Towards a Fairer Society: Universal Basic Income vs Guaranteed Basic Income

The country faces an immediate cost of living crisis – requiring drastic action. This needs short term measures which can be funded through taxes on the additional short term profits of energy companies or through increase in debt. Measures which wouldn’t be sustainable long term but are needed to address today’s issues.

But we also need a long term strategy to make our unfair society better, and in particular, to reduce levels of poverty which pre-existed the current crisis. The conference paper and the debate on a Fairer Society address this. The paper covers policies which will make society fairer including lifelong employment support, more power to local communities and better workforce protections.

But in one specific area the paper 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 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.

Second, for those outside the (quite narrow) circle of UBI advocates, it 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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19 Comments

  • Peter Martin 8th Sep '22 - 2:55pm

    “But for my money GBI is the better approach.”

    Yes. The reasons given are valid. However the difficulty is that those who have no job will be little, if any, worse off than those with a minimum wage job. If we factor in the extra costs of going to work, with a requirement to pay for travel and suitable work clothing etc, there could even be a financial penalty involved.

    How are you going to sell that to a sceptical public?

  • Kevin Langford 8th Sep '22 - 5:49pm

    Thanks Peter.

    There are several questions / points here – so to answer them separately

    1) Both proposals mean you still have more money if you work than if you don’t

    2) those on very low wages (including those working part time) will be better off than they are today under both options; their low earnings will mean they will be entitled to the GBI, and they will benefit from the UBI because they wont be benefitting from the personal tax allowances very much at the moment.

    3) Looked at from another angle we might ask how much of every £ that you earn adds to how much income you get rather than being taken away through tax or offset by reductions in welfare payments. Of the two, GBI works better from this perspective than the UBI proposal. That is because under UBI when you start earning you both have to pay taxes and have your benefits (apart from the UBI) gradually withdrawn. GBI retains the tax personal allowance so while you are on a minimum wage job you pay very little tax – though your welfare payments do start to reduce. But as I said at the top, on both proposals, paid work increases your income.

    4) Its true that some of the public (and more of the right wing press) are pretty sceptical about any increase in welfare payments – and that is going to apply to both proposals. Those of us who disagree with this view need to make the case that a decent society offers a certain standard of living, that the current safety net doesnt do that satisfactorily, and that what we are proposing works

  • Katharine Pindar 9th Sep '22 - 12:05am

    Well argued, Kevin, and I am delighted to see you setting out the basic arguments of our Fairer Society Conference motion, F 17, and favouring GBI, as I personally have long done. I very much hope that Conference will make the same choice. However, I have also offered an amendment, to rename GBI – Guaranteed Basic Income – as GMI, that is Guaranteed Minimum Income. I think that title, which will not change the GBI concept, will more clearly distinguish the differences between two concepts which are otherwise rather easily confused in people’s minds (as comments on an earlier LDV article tended to show). UBI and GBI/GMI are actually quite distinct in intentions and probable outcomes. GBI/ GMI should indeed be able to eliminate deep poverty in two terms of a new five-year government, and I think that was an overriding intention of our Fairer Society working group. I want us to be able to help government to move beyond this sad present reality of increasing poverty and hunger, to a time when food banks cease to be the necessity they are to so many fellow citizens today.

  • I have noticed that in the motion on the Fairer Society policy paper we are saying we will increase the standard benefit level for those of working-age, if we decide on option 2 and introduce a Guaranteed Minimum Income, to an amount which will ensure they are not living in deep poverty. If we look at the median income equivalised to household types then we are saying we will increase benefit levels to £285 a week for a single person and £385 for a couple. These rates are much higher than my targets of £157 a week for a single person and £271 for a couple.

  • Kevin Langford 9th Sep '22 - 8:43am

    Thank you Katharine and Michael for your comments. I am travelling today Michael, and will look at your comment on the numbers when I have the detailed figures to hand

  • Christopher Bowser 9th Sep '22 - 8:54am

    I have always thought the way to move this forward is to pay MP’s the average UK wage which according to ONS is £568/week. They would be banned from having second jobs due to conflicts of interest and should use the same expense rules that apply to us. (My employer would fall of his chair if I suggested he pay my Amazon Prime membership like a certain Maggie Thatcher Tribute Act)

    We should also be careful apart falling for the ‘nasty’ parties right wing tropes like “Labour is the party of tax & spend” – yes that’s right we tax in order to give money for the government to spend… no brainer

    Second the Victorian idea that people on benefits or low incomes are feckless and lazy. We are at a point in the UK where we have in all but name full employment, together with 1.2m job vacancies. It is easy therefore to fall into the trope “Work should pay” without the corresponding part & employers should pay it, not the government.

    The fact remains that many of those left on the ‘dole’ cannot work as they lack even basic skills, have complex health issues or cannot afford the childcare. The real issues are not their laziness but the unwillingess of employers in the UK to train and equip their employees as evidence by the low productivity rates despite longer working hours.

