There has been a lot of debate in the party about Universal Basic Income, but it’s not always been clear what kind of UBI is being proposed. This article is to ask you to choose from four clear options.
A key issue with UBI is how it will be funded, and if it is funded, whether other priorities will have to be dropped. In the 2019 election, Jeremy Corbyn proposed raising taxes by £80bn/yr. The Liberal Democrats proposed an extra £51bn/yr spending (this included a £14bn/yr ‘remain bonus’)
The four options below involve combinations of the cheapest of the schemes recommended by Compass and the spending from the 2019 Lib Dem manifesto.
- £191.9bn/yr extra taxes
Scheme 1 from the Compass paper (see below), plus the £51bn/yr spending from the 2019 Lib Dem manifesto
- £140.9bn/yr extra taxes
Scheme 1 from the Compass paper (see below), none of the 2019 Lib Dem manifesto implemented
- £61bn/yr extra taxes
- Keep the £51bn/yr extra spending from the 2019 manifesto
- £10bn/yr to move the UK benefits system more towards a negative income tax system
- A UBI pilot scheme (cost very small)
- £51bn/yr extra taxes
- Keep the £51bn/yr extra spending from the 2019 manifesto
- A UBI pilot scheme (cost very small)
The UBI Scheme 1 in the above options comes from proposals in the paper written by Howard Reed and Stewart Lansley and published by Compass. It is outlined in the graphic below, along with Scheme 2, which is more expensive.
As well as saying which of the above four you prefer, do also give us your ideal option.
Here’s just a few possibilities for your ideal option:
- You might want to raise additional taxes and go for the more expensive version of UBI, Scheme 2 (at a cost of an additional £32.6bn/yr).
- You might think even Scheme 2’s £71/week isn’t enough and want a more generous UBI design, paid for with either larger benefit cuts or greater tax increases.
- You might want a halfway house between options 1 and 2, implementing UBI, but only implementing some of the 2019 Lib Dem manifesto.
- If you don’t want to us to propose funding a UBI in the next parliament, you might still want to include an aspiration to an eventual UBI. This would be similar to our 1992 manifesto and the Green 2017 manifesto.
- On the other hand, you might think, as we have already left the EU and will have ended the transition period, that the £14bn/yr ‘remain bonus’ from our 2019 manifesto is no longer realistic, and so we have to reduce our spending plans.
If you do propose another UBI design, please try to be specific, especially in how much taxes would have to rise to fund it, and/or which benefits would have to be cut. If you like, give us a link to a proposal on the web.
(PS In the Social Democrat Group, we are split over the question of UBI. That split is a good thing, because disagreement can lead to thorough, rigorous and courteous debate. It has allowed us to publish two pieces: one sceptical of UBI, the other in favour. You’ll find more detail on the arguments in favour of and against a UBI there.)
* George Kendall is the acting chair of the Social Democrat Group. He writes in a personal capacity.
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105 Comments
None of the above
Ditto!
How will a UBI “pilot scheme” work?
Presumably at least some people will be worse off with a UBI, which they’d probably have to be to make others better off. So are we going to choose people at random to be either better off or worse off ? Or are we going to ask for volunteers? I expect there’d be no shortage of volunteers to be better off but an acute shortage volunteering to be worse off.
But a trial has to include both groups. There’s no point giving just a small group of people extra spending money and calling it a trial.
“How will a UBI pilot scheme work?”
Maybe like the other trials of it that have taken place in other countries? https://www.newscientist.com/article/2242937-universal-basic-income-seems-to-improve-employment-and-well-being/
I think the compass scheme is a good start and I would like to see us go for option 1 but with some changes:
1. Don’t provide such a large amount to pensioners, they already receive the state pension so they should continue to receive the £61 here as UBI plus £89 from their pension (or a small increase on their current basic)
2. Child portion should be ½ the adult amount (and paid to the parent until 16)
3. Under/Over 25 should be removed, it needs to be Universal
4. Set a long term goal to move away from means testing in general
We should of course look to continue the rest of the manifesto plans (but with the natural number of changes) and the compass report does include options on how to cover most of the costs of such a scheme that seem to be reasonably well constructed.
Still don’t get the logic of putting up taxes to pay money to people who don’t need it. We need an efficient and fair welfare system, UBI is a distraction. None of the above….
Let’s not Lib Dem a great policy – UBI is about the principle that people should not live in poverty, put into practice by paying people so they cannot normally fall into poverty.
Once we’ve won the argument on the principle, people will support what is necessary to fund it.
@Colin Paine “Still don’t get the logic of putting up taxes to pay money to people who don’t need it.
Because it means that everyone who does need it gets it, including people who didn’t need it on Monday but lose their job/are injured/unable to work due to mental health/are bullied at work/suffer relationship breakdown/etc. on Tuesday.
And “putting up taxes to pay money to people that don’t need it” sounds daft, but it actually very simple – easily done using the existing tax system as a negative income tax. So it is efficient and fair by design if done right.
Agree with @James Belchamber. What do we think of the principle, then if we like it we work out the detail.
Impression given by many is that UBI will be completely funded by tax. While there is obviously a cost, in many ways it is simply a redistribution, a recognition that our economy fails to share the spoils of growth fairly.
Much of the cost will be offset by people being taken out of means tested benefits (and from fewer people required to administer said system) and higher marginal rates of income tax will claw back the majority of money given to the affluent and of course UBI itself will be taxed as income in the normal way for all of us. Obviously I don’t have the sophisticated models to calculate these figures, but someone in the party must.
Marginal tax rates of 55% (43% IT and 12% NI) or more on higher rate tax payers, who currently have a marginal tax rate of 42%. Plus an immediate bill of £1,140 p.a. as a result of removing the NI primary threshold. Are you having a laugh? And for this cost the individuals concerned will receive absolutely no benefit whatsoever apart from the warm fuzzy feeling of helping out others less fortunate than themselves – which is important and worthwhile but forcing people to do it in such a crippling way is not just wrong, it’s political suicide. I thought we were the party for everyone rather than “for the many, not the few.” Lunacy.
“What kind of Universal Basic Income do you support ?”
It could be said such a question is the equivalent of asking a condemned man, “Do you wish to be hanged or beheaded ?”
The danger with the 2020 Liberal Democrat Party is that it is desperate for a quick fix and will grab any passing straw…… thereby exhibiting a naivety that has become the party’s trademark over the last ten years. There needs to be a convincing answer about stopping wealthy persons receiving it…. which I’ve yet to see. Why should my tax money helped to fund such as Alan Sugar and Prince Phillip ?
Much more research is needed (see the Joseph Rowntree Foundation website).
