Towards a fairer society: Universal Basic Income vs Guaranteed Basic Income

On Saturday conference will discuss an important paper about tackling the many sources of unfairness in our society.  I wrote about this for Liberal Democrat Voice in September when we were expecting to discuss them, and, given the importance of the issues, thought it worth republishing the substance of that article now.

The paper on fairness includes essential short term measures to deal with the cost of living crisis but its main focus is more strategic – covering lifelong employment support, more power to local communities and better workforce protections.

The conference motion also offers a choice – and conference will vote between two ambitious long term proposals to end poverty – a Universal Basic Income (UBI), and a Guaranteed Basic Income (GBI).

(There is also a third option which reserves judgement until both of these approaches have been fully tested over a number of years.)

The UBI proposal scraps income tax and national insurance personal allowances for everyone of working age, so that we all pay tax and national insurance on the first pound that we receive. That costs anyone currently paying tax £78 a week. The proposal also introduces a new payment to all working age adults of £78 (the “Universal Basic Income”) – so if you were previously paying tax you end up in the same place as before, but if you aren’t earning enough to pay tax, you are better off.  The current benefits system is retained but the UBI is treated as income under it – so that benefits are reduced; someone on Universal Credit would typically see a net benefit of £35 a week.  This way of delivering UBI is the output of two years of development by working groups – on which I served – and is very similar to proposals by some of the leading think tanks advocating UBI.

The GBI proposal is more directly targeted on ensuring everyone has a decent minimum standard of living. It establishes a commitment over time to get all households to a certain income level, and uses a reformed version of the existing benefits system to steadily increase the amount of this ‘guaranteed base’. An independent commission is set up to hold the government to account in terms of setting the right level over time – in much the same way as has been successfully done with the minimum wage.

The two approaches have a lot in common. Both are ambitious, long term policies leading to significant reductions in poverty.

But for my money GBI is the better approach.

First, it gets more money to those who need it. One of the biggest appeals of UBI was that it promised to address the scandal of poverty. GBI does this far better.  Spend the same amount of money on GBI as we would on UBI, and we deliver a 50% greater reduction in poverty.

Second, for those outside the (quite narrow) circle of UBI advocates, GBI is easier to explain. With GBI we commit to steadily increasing the level of benefits until we get everyone to a decent standard of living. Whereas with UBI we end up down the rabbit hole of explaining to most working age people why swapping a tax allowance for a UBI doesn’t matter for them personally but is a good thing generally.

Third, GBI doesn’t give extra money to individuals in rich households who are not working. UBI does and this will feel unfair to many people and may be an electoral liability.

And most importantly – for all these reasons – GBI is more likely actually to happen. We are far more likely to be able to build a consensus around it – among the public and in Parliament.

At conference we should commit to a long term policy contributing to a platform which will evict the Tories and help us shape a better society when we have done so. We should back GBI.

* Kevin has been a party member since June 2017, from Kingston

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33 Comments

  • Laurence Cox 16th Mar '23 - 10:50am

    There is one fundamental problem with GBI and that is the withdrawal of benefit as income rises. At present, someone on Universal Credit only keeps 31p in every extra pound they earn once they exceed the annual personal income tax allowance, as this BBC Reality Check article illustrates: https://www.bbc.co.uk/news/58870012

    There is a similar high marginal effective tax rate for child benefit for those earning over £50k.

    So if the Party votes for GBI rather than UBI, it must also be prepared to reduce the taper rate considerably, I suggest from 55p to no higher than 20p in the pound, so it would be the same as the basic rate of income tax and that will mean a massively higher benefits bill, which would negate the advantages of GBI.

    Let us stick with UBI which is straight-forward and benefits the lowest paid most.

  • Kevin Langford 16th Mar '23 - 1:54pm

    Hi Laurence

    Sadly once you try to make UBI something practical rather than an ideal, it becomes far from straightforward. Have a look at what the party is actually proposing for UBI, which is really based on what the various think tanks (such as Compass) argue is a ‘feasible’ UBI. No-one can afford to have a UBI that is high enough to cover even a significant fraction of what people get under existing welfare arrangements. Which means that you have to keep most of the existing benefit structures – which means that you often end up with a worse problem in terms of withdrawal and tax rates even than you have now.