    So let’s fix the real structural problems than try to sticky plaster though UBI/GBI/Living Wage etc.

  • Peter Martin 9th Sep '22 - 10:19am

    @ Kevin,

    Thank you for your comments. As Michael BG hints at, the problem will arise, once we start inserting some numbers into the spreadsheet.

    Michael gives a figure of £285 pw benefits, for a single person, which is reasonable if we want to keep someone out of poverty. A person working for 35 hours at the National Living wage of £9.50 ph would gross £332.50 pw which would net to around £300 pw once NI, income tax and pension deductions are allowed for. Add in travel and other costs of working and even this small incentive disappears and for many will go negative.

    Previously I was making the point that it is very difficult to keep everyone out of poverty and at the same time make it worthwhile to actually go out to do the jobs that society needs us all to do. I don’t believe Lib Dems will ever solve this problem unless there is a recognition that we all have some responsibilities as well as rights. If anyone can’t find a job on the open market after a reasonable period of time the State should provide them with one, at minimum but liveable wages, which can include as much training as needed, until they can.

  • The great success of Beveridge’s welfare state can be largely attributed to the fact that it was Universal and had the contributory principle woven into its fabric.
    The report to Parliament on Social Insurance and Allied Services was published in November 1942. It proposed that all people of working age should pay a weekly national insurance contribution. In return, benefits would be paid to people who were sick, unemployed, retired or widowed. In his 1944 report, “Full Employment in a Free Society” he expressed the view that it was “absurd” to “look to individual employers for maintenance of demand and full employment.” These things must be “undertaken by the State under the supervision and pressure of democracy”.
    Beveridge’s reforms built upon the National Insurance scheme set up by then-Chancellor of the Exchequer and future Liberal Prime Minister David Lloyd George in 1911.
    The welfare system was eroded in the post-war years under the pressure of high unemployment and single parent households. It will be again if Beveridge’s principles of Universality are lost.
    The optimal solution is an integrated system of tax and benefits system, but this appears to have been beyond the remit of the Fairer Share committee; so while these proposals are a step in the right direction they may not provide the final answer.

  • Peter Davies 9th Sep '22 - 6:53pm

    A modified version of the current universal credit system with a much higher basic level is not a guaranteed minimum income. There are massive and inevitable holes in the benefit system that means that large numbers of poor people don’t get anything. UBI doesn’t guarantee a decent income but it guarantees that nobody has absolutely nothing. You may not be able to live in the long term on under £200 pw for a family of two but it would make a massive difference to a family waiting for their UC to come through or a self-employed person whose customer is delaying payment. The UBI option retains UC and increases its level and families with long term low incomes will still need it. It also needs to increase.

    Option 2 is also not directly targeted on the poor. Unless you introduce a cliff edge or greatly increase the claw-back rate it will bring people on well over average incomes into means-tested benefits.

  • Any UBI proposal that isn’t set at a level that allows all of the administrative burden of means testing (and related investigation and enforcement) of Universal Credit to be eliminated is a wasted opportunity.

    To address Peter Martin’s first point, a proper UBI scheme coupled with elimination of personal allowances would mean that anyone taking any work, no matter how temporary or part-time, would have income tax deducted at source at the basic rate but would always keep the majority of what they earn (without any declaration or form-filling) and so would always have the incentive of being better off.

    The current universal credit system penalises low earnings through the action of benefit withdrawal.

  • Kevin,

    I have looked again at page 101 of JRF UK poverty 2022 Report (Annex 1) and discovered I made a mistake. The figures I gave were for a single person with two children and a couple with two children. The correct figures are £138 for a single person and £238 for a couple. I thought the figures I posted yesterday were very high. The correct figures are lower than my targets of £157 a week for a single person and £271 for a couple.

    The extra for two children is £147, which is £73.50 each. Currently within Universal Credit the basic rate for each child is £56.44 a week. Claimants also continue to receive Child Benefit £21.80 for the first child and £14.45 for the second. For the first child this totals £78.24, but for the second it only totals £70.89.

    Peter Martin,

    The Liberal Democrats have as policy, the ‘introduction of a green jobs guarantee, offering a well-paying green job to anyone who wants one’.

    Do you know if the Labour Party still has the policy of introducing a jobs guarantee? (I think they had this policy under Ed Miliband.)

    Joe,

    Please note that Beveridge stated that ‘the State under the supervision and pressure of democracy should undertake to provide ‘Full Employment in a Free Society’. I still hope that one day our party will again have the policy of providing full employment.

  • Peter Davies,

    It is our policy to abolish the sanctions regime. Also, in paragraph 3.10.1 of the policy paper it is stated that if we adopted the second option we would introduce “a Guaranteed Basic Income (GBI) by steadily increasing welfare payments and removing the work requirement”. This sounds like the only condition for receiving it are how much earnings a household has. That sounds like a true guaranteed minimum income. It sounds like every household would be entitled to the minimum income for their household type.