And again , as has become customary these days, Scotland is well ahead of the field. The link below on the Scottish trials is well worth a read….. all near 200 pages of it :
Draft Final Report on the feasibility of Scottish Citizens’ Basic …basicincome.scot › 2020/06/10 › draft-final-report-cbi-…
10 Jun 2020 – PARTNERS involved in exploring the feasibility of a Citizens’ Basic Income (CBI) pilot in Scotland have completed the draft final report on their …
The Party already has a policy for a ‘Citizen’s Pension’ passed by conference back in 2004. If we are arguing for UBI, then we also need a State Pension that is non-contributory, so ending the need for Pension Credit to top up the pensions of those whose contributions are insufficient.
@Martin Boffey “Plus an immediate bill of £1,140 p.a. as a result of removing the NI primary threshold. ”
As the UBI would certainly be more than £1140, that seems an odd bit of reasoning, Martin.
The sudden increase to 55% is mostly due to the dropping of NI to 2% past £50k, which is regressive. (The existing marginal tax rate on someone earning £49k is currently 53%, but only 42% for someone on £51k) The effective marginal tax rate on people on certain benefit “tapers” is even higher, and concerns me rather more!
@David Raw “There needs to be a convincing answer about stopping wealthy persons receiving it”
If Lord Sugar gets £x per month UBI (only if he is domiciled in the UK for tax purposes, I would assume), and the accompanying tax rises (which there would have to be) amount to more than £x, then he’s not “receiving money” in any real sense, using the same logic that if someone gets 2hrs extra work, earning £25, but loses £25 of Income Support as a result, then they not actually earning money. I assume you decry the latter situation (as one optimistically assumes, does everyone); if so, the the former situation is also not earning money.
As always, a bit lost on the financial’s. At a time when the virus has devastated the nation’s tax receipts and with a further good kicking coming from Brexit, plus a tax receipt history that shows when income tax/NI is too high net receipts actually decrease, not to mention a doubling or tripling of people on benefits… surely a responsible party would have to decide how to divvy up a falling tax base fairly not spend fantasy money.
A minimalist UBI replacing the welfare and pension system could still be part of that and could even propel more people into various kinds of work.
@Daniel Walker
The UBI would be eliminated by the removal of the income tax personal allowance, so the additional NI hit is not compensated for by UBI in any way.
I was trying to keep it very simple. There are a multiplicity of issues around the basic rate/higher rate threshold and the fact it doesn’t dovetail with the NI system. In principle, once you hit higher rate your income tax marginal rate should increase by 20% and your NI rate reduce by 10%, giving a net increase of 10% so overall it is not regressive – it is the fact that the thresholds are not properly aligned between IT and NI that makes it so. I agree it is bonkers and needs reforming.
But not nearly as bonkers as this UBI proposal…..
@Daniel Walker
Actually correcting myself here. The thresholds are more aligned than I thought. If you earn £49k you pay IT at 20% and NI at 12% – total of 32%. If you earn over £50k you pay IT of 40% and NI of 2% – total of 42%. there is a weird £25 bracket of earnings where you would pay 52% but I doubt that happens in practice.
I don’t know where your 53% rate comes from so your personal tax knowledge may be better than mine. Your point on the tapering of benefits is well made.
The promise we should put in the manifesto is to convert the personal income tax and National insurance allowances into a UBI. On today’s values that would a tad over £10 per day. It would replace the first £10 per day of all current benefits. Benefit withdrawal rates would need adjusting to allow for all income being taxed. The marriage allowance would be abolished.
Part of the extra tax needed (under £20 bn) would come from converting all or some National Insurance to income tax. This is fair because those relying on investment income are not currently benefiting from the NI allowance.
This is an affordable scheme because very few people see a change in net income. if we choose the right taxes to pay for it, we could also promise that nobody with an income from earnings and benefits below the national average would be worse off.
Raising the UBI level above this is more “expensive”. In practice though, if everyone is a claimant and everyone is a taxpayer then the perception is less “20 billion taken from taxpayers and given to scroungers” and more “poor people a bit better off, rich people a little bit worse off, most of us not much difference” That is a reasonable aspiration after the initial structural change has been made.
@Peter Davies
Interesting proposal. I understand your first paragraph but am a little confused by the second: “Part of the extra tax needed (under £20 bn) would come from converting all or some National Insurance to income tax. This is fair because those relying on investment income are not currently benefiting from the NI allowance.”
I assume you are suggesting reducing the NI rate and increasing the Income Tax rate by an equal amount. This would be neutral on “earned” income but raise more tax from investment income. Am I correct? Because if so, this sounds like it would punish those relying on investment income rather than being “fairer” to them. If you do the switch the other way, would you not reduce revenue rather than increase it?
For now I have to say none of the above, clearly Brexit & Covid have made our 2019 spending commitments obsolete, we have to rethink all that.
I dont feel that the Party has really debated even the principle of UBI yet, let alone the details.
@Martin Boffey “The UBI would be eliminated by the removal of the income tax personal allowance, so the additional NI hit is not compensated for by UBI in any way.”
Ah right, fair enough.
I don’t know where your 53% rate comes from so your personal tax knowledge may be better than mine.
I got mine from MoneySavingExpert – but I misread the table, and you’re quite right. Apologies. The anomaly, if there was one, has clearly been eliminated!
@Martin Boffey
“I assume you are suggesting reducing the NI rate and increasing the Income Tax rate by an equal amount. This would be neutral on “earned” income but raise more tax from investment income.” Correct. Those relying on investment income currently get an IT allowance worth £2500 per year but don’t use the NI allowance worth £1140. They the UBI of £3640 is clearly a major boost to their incomes. This would be clawed back by switching NI to IT. A 4.5% switch for instance would leave all those on investment income under £25333 better off and those above worse off.
@Peter Davies
I understand now – thanks.
None of the above, because the financials make Corbyn’s budget look comparatively restrained and well thought through!
Is there any requirement that “Britain should lead the world” on this? We’ve heard enough of that phrase over the years.
Why don’t we wait until someone else, maybe one of the Nordic countries has a UBI scheme up and running? We are always told how we should be more like them.
If it’s a disaster we can learn, for free, from their expensive mistake. If it’s a success we can consider copying it ourselves.
@ James Belchamber,
“UBI is about the principle that people should not live in poverty, put into practice by paying people so they cannot normally fall into poverty.”
According to the Rowntree Foundation the poverty line is £144 a week for a single person with no children. So we’ll be paying out this to everyone including some who’ll spend at least this on a meal out? This will be just enough, but not including any tip, for an afternoon tea for two at the Ritz. That works out at £7,500 pa. Can we call it £8,500 to actually take everyone measurably out of poverty, rather than just on the edge?
“Once we’ve won the argument on the principle, people will support what is necessary to fund it.”
You’re dreaming!
The NHS was once a dream, Peter.
Universal benefits and services have obvious advantages over means-testing. In the Aftermath of WW2 we have had Universal health and education services and until recently Universal child allowances. We also have universal pensioner benefits such as the winter fuel payments and public transport cards.