    The reasons I moved from UBI to GBI are because UBI isn’t straightforward, and because it doesnt benefit the lowest paid the most; the GBI proposal benefits those on the lowest incomes much more than the UBI proposal (which allocates a greater share of support to some of those in better off families)

    The reason I wrote the article really is because I think there is a lot of misunderstanding on these points.

  • Peter Davies 16th Mar '23 - 2:48pm

    There is a basic trade-off between the amount the poorest get, the high effective rate people pay while benefits are being withdrawn, how soon they can get clear of that high rate and the overall cost.

    The GBI proposal actually gives less money to the poorest (because as with all means-tested benefits, the poorest are those who for various reasons don’t get it). Leaving that aside, you have a choice of withdrawing the benefit rapidly and giving very low incentives to work to those on benefits or withdrawing it more slowly and keeping most of the population facing means testing and fairly high effective rates. The proposal going to conference (option 2) seams to opt for the latter with the majority of households receiving benefits including many on higher rate tax. That is a very expensive option.

    UBI has two major advantages here.

    Firstly, it goes to those groups that fall through the cracks of Universal Credit: Those deemed unavailable to work such as students or those with unrecognised disabilities, those who are not in a standard pattern of long-term employment and those who are deemed to be supported by someone else. This is where most of the cost of UBI comes from and it’s opponents need to explain why these people should be ignored.

    Secondly because it reduces the amount of means tested benefit, it runs out at a lower income meaning that people on average incomes are typically only paying standard Income tax and NI.

  • Peter Watson 16th Mar '23 - 2:52pm

    “There is also a third option which reserves judgement until both of these approaches have been fully tested over a number of years.”
    It strikes me that either of the first two options would be the sort of bold move that is very much out of character for the party in recent years, so I suspect that the “long grass” of option 3 might appeal. Though conference votes on grammar and faith schools would suggest that the party can simply ignore awkward ideas anyway and make it unclear what policy actually is.

  • The party has already adopted UBI. What remains to be determined is the proposed form of implementation. The two options discussed are inter-related and a hybrid form of the two can produce an optimal solution.
    A revenue neutral minimum income guarantee for working age taxpayers is entirely feasible. It can be delivered by the relatively simple mechanism of converting the tax and NI personal allowances to a tax reducer that gives relief at a 20% tax rate (not 40%) . Increasing the Universal credit basic allowance to £100 per claimant (adjusted for inflation as appropriate) is also entirely feasible and in line with our prior commitment to restoring the £20 per week supplement introduced during the Covid pandemic.
    We will need a focused and evidently deliverable manifesto (within the constraints of the public finances) going into the next election that addresses the needs of low and middle income earners. i.e.
    – Minimum income guarantee
    – Jobs and wages guarantee
    – Fair council tax and business rates
    – Fair energy costs
    Address the needs of the voting public and we might have a good chance of significantly improving our influence in parliament and on public policy.

  • Jenny Barnes 16th Mar '23 - 3:44pm

    It’s also important to get rid of the sanctions regime around benefits.

  • Peter Davies 16th Mar '23 - 5:10pm

    Option 3 is only there to make the others look good. You can’t trial universality by implementing something that is not universal. Are we going to pick a random sample of rich people and put up there taxes to pay for it? If you want to be really timid you could bring in UBI at a really low level (say just replacing personal allowance) until we get the mechanics sorted out but I think we can at least be bold enough to replace NI allowance as well.

    One small refinement would be to convert the work allowance into Basic UC. That would raise the incomes of the poorest beneficiaries without any knock-on effects further up the income scale. The idea of work allowance was that there are fixed costs associated with having ‘a job’ and this would help people take one. Nobody now earns that little and has ‘a job’ they do gig work where the cost of entry is very small and the cost roughly proportional to earnings. Indeed the biggest cost of working is childcare and that is free up to hours which would take you well over the work allowance on minimum wage.

