Selling UBI: making it a good policy that wins us votes

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This is a follow-on post to the one published yesterday.

The real issue with UBI is not economic; it has been shown to provide no disincentive to work and most people are just paying in cash via taxes and getting that cash straight back. It doesn’t really affect most household finances to any significant degree. Instead the problem with UBI is political. How do we make it popular and keep it simple? That’s what my proposal is about.

The elevator pitch is this: “Voters are clear that they want tax dodgers to pay their fair share. That’s why the Liberal Democrats want to use taxes that are hard for the super rich and corporations to avoid and then, to make absolutely sure everyday voters don’t get taxed unfairly, we’re going to send you each a cheque from the proceeds. Think of it as a VAT rebate.”

Voters really are clear that they want higher taxes on the wealthy and corporations. This reframes the discussion in economically populist terms (something Liberal Democrats tend to hate doing but works) but it doesn’t change the policy at all. It remains good economics and it really does allow us to shift towards using taxes the wealthy and corporations find hard to avoid. The Scandinavian countries, for example, make heavy use of goods and services taxes for this reason.

Now I know Lib Dems are going to want to use Land Value Tax. That’s economically sound obviously, but that’s selling two hard things at once. I’d propose this:

We would give a universal basic income of £40/week to everyone in the first year of the parliament, paid for by raising VAT. That would rise by £40/week each year of the parliament until we hit £200/week in the final year. That’s £10,400 in that final year, presumably 2028 so £10,400 will be worth slightly less than now due to inflation. By the time we get to the final couple of years we can use LVT to get up to the full amount. VAT plus a UBI is progressive and the Scandinavians have shown it doesn’t slow economic growth.

So we can then say “By the end of the parliament we want your rebate to be a basic income that ensures not only that no one is in poverty but also that if something like Coronavirus hits: you have a secure source of income. It’s not just Coronovirus though; if your job gets automated away by AI: you have a secure source of income; that if you’re brave enough to take the risk of starting a new business: you have a secure source of income; and if you’re in a relationship where you feel unsafe or abused: you can walk away. Financial security isn’t everything you need in that situation but at least you know you have a secure source of income. That makes a huge difference. We need to give everyone up and down the country a fair start.”

It’s both good economics and it uses the same sales tactics that have worked so well for our political rivals in the Conservatives. This is a way to win elections on policy that can truly transform people’s lives for the better. Let’s do that.

* Stephen is a Council Member for the Social Liberal Forum.

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28 Comments

  • John Marriott 11th Sep '20 - 10:59am

    With the U.K. heading down the road to becoming a pariah State, with COVID on the rise again and all some Lib Dems seem to be interested in devising an unfathomable policy “that wins us votes” and, as my friend David Raw has written, gives tax payers’ money “to billionaires”.

    Come on, Mr Richmond, give it a rest! There’s more to life than grubbing around for a few votes. Having a go at the potential breaking of the rule of international law might be a good start.

  • Peter Martin 11th Sep '20 - 11:19am

    Not another UBI article! Can’t you think of something else to write about?

    Universal basic income isn’t likely to disappear off the policy agenda any time soon. That’s not because it’s some “leftie nonsense” as some in the media would suggest. Those spruiking universal basic income are also those intent on crushing workers’ rights. Doesn’t this signal the true designs of this so-called “leftist” policy?

    This link was included in yesterday’s article.

    https://www.givedirectly.org/basic-income/

    Those in favour of a UBI include Hayek, Friedmann, Richard Nixon, Mark Zuckerberg. So what’s Friedmann’s angle?

    “We should replace the ragbag of specific welfare programs with a single comprehensive program of income supplements in cash — a negative income tax. It would provide an assured minimum to all persons in need…”

    What he really means is an assured maximum. By replacing “the ragbag” of present welfare benefits govt will be handing out a sum of money and say that’s your lot. In time it will be expected to cover everything including Health Cover and maybe even education too.

    UBI is a Trojan Horse. The working class don’t need any advice from the likes of Milton Friedman. They don’t want payment for nothing. The demand has always been for a living wage payable to all workers in an economy of full employment.

  • Martin Boffey 11th Sep '20 - 11:21am

    Compass proposal 1, which was a UBI of between £40 and £60 per week, would cost £140bn per year. About the same as the NHS. You are proposing a UBI of £200 per week by 2028 – so about 3 or 4 times the cost of the NHS. Are you for real? How much are you going to have to put up VAT by to pay A UBI of £120 per week in year 3, that might cost somewhere north of £300bn per year.

    I don’t even know where to start on just how bad an idea this is.

  • Stephen Howse 11th Sep '20 - 11:56am

    “We need to give everyone up and down the country a fair start.”