In the mind of the public, people equate national insurance contributions with the right to receive benefits when needed. This goes back to the 1911 National Insurance Act when it was argued that “the scheme should be paid for by the individual, the state and the employer: “Working people ought to pay something. It gives them a feeling of self-respect and what costs nothing is not valued.”
When it comes to tax versus national insurance many commentators seem to take a different view arguing that deducting tax to pay Universal benefits is giving with one hand and taking away with another. Others will argue the state simply creates money to pay benefits and the sole purpose of tax and national insurance is to control inflation.
Ultimately, there has to be a system of redistribution to ensure both that no one is deprived of sufficient food, clothing and shelter for their wellbeing, that work is made available to those who need it and that those that are work are furnished with a standard of living that is relatively comparable to the mean.
There are many forms of UBI or minimum income guarantee in place. Two prominent ones are Alaska’s permanent fund that pays a share of oil taxes to all residents of the state and Spain’s recent introduction of a minimum income guarantee.
In terms of party policy, I would like to see the policy committee to consider three options;
1. The permanent revenue-neutral scheme of £60 per week modeled by Malcolm Torry https://blogs.lse.ac.uk/socialpolicy/2020/05/21/the-basic-income-debate-needs-high-quality-research/
2. The minimum, income guarantee, job guarantee and basic rental income outlined here https://www.libdemvoice.org/minimum-income-job-guarantees-and-basic-rental-income-64378.html
3. The recommendations of Adam Corlett at the Resolution foundation https://www.resolutionfoundation.org/comment/10-policies-if-you-think-you-might-want-a-universal-basic-income-but-arent-sure/
This has the potential to be a flagship policy for the Libdems and as Malcolm Torry notes needs to be underpinned with high-quality research.
@ James,
But the NHS wasn’t a pipe dream .
I just wonder who, if anyone, you’ve sounded out about the UBI. It’s not at all comparable with the NHS. There is clear majority support for the idea that we all support the NHS through our taxes and NI contributions. It’s there when we need it when we’re sick and only when we’re sick or to prevent us getting sick. There are some grey areas such as cosmetic surgery. Most would agree it should be provided for accident victims but they wouldn’t support free ‘boob jobs’ on demand, for example.
I mentioned the idea of the UBI to approximately half a dozen people in the pub a few weeks ago. No-one had even heard of it. There was unanimous scepticism that it would make anyone better off. The consensus was that if the Govt was going to hand out £1 they be clawing back £1.50 in higher taxes. There was sympathy for those, especially the young, who couldn’t find decent jobs. Some thought it wasn’t a problem to be solved by Govt and it was more due to kids having unrealistic expectations in life after studying for what they termed ‘Micky Mouse’ degrees. They considered that if youngsters had done more practical apprenticeships there would be plenty of work for them.
I’m not saying I totally agree with them but this is what you’ll find nearly everywhere. Even if you present figures to show voters they’ll be better off personally they likely won’t accept them. Neither do they like the idea of Govt paying out ‘money for nothing’. The people I spoke to weren’t high earners, from the social A and B groups. These certainly do have a reason for opposing the UBI.
You’ll more likely find those in Kingston on Thames, and they might well vote Lib Dem now, than Kingston upon Hull. Either way you’ll likely end up losing votes.
“The NHS was once a dream”
Indeed – interesting. The DHSC revenue budget for 2019/20 – including the whole of NHS England – was £133.3bn. The capital budget was £7.1bn, giving a total budget of £140.4bn. So about basically the same cost as Compass Scheme 1, give or take half-a-billion of rounding.
That’s just how huge a suggestion this is – another NHS, just like that. You can either see that as eminently doable because it’s been done before, or at the other end of the spectrum as completely looney tunes. I know which end of the scale I think it’s on.
@Andrew Tampion, @John Marriott
Just to clarify, are you saying you would prefer another UBI scheme, or you would like no UBI at all?
@Peter Martin
You make an important point. If anyone reads some of the many papers about UBI, they’ll see that even experts who want UBI accept that there will often be losers.
@Nick Barlow, I think @Peter Martin is talking about a limitation with the Finnish experiment. The trial involved giving money, but it didn’t trial the extra taxation to pay for it (or, if the UBI was to be paid by benefit cuts, the cuts to pay for it).
@James Blessing
Thanks. It would be great if others who supported UBI were willing to give some of the sort of detail you’ve put in your answer.
The cost of the changes you describe sound like they might reduce the cost a little. Less spending on children and pensioners, but more on the under-25s. But if, long term, we moved away from means testing altogether, wouldn’t that bring the costs up significantly, unless some of those on means tested benefits were to lose out badly.
@James Blessing
Thanks for raising the issue of the tax proposals in the Compass report.
I didn’t include them above is because the authors admit they aren’t realistic. If you look at page 26 in their report, they say: “The model produces distributional results on the assumption of there being no behavioural change between base and reform tax-benefit systems… This is not a very realistic assumption.”
They say they didn’t have the time or funding to tackle this in their paper, which is understandable. It is indeed a very complex subject.
I think they are right that their proposals are not realistic. Raising the effective rate of tax on high earners by between 13 and 15% would clearly change behaviour, perhaps by shifting from income to capital gains or shifting overseas. For that reason, I didn’t include their tax proposals in the above article.
@Martin Boffey
As I said to James above, the authors of the Compass paper admit their tax proposals aren’t realistic, which is why I’ve excluded them.
For myself, I’m a sceptic about UBI. I think raising taxes by up to twice Corbyn’s 2019 manifesto for a single policy is not realistic. The purpose of this article is to highlight this issue in a way that is fair to advocates of UBI, in order to engage both sides in a meaningful debate on specifics.
@Colin Paine, @Paul Barker
You may have noted that the linked article on “Why I am a UBI sceptic” was by me. Part of the reason I am a sceptic is because I haven’t seen concerns about UBI addressed. Too often, I just read people talking about its benefits and ignoring those concerns.
I’ve tried, with this article, to be neutral and to give an objective set of choices, which help people to think through the different options, and grapple with some of the difficulties.
@James Belchamber, @Chris Cory
If we propose something in our manifesto in principle, without explaining how it will be paid for, I fear at best it will be ignored, and we will make no progress in convincing people to pay for it. That’s what happened in 1992.
At worst, if the cost is likely to be up to twice that of Corbyn’s entire 2019 manifesto, don’t we need to be prepared for the attacks the Tories would launch in our target seats? That’s why I posted this. To give us a chance to prepare by debating it properly.
I will try to remain open to persuasion if anyone can explain how we implement UBI without such prohibitive tax rises. Please, if anyone any UBI advocate wants to address my and others concerns, I’d welcome your reasoning.
@Chris Cory
You are right that UBI is, essentially, a redistribution. But that is also true of all benefits paid for by the state. It doesn’t mean funding it isn’t a major challenge.