  • Peter Watson 16th Mar '23 - 5:19pm

    @Peter Davies “Option 3 is only there to make the others look good. You can’t trial universality by implementing something that is not universal.”
    I agree completely.
    In another thread on this, I did offer – for a reasonable fee – to provide the party with a reliable answer to the question, “Would people like extra money?”. Unfortunately, answering the related question, “Would voters like to pay for people to have extra money?” would require too much hard work. 😉

  • Katharine Pindar 16th Mar '23 - 5:55pm

    Kevin, thanks very much for clarifying some of the ideas of the Fairer Society motion before the debate on Saturday. Having also been an active member of the Fairer Society working group, I am hoping to speak in the debate and demand Benefits reform and enhancement. I am also entirely in agreement with you on GBI being more useful than UBI, and am hoping Conference may back it. See you there!

  • Mel Borthwaite 16th Mar '23 - 6:47pm

    Can I just check – does the Universal Basic Income plan mean that everyone in the country would be entitled to the payment, or just every citizen? I ask as if the former we would be creating a huge incentive for people from some of the world’s poorest countries to want to move to the UK, whether legally or illegally. I’m not sure that would be a vote winner.

  • Peter Davies 16th Mar '23 - 7:42pm

    Well you certainly wouldn’t get it if you were here illegally. If you were earning more than the tax threshold you would be getting the same as now. The level of UB proposed is not enough to live on so it would not be much of an incentive compared to the lure of a minimum wage job. I guess we would have to fudge it though and require a period of residency (during which a tax allowance would be given) before qualification for UBI.

  • Peter Davies 16th Mar '23 - 7:57pm

    “GBI doesn’t give extra money to individuals in rich households who are not working. UBI does”
    “GBI doesn’t give extra money to individuals in poor households (where one partner is on a middling wage) who are not working. UBI does.

    Single income couples make up a far higher percentage of poor households than rich ones. The man in the bowler hat who was proud of keeping a wife who didn’t have to work was considered square when that term was in common parlance. Nowadays, high earners marry high earners and failing that their accountant sees to it that they have sufficient income in their partners name to use up both tax allowances.

  • Kevin Langford 17th Mar '23 - 7:38am

    THere are a number of interesting comments here.

    My main reflection reading them again this morning is about how much detail one needs to go into to explain that any feasible UBI works. Bear in mind that most people outside politically engaged groups have only the haziest conception of what it is (if at all) – and that starting with ‘it is for everyone but probably doesnt make any difference to you because you lose your tax and NI allowances’ is not terribly attractive.

    THe idea of a guaranteed basic minimum income that everyone is entitled to is much more straightforward.

    Of course – as has been pointed out in the thread – this has to be alongside sorting out the various obstacles that make UC difficult to get and in some cases (eg families with more than 2 children) very unfair.

  • Keith Creswell 17th Mar '23 - 11:04am

    Unfortunately, I suspect fairness and vote winning are not necessarily compatible.
    The fairest system, imo, would be to simplify taxation by removing VAT exemptions and reductions on food, energy, children’s clothes, books etc and to adjust UBI to reflect extra cost to an “average” person and also pay UBI to minors. As the richer pay more for food etc they will contribute more, as well as keeping income tax thresholds.
    We would end up with consistent and simpler consumption and income taxes instead of the complex mishmash we have now.
    Btw, this would mean giving a NHI number to all new borns, is this too much like a national identity scheme for fellow LibDems?

  • Keith,

    this approach of rationalising VAT and extending progressivity via the income tax and benefits system was actually recommended in the 2010 Mirrlees review of the UK tax system.

    New borns in the USA generally get a social security number, as their parents need to put it on their tax returns to claim child allowances.

  • Peter Davies 17th Mar '23 - 2:25pm

    I agree with Keith. You would have money left over after ensuring that nobody on UC was worse off and poor people not on UC were better off. You could use it to switch some money from UC to UBI meaning fewer people would be means tested and face high rates of withdrawal.

    The best way to reduce the number of UC claimants though would be to do something about the housing shortage and the ridiculous amount that costs the government in benefits.

  • Chris Moore 17th Mar '23 - 5:54pm

    You could just increase benefits to the people who really need it.