    Is this really what UBI is about, or is it about giving everyone a safety net? Confused messaging, to say the least – if we want to give people a fair *start* there are plenty other liberal policies we should be pushing instead, e.g. a massive expansion of the Pupil Premium or a Universal Inheritance.

  • From a voter’s view, paying taxes to help the lazy is the main problem, giving everyone 4k a year and then taxing them equally can be seen as much fairer, if you have a half rate for kids and double for pensioners then a single mum with two kids would get 8k, enough to pay for food and modest accommodation but not an xBox or iPhone against a max of 12k at the current time but that is likely to be much lower by the time of the next election thanks to covid economics. She would then have to pay tax/NI on all income (having lost the personal allowance) but would not have to run around in circles reporting her status to social services et al and no-one would accuse her of sponging off taxpayers. A single mum with six kids would be on 16k so better off, whilst the average family would be no worse off. Single men and woman would arguably be the worse off with just eighty quid a week to live on but have the most flexible lifestyles and can easily top up with some work.

    Rather than the voter suicide of a land tax much better to get rid of the biggest fixed overhead, council tax, paid for by a property sales tax and a new transaction tax – which will balance out some of the loses for introducing UBI at 4k, replacing welfare.

    As to millionaires getting free money, taxing them properly so they pay the full 40 percent will leave them much worse off than any money they get back.

  • Throwing free money at the entire population is the ultimate virtue signalling opportunity.

    Let us not spoil it with tedious financial calculations, concerns about being paid for non-work and boring people who have nothing to say but, “Why?”

  • Yeovil Yokel 11th Sep '20 - 7:25pm

    Stephen – you propose raising the money to pay for UBI by increasing VAT. I have plenty of experience of VAT from both sides of the fence (at least in the UK) ,having been a registered trader between 1992 – 2019, and I would be utterly opposed to this for 3 reasons:
    (1) VAT gives a competitive advantage to traders with non-registered customers who are themselves not registered, either because they don’t meet the threshold for registration or because they fraudulently under-declare their turnover; any increase in VAT will exacerbate that advantage.
    (2) Increases in VAT increase the price of many common goods and services – e.g. tools and equipment, commercial vehicles, solicitors, accountants, machine servicing and maintenance, and builders, just to name a few – to businesses and private householders who are not registered.
    (3) Increases in VAT serve as an incentive to greater fraud by those crooked traders (of whom there are probably many) who reclaim input VAT (on purchases) but hide some of their output VAT on sales.
    These 3 effects are of course magnified when VAT rates reach levels of 20+%, which can represent a sizeable increase in the price of a good or service.

  • One thing I’ve noticed about the UBI debate is that most people form an opinion based on their existing prejudice of “giving people something for nothing” first, and then seek to justitify that position afterwards e.g. based in affordability.

    There are lots of ways of implementing UBI, including reducing the basic income tax allowance to zero and reducing the higher rate tax threshold, plus adjusting rates so the policy is neutral for the better off. Properly implemented in would increase, not reduce, incentives to work.

    Also, currently bad employers can get away with poor working conditions because if employees chose to leave a job they face benefit sanctions. The unconditional safety net of UBI would force bad employers to be better or face a mass exodus of their staff.

    UBI is a very liberal policy that would give ordinary people more freedom and choice in their lives.

  • Nonconformistradical 12th Sep '20 - 7:51am

    Repeating what I posted in another recent UBI thread…

    Could we get to the problem we are really trying to solve please?

    I would suggest that problem is ensuring that all can afford the basic necessities of life while at the same time ensuring that all the work which needs to be done does get done (by people who are able to obtain the skills needed without bankrupting themselves).

  • Peter Davies 12th Sep '20 - 9:00am

    There are three taxes I would like to see introduced even if we didn’t have to pay for UBI.

    Land Value Tax: Initial valuations will be inaccurate so we need to introduce it at a very low level and raise the rate as we iron out the inevitable problems. It will take at least four years from legislation to producing significant revenue.

    Inheritance Tax: Moving from taxing donors to taxing recipients is quite hard to do without double taxing or missing some legacies. It needs at least two terms.

    Carbon Tax: Quite an efficient tax to collect but would take a couple of years to set up.

    If you want to use any of these to help fund UBI, you need to bring it in at a low level and increase it gradually. £4000 is just about do-able as a start if it replaces tax/NI allowances and some benefits but it is not a gradual annual increase.

  • Sorry to spoil your fun chaps, but do you remember the mess the introduction of Duncan Smith’s Universal Credit was (and how gullible the Lib Dem M.P.’s were in going along with it) ?