(You are right that some of the cost would be recovered by some people being taken out of means tested benefits. The costs in the Compass paper take that into account, so I’m afraid it wouldn’t help reduce the £140.9 bn/yr cost)
@Daniel Walker
Thanks for the posts. I particularly agree with you that it would make sense to integrate National Insurance and income tax. But that is a separate issue from this thread.
You appear to favour UBI.
I’d be interested to know if you have a preference between 1) to 4). And if you have an ideal solution that isn’t one of those four.
The latter, George. As I am no longer a member of the Lib Dems my views clearly don’t count. Having such a policy would not make me feel like rejoining.
@John Marriott
Not true. Your views definitely count!
And if the party starts thinking that the views of people like you don’t count, we’ll never recover from our current malaise.
@George Kendall “You appear to favour UBI.”
I’m honestly not sure if I do or I don’t, to be honest, George. I get the point that the headline rate of tax increases is a tough sell, as is the argument that we could spend the tax increases on something else, but I like the principle (a safety blanket, if you like, rather than a safety net (the salient difference being, naturally, the lack of holes:) ) (I listed my reasoning on the Jane Dodds thread)
My overall point is generally that it might not be practical, in the end, but it’s not implausible.
It would have to be coupled with a comprehensive removal of perverse incentives like the benefit traps we talked of earlier, but that’s a good idea either way.
@George “I will try to remain open to persuasion if anyone can explain how we implement UBI without such prohibitive tax rises.” I think I have. It is obviously a limited implementation and does not achieve the abolition of means-tested benefits but it greatly reduces the number of people dependant on them. It means that everyone has at least some reliable income and nobody in the lower half of the income scale loses significantly.
Should not the discussion start with what the problem is. What are we trying to achieve. Then what are the possible ways of achieving it. Perhaps it might help to look at the actual details of what has been tried to achieve whatever it is we want. Finally we might be in a position, having consulted widely to campaign for this.
The issues to be addressed are set out in the conference motion:
a) Social security cuts, coupled with an extremely arduous claims system, have left a great number of UK households lacking in income security.
b) The COVID-19 pandemic has, up to the start of June 2020, led to over 600,000 job losses and a drop of almost half in job vacancies.
c) The Government hastily and inadequately implemented largescale income support, with many in need ‘falling through the cracks’ and not receiving essential support in a timely manner; a universal system were one already in place, could have allowed for a smoother transition to lockdown and provided greater social and economic resilience during the crucial early stages of the crisis.
d) Liberal Democrat policy has in recent times included living cost support for entrepreneurs and improved financial support for student living costs and lifelong learning, which a Universal Basic Income framework would be a major step towards implementing.
e) The existence of a Universal Basic Income must be in addition to targeted welfare payments to those who have additional needs – such as for housing, for single parents, or for expenses incurred due to disabilities.
f) In Finland’s recent UBI pilot, those who had received UBI reported better financial wellbeing, stronger mental health and a higher level of confidence. Manitoba’s Minimum Income experiment found similar results.
Conference therefore calls for:
1. Liberal Democrats to campaign for a Universal Basic Income, paid to all long-term UK residents.
2. This income to be funded in a socially just and equitable manner to create a fairer social security system for all.
3. This income to be implemented based on the best available international evidence, rolled out in a phased manner to ensure the reliability and effectiveness of the system.
4. This income to be streamlined and integrated with other necessary income support mechanisms including pensions and student living cost support.
5. The Federal Policy Committee to work further on the details of the implementation.
6. Liberal Democrats to continue to campaign for strong and accessible targeted income support mechanisms, including but not limited to effective housing and disability support payments.
@Daniel Walker
Around the 1990s, I was sympathetic to UBI. I liked the simplicity of the idea and the idea of removing the benefits trap. But I’ve become increasingly uneasy. I have similar concerns to you. The most important is the eye-watering tax rises that would be necessary. But another is the opportunity cost – that if we spend so much on this, inevitably other vital areas of spending will suffer badly.
I also have a parochial Lib Dem concern about this. I know some think that a bold radical policy is the only way for us to recover. My fear is the opposite. That, like our bold radical policy of Revoke, last December, it could do us enormous political damage. And, in our present parlous situation, I wonder how many more such wounds we can take.
@Martin Boffey
Thanks for the NHS England comparison. I made the same point in my Social Democrat Group piece, but left it out here to keep this article as simple as I could.
Actually, I think UBI is a lot more challenging than the NHS was in 1945. The NHS England budget of around £140 bn/yr is today’s spend. But the NHS didn’t get there in one step. The service has steadily grown over 75 years.
@Tom Harney
That’s a reasonable question. But I think many UBI advocates argue they have already answered it. They talk about reducing inequality, reducoing disincentives to work, simplifying the benefits system, providing a secure safety net, rewarding voluntary contributions to society, and, especially during the pandemic, providing extra support for those without work.
We can argue about whether UBI is the best way to meet those objectives. But for me the much bigger question is the cost, and whether UBI would mean other vital services would suffer to pay for it.
OK. @Tom. Here are my objectives. Others are free to add to them.
1. Nobody should ever be left without an income. For those with no savings that means some money coming in at least once a fortnight. UBI can be paid by the day at very little extra cost.
2. Everyone should be significantly better off earning money than not. The version I propose would remove the 67.44% and 74.84% marginal rates caused by the interaction of Universal Credit, NI and Income Tax. It would greatly reduce the number of people facing the 63% UC withdrawal rate. Many of the “Targeted” alternatives to UBI produce much higher marginal rates or even cliff edges.
3. It should be intelligible. When Rishi Sunak tried to work out who needed support, he clearly could not work out all the different possible categories. The remaining elements of the social security system will still be too complicated to apply fairly but at least the number of people needing to interact with it and most of the complexity of tax codes will be removed. Employers will find the system much easier.
4. It should reduce the level of inequality. Even within this party, there will be very different views as to what is an unacceptable level of inequality but levels in this country are high historically and by comparison with most of Europe. My initial proposals reduce inequality by a moderate amount and quite patchily. Once the mechanism is in place however I hope we could produce a consensus to take it further.
It’s not often I find myself in agreement with David Raw but I think he’s hit the nail on the head here “The danger with the 2020 Liberal Democrat Party is that it is desperate for a quick fix and will grab any passing straw”. George Kendall makes a similar point above “some think that a bold radical policy is the only way for us to recover. My fear is the opposite. That, like our bold radical policy of Revoke, last December, it could do us enormous political damage.”
I suspect this is what’s at the heart of the push towards UBI. Reading the comments on this and the many other articles on UBI I’m convinced that what we really need is some type of minimum income guarantee, paid to those who need it and not to those who don’t. This would be IMO almost as radical, but way less costly, fairer and an easier sell politically than UBI.
@Julian Tisi “I’m convinced that what we really need is some type of minimum income guarantee, paid to those who need it and not to those who don’t.”