    Much much simpler, much much cheaper, much much fairer and not a massive electoral liability like the fiendishly complicated UBI or GBI.

    Hey, let’s go into the election promising GBI/UBI, PR, a referendum on closer links with Europe and Land Value Tax and see if we can get our vote below 5% and lose all our seats.

  • Peter Davies 18th Mar '23 - 7:57am

    Identifying only those in need is not simple. They have been trying it on and off as long as I can remember and they have never come close.

  • Chris Moore 18th Mar '23 - 8:37am

    But neither UBI nor GBI is a solution to that issue as they distribute indiscriminately.

    Most bathetic is the deep abyss between the pretensions – we are going to end poverty – and the reality: we are going to give pocket money to everybody especially to people who don’t need it. The Universality completely undermines the stated object of dealing with poverty.

    If you want to do something serious about poverty:

    1. Above inflation increases in benefits.
    2. Major investment in the benefits administration system to make it more responsive and less error prone.

    These are unglamorous proposals that don’t excite dreamers and activists, but will do a sight more for people at the bottom.

  • Peter Davies 18th Mar '23 - 9:41am

    Your first suggestion is exactly what option 2 proposes. Option 1 also produces a significant increase for those on UC whith the basic amount of UC falling by less than the UBI. If you keep the current structure, it does cost a lot and it does give a lot of money to people on average incomes or above because it increases the level at which the taper runs out. Nobody is opposing your point too. That’s why you don’t hear anyone getting excited about it. The problem is that many of those in need are not excluded by DWP incompetence but by deliberate conditions for claims such as the requirement to actively seek work and the exclusion of those deemed to be supported by a partner. The minimal UBI in option 1 only gives extra money to these people. Anyone already earning enough to pay tax will be no better off.

  • UBI uses large amounts of money giving pocket money to individuals who don’t need it.

    if this money is available for distribution, give it to people who need it. The solution is don’t go there in the first place. The changes to tax levels to pay for unnecessary and unjustifiable distributions are wasteful and a total vote loser.

    I’m delighted to hear no one opposes an overhaul of benefits administration. But no one seems to be actively promoting it as party policy. That would do more for people on benefits than the byzantine UBI and GBI schemes.

    I agree GBI is less bad than UBI, but has many of the same flaws. The reality is the level of GBI is in no way going to take families out of poverty.

    It’s simply better to target through the existing system. Boring, gradualist and much more effective.

  • Targeting through the current system requires means testing and is the catalyst for the increasingly harsh sanctions regime. The foundation of the Beveridge Welfare system was contributions and universality. Without those support for an adequate social security system withers away.

  • Peter Martin 18th Mar '23 - 1:07pm

    Is there no place for the Job Guarantee in LibDem thinking? There are plenty of things that councils need doing if only they had the money. Just ask your local councillor about that. We might think that money is the only real consideration in our economy but the reality is that the things we want to happen do happen because people do the necessary work.

    High levels of unemployment, and underemployment, are indicative of a waste of real resources.

  • Peter Martin 18th Mar '23 - 1:18pm

    “The UBI proposal scraps income tax and national insurance personal allowances for everyone of working age, so that we all pay tax and national insurance on the first pound that we receive.”

    I used to do a paper round when I was at school even though, at least for part of the time, I was older than what was considered “working age”. Had a UBI been implemented at the time, would have had to pay tax on the few pounds I did earn and would I have also qualified for a UBI?

    How would the policy affect present day children doing part time jobs?

  • Peter Davies 18th Mar '23 - 2:47pm

    There is no requirement to change the tax treatment of minors. When you were an adult (old enough to get UBI) I guess they would have had to pay you minimum wage and pay tax on it.

  • Peter Watson 18th Mar '23 - 10:16pm

    I guess everyone’s too busy conferencing to update this thread 😉 , but after a bit of a Google, according to Left Foot Forward (https://leftfootforward.org/2023/03/liberal-democrats-vote-for-a-guaranteed-basic-income/), it’s option 2, a Guaranteed Basic Income.