    Nick Baird,

    Both of our working groups rejected the idea of setting a UBI at a higher level and abolishing Universal Credit with his administrative costs. The reason is because of the huge costs of a higher UBI. Please see page 24 of the policy paper.

  • Kevin Langford 10th Sep '22 - 7:59am

    I agree with some of the reponses Michael has already made to some of the points but I would observe

    1) yes part of the UGI proposal is also to amend the structure of UC to remove the holes which Peter Davies correctly identifies

    2) the UBI proposal does not eliminate means testing or the benefits infrastructure or cost. If it did it would result in greater poverty because setting a UBI high enough to maintain the current level of welfare support is impossibly expensive. This was one of the conclusions of the first working party

    3) those currently earning minimum wage would get some support depending on the level at which the guarantee was set and how many hours they work. Their guarantee would be tapered away at the current UC taper rate – so they would lose 55p of the guarantee for every pound they received until it was all gone

    4 UGI is much more targeted on the poor than UBI.

    5 I agree that either UBI or UGI would just be one of a number of changes necessary- the Fairer Society paper/ motion advocates a lot of other measures also. But there is inevitably also going to be a requirement to a radical improvement to the financial transfers we make to address poverty

    6) Michael – I will come back to your numerical questions after the weekend

  • Katharine Pindar 10th Sep '22 - 9:38pm

    Kevin, the beasts in the jungle which we are hunting down have evidently multiplied – I haven’t come across a UGI before – possibly related to a GMI but sounding somewhat uglier! 🙂 Seriously, though, having finally received the Fairer Society policy paper in print, I am dismayed by finding the definition of deep poverty, that is not reaching 50% of median income according to the JRF, to be missing. The tables moreover are sometimes difficult to follow, in the way they are set out. Perhaps the sad cessation of our hopes of debating the motion in a couple of weeks may allow us at least to improve the paper.

  • Peter Davies 11th Sep '22 - 8:10am

    No the MGI proposal would not remove all reasons why people don’t get UC.

    Claims must be resubmitted every time your circumstances change. That inevitably means people left broke for weeks, months when the inevitable mistakes occur. The modern gig economy contains a lot of people who do not know what their income will be even in the short term future. Many self-employed people don’t even know what their income was until their accountant tells them a year later.

    UC treats couples as a single unit. This can cause real problems during a break-up. Even if the couple can determine the exact point at which one stops supporting the other financially, the DWP may take months to catch up.

    The main reason why UBI systems typically cost more than means tested systems is that they treat single earner couples the same as two single people. at the levels we are suggesting for GMI, a large majority of single earner couples (who are overwhelmingly in the bottom half of the income spectrum) would be getting UC so they would get no extra benefit and the government would incur no extra cost.

    The other other big gainers would be those not available to work (mainly students) and we all seem to agree that they should get a large rise. On the figures given for UBI, students would be eligible for UC.

  • Peter Davies 11th Sep '22 - 8:31am

    One reform that would increase targeting in the UBI proposal would be to replace UC work allowance with an increased basic payment of 55% of the amount. This would be quite cheap since it would only go to the poorest. At the moment, we have a labour shortage and very few people are earning less than the work allowance.

  • Kevin Langford 12th Sep '22 - 9:17pm

    Thank you for your thoughtful comments Peter Davies – I agree that you are right that the question as to whether payments are constructed on the basis of a household or an individual does drive a number of the differences between UBI and UGI. Some of the downsides of using a household as the basic unit are as you point out though basing the welfare system on households also has obvious significant advantages (a) that state money is not provided to low/ no income individuals in well off households and (b) that since two individuals in separate households need more to live on than two individuals sharing a household, there is a strong argument for taking household composition into account when designing welfare systems. That said, of course the UBI in the proposal is part of a hybrid approach being operated alongside the current system – so there is a question of balance here.

    I will see if I can dig out some more data in relation to your second post . I have two questions about it. (1) Isnt a disadvantage of this proposal that it would mean that everyone only receives 45p of the first £ they earned (even before tax is taken into account) (2) why are you suggesting it specifically as something related to UBI rather than related to either proposal?

  • Kevin Langford 12th Sep '22 - 9:22pm

    Sorry that you don’t like some elements of the final version of the paper Katharine; it went through a fairly substantial edit at the end, which cut down the section considerably. Though I didn’t do the edit myself – I did feel that it made it clearer and more likely to be read, even if it lost one or two points of detail.

    (Of course – in the context of this contribution to Liberal democrat voice – I am giving my own opinions rather than those of the working party , to be clear)

  • Peter Davies 13th Sep '22 - 8:19am

    @ Kevin You are right that the proposal could be applied to either option (or even the current system). I was putting it forward to address the concern that option A does not provide enough to live on for a household with absolutely no income.

    Yes it does produce a high marginal rate for people earning less than the current work allowance but that is almost impossible under the current minimum wage. I think that’s a price worth paying. Option B on the other hand extends that rate to a much larger number of people on around average incomes. Because it greatly increases the base amount of UC, it also greatly increases the income range over which it needs to be tapered.

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