As I said to David Raw, above, if you’re giving someone £x in UBI, but also taxing them £x (or more) extra, you aren’t giving them any money. People who don’t need it will not be better off financially, because they will be paying more tax. You think a MIG is simpler, but you need to keep an eye out for tapers, making sure working 1 extra hour is worthwhile for everybody, administer it etc. With UBI it is built in, and needs no further admin.
Again, I agree that it might be a tough sell. But by definition people who don’t need it are not getting it in any real sense.
A minimum income guarantee is a good example of the “targeted” schemes that remove all incentives from the poorest and least qualified. If it’s set at a comfortable level, those without the skills to earn that much would enter adulthood knowing that they could not improve their lot by anything legal they did in their lives.
I can’t say any of the options seems viable or deliver a reasonable outcome for the poorest in our community. These sums of extra taxation could transform the lives of the lowest paid in much more effective way in my opinion. In terms of the general principle of ubi my greatest concern that a right wing government could use this as a cover to massively reduce social insurance. After all UBI is and continues to be a popular policy of radical free market thinkers ie here sum cash in place of services/benefits. The policy seems to have huge risks and issues with no clear social justice outcome.
@Peter Davies
Sorry. I’d thought I had replied to you. It looks like I haven’t.
Thanks for your alternative. I’m sure I’ve misunderstood. Could you explain what I’ve got wrong in the following?
I read your proposal as a UBI that is about a sixth the size of Compass’s (£10/wk compared to £61/wk for non-pensioners over 25), a quarter of that for pensioners, and a fifth for young adults and children.
You talk about replacing the first £10 of benefits. I don’t understand. Would that mean that anyone on benefits greater than £10 would gain nothing from your proposal? That the only people to benefit would be those not on benefits; and that those on benefits who pay income tax might lose out (due to a loss of personal allowance).
If you wanted to reduce the benefits trap, wouldn’t it be more effective to use added funds to allow a slower withdrawal rate of Universal Credit? In effect, Universal Credit is a negative income tax – unfortunately a gutted regressive one, since George Osborne’s 2015 cuts. But there’s no reason we couldn’t allocated funds to ungut it, and make it progressive.
(Regarding which tax changes should pay for anything, that’s a discussion I’d prefer for another thread. If one way of raising tax is better than another – whether abolishing the personal allowance, increasing income tax, corporation tax, or any other measure – we should do it irrespective of whether we introduce UBI)
Both the LDP and Labour Parties are reformist parties. We might say we don’t like Capitalism but essentially we’re going along with it. We want to make it work better in the interests of everyone. BUT we do have to understand how it functions to be able to do that. We can’t short circuit the system.
As the monopoly currency issuer, the State is a key player. THE key player. It also makes the rules. It sets the laws. It has the power to put us in jail if we break them. One of those rules is that we have to pay our taxes. It doesn’t want our money per se, it can create as much of that as it likes. It needs to provision itself and to do that it needs its currency of issue to be worth something. There’s no longer any gold, or any other, standard to give it an intrinsic value. It can then buy what it needs including our time. In other words, we have to work to get the money to pay our taxes to make the currency worth something. This is what drives the economy.
Like it or not, this is the system. If we unconditionally pay everyone a UBI, sufficient to keep everyone out of poverty, we are seriously short circuiting it. That’s not going to help anyone unless we have something better to replace it. Which I don’t think we do!
If we recognise that this is what we have to make work as best we can, it is more logical to then demand that the Govt provide jobs for those who can’t find them any other way. If it is in charge of a system that demands that we work, to get the money to pay our taxes, it does need to become the Employer of Last Resort, if necessary. It has to provide a the Guarantee of a Job at a living wage for those who need one.
George Kendall. The principle reason for my comment yesterday was that I objected to the absence of a no to UBI option in your article.
As far as the principle of UBI I am unconvinced of the need for or desirability of such a scheme and sceptically of the UBI project for the reasons set out above by David Raw and Peter Martin and some others above.
I am also concerned that some right wing Libertarians will attempt to use this as a means to undermine the benefits system. It is worth commenting in this connection that the even Scottish Government Report that David Raw refers to reccommends the removal of some benefits as part of their proposed Trial.
Also I am concerned that, based on the Labour Governments various Income Crdeit reforms and the Coalition/Conservative Universal Credit scxheme, proposals to simply and make fairer the benefits system are almost always more complex to implement than advocate expect.
Finally it is worth remembering that one of the many reasons that the 2019 Labour Party Manifesto failed was a wide spread feeling amongst the electorate that it over promised and wasn’t creditable (“Free Brooadband for Everybody!”). We should therefore be carefull before proposing a new scheme that would cost as much or more than the NHS.
“I know some think that a bold radical policy is the only way for us to recover. My fear is the opposite. That, like our bold radical policy of Revoke, last December, it could do us enormous political damage.”
Yes this hits the nail on the head because the reality is we are not going to form a majority government and therefore our flagship policies are effectively going to be our red lines in any negotiation post election.
If there was a hung parliament and we said to Labour after the election “we will only support your Queen’s speech and budget if you introduce a policy that costs £140bn a year we would be laughed out of the room.
Ditto if we had said in 1976 we demand nuclear disarmament or no pact or in 2010 we want to join the Euro or no coalition.
Radical policies like UBI would need buy in across other parties so it would be better to campaign for the principle (if that is what we want) rather than make it our own detailed policy to stand apart from the other parties.
@George. Yes you have misread it. £10 per day (The combined values of the existing allowances is £3640 p.a.).
Anyone only on benefits of £70 per week or £304 pcm would gain nothing. Those now getting nothing are the main intended beneficiaries. There would however be some currently on benefits who would gain.
1. Young job seekers currently get less than £70 per week.
2. Those earning enough to have their UC reduced below £70 per week (or £140 for couples) would be taken out of the system.
3. For UC the taper rate would be reduced from 63% to 31% of gross to allow for the fact that all income is taxed. That means that UC recipients who also pay tax or NI would have their marginal rates reduced to 63%. Most people in this category are single earner couples so they will probably be taken out of UC completely under point 2 and face a marginal rate of £32% instead of 74.84%
It’s local income tax (2005) all over again. A policy at the election we could not tell to the electorate who gains, who loses.
I am not necessarily against it but unless we nail it down we will be hammered.
Much more research is needed and then a vote by the entire membership.
@Andrew Tampion
Thanks for the comment.
For some months now, I, and other UBI sceptics have been calling for tangible proposals on UBI on LibDemVoice which can be properly critiqued, rather than rhetorical pieces which avoid addressing the hard questions.
I decided the only way to get one was to write one myself.
I’ve tried as hard as I can to write it in a way that is positive towards UBI, because I genuinely wanted pro-UBI people to engage with it. As a few fellow UBI sceptics seem a bit cross with me, perhaps I succeeded too well!
As well as being positive, I wanted it to face head on the enormous issue of affordability, and whether such a proposal would mean vital spending priorities would have to be dropped in order to fund it. That’s what my four options were trying to do.