    That’ll be nothing to the mess introducing a UBI will be…………….. and that’s assuming you can even (or ever) get a majority in the Commons and Lords to introduce it. Meanwhile……. dream on.

    The rest is just idle computer speculation to pass the time of the leisured classes.. Be much simpler to up the standards and amounts of all current benefits…. you might even get that through a Lab-Lib parliamentary arrangement in over four years time.

  • If you are going to do UBI it should be set at a level that allows it to completely replace universal credit and job seekers allowance, so that you can completely eliminate the associated means testing and bureaucracy (which is expensive in itself).

    The current system discourages benefits claimants to take on temporary or part-time work due to the hassle of declaring the income, the draconian penalties for getting it wrong, and the loss of benefits that are withdrawn due to the income.

  • Peter Davies 12th Sep '20 - 10:17am

    Sorry. Misread the figures. £40 pw is an easy start but it’s still not a gradual annual increment.

  • Kevin Langford 12th Sep '20 - 10:49am

    Have you done some numbers Stephen to show how this might work with VAT once you get to £200/ week UBI? Be good to see them if so.

    My high level analysis (and some more detailed work I have done) makes me sceptical For 40m working age adults, £10,400 each costs over £400bn. . Social security payments (which it might be possible to get largely supplant with a UBI of £10400 each) excluding pensions are roughly £100bn. Income tax personal allowances are calculated on a lot of different bases, but if you want to get rid of them for working age adults but not bring a lot of people into the higher income tax bracket you save about £80bn. that leaves another £220bn to find. Total net income from VAT (pre Coronavirus) is c£130bn to give some idea of scale. So on this very crude set of numbers you would need to increase income from VAT from £130bn to £350bn. That is a big increase

    There is a lot more complexity than this – but it is important that the extent of the challenge is understood

    I think we also to take on board that while in aggregate it is true that for a self funding scheme most people in the middle of the income spectrum will come out roughly the same, the reality of a big change in how taxes/state income are changed is that this will include many people who will lose a little – and who will be vehement opponents, and many people who will gain a little and will not much care

  • Peter Davies 12th Sep '20 - 11:22am

    @Kevin. I think you will find that there are quite a large number of big winners and a number of rich people who will lose larger absolute amounts but much smaller percentages of their income. There will be more small winners than small losers.

  • John Marriott 12th Sep '20 - 12:01pm

    It reminds me of how Graham Chapman’s ‘General‘ character was used to end Monty Python sketches that were running out of steam. He used come on and say something like; “This sketch is becoming too silly. Let’s go to the next one!”. So, how about Land Value Tax? That might give Messrs Bourke and Martin a chance again to blind us with science! Why not put UBI into the drawer marked ‘Earnest but lost causes‘ and MOVE ON!?

  • Laurence Cox 12th Sep '20 - 2:41pm

    I did create a spreadsheet for the SLF working group on Basic Income which includes Malcom Torry’s modelling for the Citizens’ Income Trust, the Green Party’s, RSA, and Compass proposals. It’s a bit out of date as I haven’t included changes to tax since 2018, but if anyone wants a copy, please email me at laurencox (at) cix (dot) co (dot) uk.

  • George Kendall 12th Sep '20 - 7:14pm

    Hi Stephen,

    Thanks for giving some figures for what you would like to see from UBI. From my calculations, your proposal would VAT to rise from 20% to over 55%.

    I’m afraid I don’t think that is realistic.

    [[ My calculations use a number of approximations which all reduce the figure. They are as follows:

    Your proposed £200/wk UBI is nearly three times the £71/wk cheme for an adult from the Compass paper. The Compass paper estimates the net cost after reduced benefit payments is £139bn/year.
    My calculations make the cost of your scheme £391bn/year. (200/71 * 139)

    The current VAT rate of 20% raises about £136bn/yr, and £391bn/year is nearly three times as much.
    So the VAT rate to fund it would be 391/136 * 20% = 57.5%. I’ve rounded this down to 55%

    Without the approximations, I think the figure would be more like 60% VAT ]]

  • Interesting stuff from George Kendall. VAT to rise to 55% ??

    Remember Cleggy’s later embarrassment when he talked about ‘The Tory VAT bombshell’ in April, 2010, and weeks later voted for it to rise to 20% ?

    And now….. to raise the party’s profile and restore it’s popular appeal, our friend Stephen comes up with a wheeze to raise it to 55%. You just couldn’t make it up.

  • George Kendall 13th Sep '20 - 6:06am

    @David Raw

    Thanks.

    But, to my embarrassment, I think there’s a mistake in my post. 55% VAT would be needed to raise £391bn/year. But that would be on top of the existing 20% VAT rate.

