at 10% per year on top of the interest you are paying. You need price stability to engender business and consumer confidence in investment and spending. For saving and lending to operate effectively in the economy; savers need to be able to earn a return at least equal to inflation; banks need to earn a reasonable margin on their intermediation, and borrowers need to be able to comfortably repay interest and capital on loans from their income. Once that inter-linked process breaks down the healthy functioning of the economy breaks down with it.
@ JoeB,
I will concede that interest rates have been generally higher in real terms than I had appreciated. So I am open to reasoned argument! Maybe that’s because I’ve spent most of my life in net debt with a family to support and I didn’t have any spare cash to save!
But if the same pattern of real interest rates can be observed in both the UK and USA, and I’d say this will be likely be true in Europe too, then it can’t simply be that high real rates correspond to a healthy economy and low rates a sick one. Putting them up now isn’t going to do the economy any good at all.
On the other hand I’d disagree with going for negative rates to stimulate the economy. Govt should decide where they’d like them to be and stop using the amount of private debt to try to regulate the economy. Having them close to zero is as good a place to stop as any. It’s really just pulling forward private sector spending power in the short term at the expense of the longer term. There’s no such constraint on the Govt sector. The Govt can always spend what it chooses to spend subject to the constraint of creating too much inflation.
Negative rates are already in use in Japan, the ECB and Switzerland. The thinking is based on the same principle as near-zero rates that result in negative real interest – inducing borrowing and spending and penalising saving. It is robbing Peter to pay Paul. Taking purchasing power from pension funds and other savings and tranferring it to private sector borrowing to sustain inflated asset values and maintain over-consumption.
Why do asset values need to be maintained? To prevent a banking crisis and then a sovereign debt crisis. Why does over-consumption need to be maintained? To prevent steep falls in GDP and a big increase in unemployment. Such is the outcome of reliance on debt-financed consumption to grow the economy rather than the fundamentals of investment, skills developmet, innovation and productivity enhancement.
@ JoeB,
It looks like we agree on the undesirability of negative interest rates. Albeit for somewhat different reasons. They have been advocated by Kenneth Rogoff, amongst, others. He’s not my type of economist.
Possibly we could have slightly negative rates without too much change but if they go “deeply negative”, a phrase used by Rogoff, there will have to be a total abolition of cash. In the meantime, it should all be good news for safe manufacturers. People will want to store their stashes of cash securely.
I understand what you are saying about the consumer society. But I’d say its going to have to involve an abolition of capitalism to achieve what you might have in mind. Not that I’m sure what that is. I really don’t see how your wish of “productivity enhancement” fits in at all. What are we going to produce in ever greater quantities and who is going to buy it?
Peter Martin,
What are we going to produce in ever greater quantities and who is going to buy it?
eco-friendly Housing, insulation, solar panels, underground heating systems, windmills, electric vehicles and their batteries, bicycles, electric boilers, meat substitutes, plastic substitutes and recycling , health and fitness products, gardening and DIY, sewing machines, long-life light bulbs, tree planting, water purification, hemp clothing, large scale environmental clean-up, care services, education and health services, etc.
Who is going to buy it? The same shoppers that are turning away from fast fashions now https://news.sky.com/story/coronavirus-lockdown-turning-britons-against-fast-fashion-but-will-it-last-11994168