I also wanted the debate to be accessible, and not get caught up in the technocratic rabbit hole of the minutiae of tax policy. So I’ve avoided going into the detail of which taxes should rise. Apart from that, proposals about detailed tax policy are often unrealistic, as the authors of the Compass piece acknowledge about their own.
I chose the Compass proposals because their paper is the most accessible I have read, and because they give actual numbers to the price tag of the policy – which meant I could come up with the totals for the necessary extra taxation .
What has been striking is that, so far, with some exceptions like Peter Davies, there’s been relatively few pro-UBI advocates responding to the question I ask. That is disappointing. Though perhaps it’s not surprising that people are reluctant to specifically advocate £140bn/yr of extra taxes. Maybe that reluctance is encouraging. But I will continue to try to encourage pro-UBI friends to join this debate.
(Errata: in my piece I say that the extra cost of scheme 2 would be £32.6bn/yr. It should be £27.9bn/yr. Apologies for the error)
I like the idea of negative income tax. This presumably copes better with people moving in and out of work and using the same infrastructure will be easier and cheaper to administrate. There must be some, probably a high threshold as I don’t like the idea of millionaires receiving it. I’d like children from birth to receive it. Presumably again it will be taxed that will help to make it progressive. So it could be introduced with an increase in income tax and perhaps a wealth tax to make it more affordable.
@Peter Davies
Could you describe your scheme in the same terms as the Compass proposals above? With a gross cost to the government in billions, minus savings from reduced benefit payments, and then the net cost in increased taxes. That would make it far easier to compare the schemes.
Regarding the details, I’m afraid I’m a bit confused.
The Compass proposal treats the UBI as income, so most of the income would be lost as a result of the 63% UC withdrawal rate plus tax.
In your first post you say “It would replace the first £10 per day of all current benefits.” That phrasing sounds like a withdrawal rate of 100%.
But then in your latest post you say: “the taper [withdrawal] rate would be reduced from 63% to 31%.”
If you had a link with a full write-up of your proposals, that might help. They sound a little like Torry’s proposals.
The debate we are having on this has already been had after the great depression:
https://api.parliament.uk/historic-hansard/commons/1931/jun/22/unemployment-insurance-advances-and
“This case is not chosen for any special reason, but here is the case of a man and his wife and one child, a baby, living on 28s. a week. Their expenditure is: Rent, 8s.; burial insurance, 8d.; coal, 1s. 8d.; gas, 1s. 6d.; sugar, 6d.; tea, 6d.; meat, 2s.; bread, 2s. 6d.; butter, 1s.; potatoes, 8d.; jam, 6d.; milk (tinned), 6d.; fresh milk for the child, 2s.; clothing and boot club, 3s.; tobacco, 1s.; and extras, 2s. From which of these items is the 3s. to be deducted which will not mean a resort to the public assistance committee or else an acceleration of that process of deterioration, both mental and moral, of the unemployed?”
“The present growing stagnation of industry cannot be left alone to work its own way out, because the final collapse here might be worse even than in Australia. In Australia the Governments have been running into debt. Here private industries are running into debt, and have been ever since the War. The breaking point has been reached. Something has to go, and it had better be the currency that should go. To preserve dollar parity we put an embargo on foreign loans, injuring the export trade. To preserve dollar parity we handicap our export trade, which would benefit enormously by a reduction in the value of the £.”
The non means tested benefit given to the unemployed in 1931 was 27s which would amount to about £2000 in todays money, most of that was funded by debt (to avoid tax increases), these days we would fund it via QE. It was found years later to have been very successfull and prevented a total collapse as what happend in america (And they thought we were mad going into debt to give people ‘free money’).
By giving a UBI to everybody you remove a ton of administration and would eliminte the black economy (Like whats been going on in Leicester) in one fell swoop. The mental health cost would be greatly reduced, I wonder what the health cost of excluding millions of people from support (approx 3 million) will turn out to be?
Have a read of the debate, its quite funny how similar the for and againt points are.
I think any scheme so long at is acceptable to our voter base. UBI is about a lot more than mathematics.
@Edward Clarke
Thanks for the historical perspective. As they say, there’s nothing new under the sun.
Would you be willing to say which of the four UBI options you prefer? And if there’s another version you’d like, what it would offer, how much in benefits would be withdrawn to partially pay for it, and how much tax increased to pay for the rest?
Not having to talk about gross amounts was rather the point. I could say that the gross cost of giving all the working people who use up their tax and NI allowances to UBI was £100 billion and the saving from taking away their tax allowances was £100 billion. Someone with access to better data would show that I’ve got both figures wrong by a mind-blowing amount and I’d look a right idiot. Instead I choose to say that the net cost would be 0 and be confident of my answer to the penny.
I can say the same about anyone on benefits receiving more than £70 per week or £140 for a couple with nobody in the household earning more than £9504 p.a. There don’t seem to be any published figures that would let me work out how big that group is.
There are also some groups who would definitely benefit. Students and others with no income but not available for work would gain the full £3640. I should be able to work out the numbers for that one. There would be some reduction in cost due to fewer students defaulting on loans. Single earner couples not in receipt of UC would gain £3390. This is probably the most significant group of winners. The other winners would gain less. There are those who are currently getting UC and paying NI or Income tax. They would gain up to 4.44% of their earnings over £9500 and 12.84% over £12500. Then there are those whose UC is less than £70 per week (£140 for couples) who would gain the difference. There are a whole lot of smaller categories mainly based on self employment or a changing income through the financial year. I’ll never even identify all those groups let alone work out the amount they gain.
@George Kendall
Thanks George – The only option I would go for is QE funded by new money issuance from the BoE just like the great depression for a few reasons.
1. It would be ludicrously complicated to find that sweet spot with taxation and experimentation which UBI seeks to avoid
2 . We have a vastly different economy now with high levels of automation and AI coming in, we just dont need humans as much to produce things (same with electrification in the 1920’s)
3. Think of UBI as a distributed investment i.e. when you buy somthing you are investing in that business and society is ‘discovering’ what it needs to produce rather than the Torys top down approach.
4. If we grow and become more efficient as a result the real ‘cost’ is vastly less
5. We want to become greener and part of that is going to be through efficientcy which UBI forces in the economy, if you cant efficiently use Labor your business is gone. Also the current debt system forces you to grow exponentially to pay down the interest or go bankrupt and we don’t want that in a green world.
6. The future needs innovation and you cant have that if you are psycologically destroying people and forcing people into any job for a jobs sake.
7. The entire country would become a workers union forcing companies to adapt and adopt a psycologically safe work place which Google found is the biggest driver of team performance and productivity increases which we really need now.
8. MMT or JG is just another implementation of the ‘Poor House’ from the 1800’s and would lead to a race to the bottom in my view, additionally the administration burden would be enormous and there’s no incentive for companies to pay decent wages or become more efficient.