    So the actual VAT rate that would be required would be over 75%.

  • Stephen Richmond,

    If your UBI was paid only to the 43.26 million people in the UK of working age, a UBI of £20 a week would cost £44.99 billion and if George Kendall’s figure of 139 billion for the amount raised with a 20% VAT rate is correct, then VAT would need to rise by 6.5% to pay for it. My figures for the cost are lower than George Kendall’s because I have excluded pensioners and children from getting any UBI. VAT is a regressive tax, hitting the poorest the most. The richest will not pay the extra tax on the money they save or spend on things in foreign countries. It is inflationary. While a 6.5% increase in the rate of VAT will increase inflation this will be slightly less than 6.5% because of the things with zero rates of VAT. It is also possible that price increases of 0ver 7% each year (normal 2% plus this increase) for three years would be deflationary as well, discouraging businesses to invest and encouraging them to produce less.

    In September 2018 the party agreed a policy of replacing business rates with a Commercial Landowner Levy (a land tax) over a four year period with CLL replacing all business rates by the fifth year – the year of the following general election. This would make it difficult to raise the rate of CLL from the initial rate of 59% in England and 67.5% in Wales which raises £25 billion a year. To raise £45 billion extra from this tax would mean increasing the Commercial Landowner Levy by just over 106% to 165% (rounded down) in England and by 121.5% to 189% in Wales of the ‘land.rental value’. This would mean in England the landowner would need to generate 1.89 times the amount the land will general in rent. It is not possible to have a CLL rate of above 100%. To keep the maths simple a 41% increase in CLL across the board would raise abut £17.37 billion, which is not enough.

    It seems very clear that Stephen Richmond has not done any calculations on the feasibility of his proposals for tax increases.

  • Apart from telling us he is a Council Member of the Social Liberal Forum, Mr Richmond appears to be a little shy on saying what his qualifications and expertise are in the question of benefits and tackling poverty.

  • Peter Davies 13th Sep '20 - 11:19am

    VAT is not a regressive tax. The rich spend a higher proportion of their income on VAT-able goods than the poor. It is just a lot less progressive than income tax. The point of UBI though is that it more than balances any regressive tax used to pay for it. You could for instance put VAT on food which would be a strongly regressive move but if the money raised were distributed evenly through a UBI, the overall effect would be strongly progressive. It would raise about £270 per person (including children) so you could add a bit more than that to adult UBI and a bit less to child benefit. A poor household of two adults and one child would gain about £800 while their shopping bill went up by perhaps £400.

  • Peter Martin 13th Sep '20 - 12:01pm

    @ Peter Davies,

    “VAT is not a regressive tax. The rich spend a higher proportion of their income on VAT-able goods than the poor.”

    Do you have a reference to support this assertion?

    Yes we all need a certain amount of income to afford to buy VAT-able items like shoes, clothing, cars, petrol etc. But once that limit is reached do we spend more than twice as much if our income doubles? Or more than three times as much if it triples?

    I don’t think so!

  • Peter Davies 13th Sep '20 - 1:42pm

    Actually it depends how you define rich and poor. I should have said VAT increases as a proportion of spending at spending rises. If you base it on weekly income, it is somewhat regressive because retirees living on capital who you would normally consider rich have no income and hence VAT makes up an infinite proportion of their income. Similarly you may have much the same standard of living when living on a student loan as you do when you start paying it off but the former gives you a zero income while the latter puts you in a middle-income bracket.

  • Laurence Cox 13th Sep '20 - 4:23pm

    As Mr Richmond’s UBI proposal is still extremely light on detail, here is an academic comparison from three years ago:

    https://researchportal.bath.ac.uk/en/publications/ipr-policy-brief-assessing-the-case-for-a-universal-basic-income-

    click on the first link on the right to download the pdf.

    If we make the argument that everyone earning more than £12500/year is already getting the equivalent of a basic income of £3640 (£2500 in income tax and £1140 in employee NI) then the argument for UBI becomes a simple question of fairness. If the 80% of all adults who are taxpayers get this benefit from the State, why should we not give the same to the other 20%? It doesn’t really matter whether you think of it in terms of UBI or negative income tax, the effect is the same.

  • George Kendall 13th Sep '20 - 6:30pm

    @Laurence Cox
    Thanks. I’ve not had time to read the full pdf, but the short abstract given on the page you link to is quite informative.
    If anyone wants to understand the debate around UBI but doesn’t have much time, it’s a reasonable summary. Though, inevitably, it doesn’t reference all the issues and leaves a lot of questions unanswered.
    https://researchportal.bath.ac.uk/en/publications/ipr-policy-brief-assessing-the-case-for-a-universal-basic-income-

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