  • Peter Watson 18th Mar '23 - 10:37pm

    Adding to my previous post, the party tweets, “Members at #LDConf have just passed a motion on ending poverty by reforming benefits, addressing regional inequalities and proposing a new Workers Charter”, and the associated news article (https://www.libdems.org.uk/news/article/towards-a-fairer-society) reports, “Our new policy, passed by members today seeks to … End deep poverty: Introducing a Guaranteed Basic Income by increasing Universal Credit to the level required to end deep poverty within the decade and removing sanctions.”

  • Peter Martin 18th Mar '23 - 10:42pm

    @ Peter Davies,

    “When you were an adult (old enough to get UBI) ….”

    Just what age would this be?

    The legal “working age” is 16. So would everyone then be entitled to a UBI? If you are saying no you’ll be ignoring many young people, some homeless, who would actually be in great need of one. If you are saying yes you’ll be paying out to many youngsters who don’t need one and aren’t working. If they aren’t working there won’t be any opportunity to counterbalance the UBI with extra tax payments.

    If they are working but not receiving a UBI it wouldn’t be equitable to tax them at the same rate as older workers, who are receiving a UBI. At present income tax isn’t a function of age but it would have to be if the UBI was denied on age grounds. So, like it or not, there would be a de facto change of the relative tax treatment of minors.

    If, say, the age of the UBI was set to be 21 or higher it would make financial sense to delay higher education, rather than start it at 18. This could be a good thing for some but not for all. Again, if students choose to live entirely off their UBI there would be no extra income tax collectable.

    There will be similar problems at the other end of the age scale. But that’s just about all of my 250 word limit used up!

  • Chris Moore 19th Mar '23 - 8:40am

    @Joe Bourke: thank you, you make my second point above for me.

    There needs to be serious investment in the administration of the benefits system, which is neither timely and frequently unfair.

    The answer to a grossly unfair sanctions regime is to get rid of the sanctions regime, not give pocket money to everybody.

    Btw as I understand it, neither UBI nor GBI eliminate the benefits system.

  • Peter Martin 19th Mar '23 - 9:12am

    The problem at the other end of the age scale relates to the question of early retirement and the increased opportunity to do this that a UBI will bring. This will of course be seen by the individual a positive, but the wider question of the economics needs to be addressed.

    Calculations on the affordability of the UBI nearly all assume that everyone will carry on doing much the same as they do now. This is to say that, for example, if a individual’s net pay is £20k per year under the present arrangements they will carry on doing the same job if it is £20k under some possible new arrangements. This could be something like £8k from a UBI and £12k from their after tax pay.

    Very like most will. But a significant number will choose to take the £8k and retire early. The assumption is, therefore, not valid. The larger the UBI the more inaccurate it becomes.

  • Peter Watson 19th Mar '23 - 10:07am

    @Chris Moore “Btw as I understand it, neither UBI nor GBI eliminate the benefits system.”
    The party’s pitch of this new ‘policy’ – “reforming benefits”, “increasing Universal Credit” – does make it sound like little more than tinkering with the benefits system.
    This approach is much more conservative and much less radical than might have been expected after the UBI conference vote a couple of years ago, but moving away from that is pretty consistent with the party’s inoffensive direction of travel.

  • Chris Moore 19th Mar '23 - 2:26pm

    Hi Peter and Joe

    the only way to get rid of adjudication of need and means testing would be to have everyone on the same benefit level.

    That level would be very low and inadequate for the people who DO need support from the state.

    I regard UBI as an escapist fantasy, which in no way tackles the issue of poverty and is plainly inadequate for those in need.

    (GBI is marginally better.)

    I don’t regard UBI as challenging or offensive or radical, merely grossly inadequate. The associated propaganda doesn’t improve the reality

  • Peter Davies 20th Mar '23 - 3:14pm

    @Peter Watson “moving away from that is pretty consistent with the party’s inoffensive direction of travel”
    I wouldn’t say that it’s inoffensive. It defers deciding the level of UC we will be giving and hence calculating the cost. What we say about that won’t offend anyone but what the Tories say about it will. Some interpretations (and the most ridiculous one is the one that will stick) would have a large majority of the population on benefits. If the Tories chose a six figure cost, we can’t disprove it.

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