Finally, think of money as a time/value decsion making tool that can expand and contract rather than a physical item. The virtual world can expand indefinetly so we will never have enough physical collateral such as gold, mortgage bonds etc. to back it. If we fail to deal with this the virtual world will consume the entire high street and we still need those things.
Just a few thoughts off the top of my head 🙂
Peter Davies,
the cost in terms of tax foregone of the personal allowance is given at circa 100 billion by HMRC https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/737597/Dec_17_Main_Reliefs_Final.pdf. National Insurance relief is over 50 billion. Together with relief for pensio savings of circa 25 billion these three reliefs constitute the largest of the so called tax expenditures.
Tax relief can be given in the form of an allowance against income before calculating tax and NI due, as a tax reducer (with a maximum reduction to zero tax) or as a refundable tax credit.
The issue is how and to whom relief is given. UBI is often presented as a form of negative tax i.e. the amount of tax credit not used to offset tax liabilities is paid directly to those without sufficient taxable income. There is no fundamental requirement that the cost to the exchequer should increase. It is a matter of priorotising how existing reliefs are best distributed. The cost issue is something of a red herring. The real issue is choosing between UBI or minimum income guarantee and this is principally an issue of work incentives. UBI has the benefit if simplicity and universality. Minimum income guarantee can be better targeted and encompased within Univeral credit as a more realistic work allowance/benefit taper.
@Edward Clarke
I’m a bit confused by what you say, but maybe I’ve misunderstood you.
You appear to be saying fund UBI with QE. Surely, using the Bank of England to create money to fund stuff has to be a temporary measure, for example to get out of a recession, or to fund one-off capital costs which may bring economic benefits later. If we start to use it to fund large ongoing year-by-year spending, like benefits, then it’ll lead to ever growing inflation. That kind of approach has never ended well for countries that have adopted it.
Regarding UBI being a response to the permanent destruction of jobs by AI, I agree something like UBI may become inevitable if that comes about. But it hasn’t yet. Until the Covid crisis, there was record employment in the UK. And there is enormous debate among experts as to if, or when, this mass destruction of jobs might happen.
There is a crisis in the loss of well-paying meaningful jobs for many of our citizens. In my opinion, the response to that should be heavy government investment in retraining, so that people can shift into jobs that give them a sense of dignity. Only if that proves to be impossible do I think we should give up, and assume that many people are never going find meaningful work again. But I’d regard a society where most people just live on a stipend from the state without any hope of a job or a career as a dystopia to be avoided if at all possible.
There are, of course, people who advocate UBI believing it could increase employment. And I have completely different questions for them.
@Joe Bourke (This answer is partly to you too, @Andrew T)
When you said “The cost issue is something of a red herring”, I wondered if I had misread you.
But maybe that sentence is why, whenever I’ve asked you for the cost of UBI designs, you’ve sent me to linked articles (for which I’m grateful), but avoided giving the cost yourself.
In my opinion, cost is absolutely central to this issue.
Some argue that the models of UBI they propose are mostly an accounting exercise, that involves shuffling money around in such a way that no one is a loser. But when you look at the actual designs of schemes, this is clearly not the case. The Compass proposal involves enormous payroll tax rises on the rich (between 13% and 15% increases) used to subsidise everyone else. The authors admit this wouldn’t work in practice because the rich would avoid these taxes, so they’d have to be levied in other ways, and on people who aren’t so rich.
Clearly those who support these taxes to fund UBI strongly believe this is right, but I struggle to see how they are being realistic. Leaving aside arguments about the economic effect, these taxes will only happen if people vote for them. If Corbyn was widely regarded as profligate for wanting to raise taxes by £80bn/yr, how is it remotely realistic to expect voters to support tax rises of up to £191bn/yr (which would be necessary if we were to also end austerity)?
Wouldn’t such a policy just guarantee we’d fail to take seats off the Tories, and guarantee a continuation of Tory rule?
@ George,
Probably the UBI will fail to be implemented because its advocates will never agree on just what it is meant to do. Those on the right will want to use it to reduce the extent of state support for the poor. It will effectively be a cap on welfare benefits. There will be a UBI and not much else. Those more to the left will want a generous UBI to ‘take everyone out of poverty’. Those in the centre, like yourself, will be looking at how much this version will cost and balk at its implications. Both electorally and economically. But they might be prepared to go along with something that will perhaps just lessen the extent of poverty if they consider it affordable.
In a society where everyone was relatively equal it is possible to argue the UBI wouldn’t cost much, if anything, at all. Everyone’s tax bill will be increased by an amount to pay for the UBI but they’d get that back anyway as a UBI. But, how do you express the cost of paying, say, an extra 5k in tax if the government was going to unconditionally give you a cheque for 5k as compensation? But, even if we decide there is no cost, the flaw in the argument is the implicit assumption that everyone will carry on in the same way as before.
Even in a society which wasn’t quite so equal you can still make the same flawed case. Suppose, for the sake of argument, the ‘poverty line’ was 4k pa. But there was a minimum wage which paid 10k pa tax free for a full working week. So we bring in a UBI at 5k pa to not just put everyone on the poverty line but give a margin above it. We then have to raise taxes to pay for it. So everyone then still earns 10k minimum but now pays more (income) tax instead of no tax and receives a UBI of 5k to make up. So workers now have a choice of earning, by carrying on working, say, 7k after tax plus the 5k UBI = 12k net which is an improvement on what they had previously or receiving 5k for not doing anything at all. Or at least not doing anything legitimate!
Undoubtedly many will choose the latter because 5k is enough to be above the poverty line. After all, isn’t the purpose of a Lib Dem UBI to ‘take everyone out of poverty’? This is where the cost to society really lies and is just about impossible to quantify in advance. All you’re doing is creating an increased incentive for workers to drop out of the legitimate workforce and become involved in the black economy which may well also turn out to be the more criminal black economy.
@ Edward Clarke,
We can use QE to keep interest rates low. This is not quite the same as providing money for Govt spending but, however you look at it, we can’t pay ourselves for doing nothing. This is not at all the same as Govt spending to regulate aggregate demand, create jobs and prevent recession. The purpose of any intervention is to keep the economy working at close to full capacity and create jobs.
Fairness in society cannot solely be about what we all receive. It has to involve what we contribute too. Lib Dems have nothing to say on the latter. But when this is introduced into consideration the JG can be seen not as a return to the ‘poor law’ or ‘workfare’ but as a way of allowing everyone to make a contribution and, in return, receive a fair share of rewards. It will set a minimum on wages and conditions for other employers.
Everyone will include disabled people too. This doesn’t mean there will be forced labour for the sick. If workers aren’t capable of working they will still get paid. We’ll call it sick pay rather than disability benefits or whatever.
@Joseph Bourke. The £101bn (2018) figure covers the specific group I mentioned (current tax payers) who will have net gains of zero but:
“The costs of the personal income tax allowances do not cover individuals who are not on HMRC records because their income is below the tax threshold.”
That group needs to be included in the gross figure if you try to work things out that way and they can’t work it out either. My guess is about £40bn +- 20bn. Many of these people also get UC which is tapered by net income so removing the tax allowance would increase the cost of UC. should that be included as a part of the gross cost? The answer doesn’t matter. Gross cost is a silly concept in this context.
Peter Davies,
I agree that gross cost is a silly concept in this context. The Alaska permanent fund is a royalty on oil and gas reserves paid to all long-term residents of the state. Who is the payment a cost to – the state?, the oil companies? the buyers of fuel and gas/ or State taxpayers who are the recipients of the royalties?.
Malcolm Torry (like Guy Standing) is a recognised expert in the basic income field. His proposal for a permanent UBI of £60 per week for adults ad £30pw for children includes a distributional analysis that spells out the significant impact on poverty that such a level of UBI can have https://blogs.lse.ac.uk/socialpolicy/2020/05/21/the-basic-income-debate-needs-high-quality-research/ and calculates the cost to the exchequer of the modelled scheme at 26 million (i.e. revenue-neutral). The net cost to 80% of taxpayers is zero or a net benefit. The only income deciles that would pay more to the government than currently are the top two deciles and these are modest amounts of 7% in respect the the top decile.
The Citizens Income trust https://citizensincome.org/citizens-income/what-is-it/ defines Citizen’s Basic Income as “An unconditional, nonwithdrawable income paid to every individual as a right of citizenship” and highlights the benefits accruing to individuals, our society, and our economy.
George,
I didn’t want to repeat previous posts on the cost of UBI schemes, but just to recap:
1. The Torry proposal for revenue-neutral permanent UBI of £60 a week has a net cost to the exchequer of £26 million. Headline income tax rates increase by 3% in each band but this is offset by UBI payments so there are effective tax reductions for the first 8 income deciles. The top two income deciles see net tax increases. For the top decile of income payers, this results in about 7% of income of circa £1564 per week i.e. an average £111 per week of additional tax for the highest income earners reducing income to an average £1453 per week. The purpose of these models is to demonstrate the feasibility of Universal basic income proposal a as means of significantly improving the lot of lower-income earners and avoiding unnecessary means-testing for many.
2. The Minimum Income Guarantee (MIG) has been costed at around £25 billion to ensure a minimum income of £100 per week (or tax and NI insurance relief of this amount) to all permanent residents and increase in the Universal Credit work allowance to minimum wage (net of taxes). The MIG is funded by restriction of pension relief to basic rate, reinstatement of fuel duty escalator and elimination of the lower threshold for employers’ national insurance.
@Peter Martin
Nice to be on the same side of a debate for once.
For the record, when you say “Those in the centre, like yourself”, that’s not a label I accept. I know these terms are relative, and compared to say, Nigel Farage and Jeremy Corbyn I am in the centre. But I hate the term centrist, because it implies being content with the status quo.
I regard myself as centre-left, in that I want gradual tax increases and gradual increases in state provision to reduce poverty. In comparison to the spectrum of opinion in the UK, I am slightly to the left.
Of course, in another setting I would be different. In the USA, I would be far more leftwing, because I think support from the US state for the poor is utterly unadequate.
However, I would still be a gradualist, in that I think gradual steady change is the only realistic way to achieve change. This is true politically, because voters will just refuse to support parties that want to go too fast. It is also true in implementation, because making changes in government is extremely difficult, and if you go too fast, you usually mess it up.
@Joe Bourke
Hi Joe,
I’m afraid I struggle with these Torry blogs. I have found them interesting, but I haven’t been able to find key information about costs in them.
The Compass paper explicitly states the gross cost of the scheme, reductions in benefits paid, and how much tax would have to be raised to pay for the rest.
Incidentally, I’m very grateful to Stewart Lansley, who has emailed me a link to an updated UBI proposal in the link below. Again this explicitly gives the key information about costs.
https://www.compassonline.org.uk/wp-content/uploads/2019/03/Compass_BasicIncomeForAll_2019.pdf
I know Torry is a distinguished academic, I wonder if his blogs are aimed more at academics, rather than informed laymen/political activists like myself. But probably it is because they are brief blogs, rather than full papers with enough funding to allow for the work necessary to make them accessible to those who are not academics.
In the absence of those figures being spelt out, when I compare Torry’s proposals with those from Lansley/Reed, Torry’s illustrative scheme is similar to Compass Scheme 1, above. £60/wk would be paid to adults compared to £61/wk, with the UBI again treated as income when means tested benefits are calculated, so I expect the total increases in taxes would have to be similar.
Therefore, I would expect my concerns about the political impossibility of £140bn/yr+ tax rises to be similar. And also my concern, shared by @Peter Martin and @Colin McDougall, that this could mean far less spending on other vital public services, unless the tax rises were even higher.
I presume you think that I am wrong about the political impossibility of persuading people to agree to tax rises that could be twice or more what Corbyn was proposing in 2019. Is that right?
@George Kendall “I’m afraid I struggle with these Torry blogs. I have found them interesting, but I haven’t been able to find key information about costs in them.”
Torry’s (permanent) proposals are intended to be (nearly) revenue-neutral. I think his latest full paper is this one, although that does also have a “Recovery” proposal for pandemic recovery in. The “permanent” costings are on table 5, page 10 – the net cost is £26m.
It’s easy in these debates to get caught in the millions, the billions and the percents. Here are two simple issues with UBI rooted in morality and behaviour that occur when you give everyone a flat cash payment:
1. Generally, there is nothing so unequal as the equal treatment of unequals.
2. Specifically, employers steadily freeze/cut wages to absorb the level of the new cash benefit.
The purpose of the UBI seems to be to try and achieve greater social equity. I support that, but would like to see specific targeted measures relating to capital rather than income distribution to effectively address this.
George,
changes in personal taxation are typically presented in the media in the form of “What does it mean for me”. The Torry proposals (similar to the Compass scheme) adjust tax and NI allowances so proportionally more relief is given to lower-income earners and less relief to higher-income earners with a 3% increase in headline band rates. The cost to the exchequer is estimated at 26 million i.e. basically revenue neutral.
The lowest income decile currently receives household income of £202 per week. This will increase by £45 to £251 pw under the Torry scheme. The 2nd lowest decile will get an extra £26 per weel/ The highest income decile currently receives £1,564 PW. This will decrease by £112 to £ 1452 pw. The 2nd highest decile will see income reduce by £27 per week.
This short ten-minute film https://www.prnewswire.com/news-releases/basic-income-explained-a-new-film-from-dr-malcolm-torry-301072752.html explains the difference between basic income, minimum income guarantee or negative income tax. We need to be clear as to which policy we will advocate as a party going forward. To advocate none would be a huge mistake for this party. It is incumbent on all of us to understand and be able to explain the benefits of the policy we adopt.
Using a basic income reform of the tax and benefit system, 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.
@Joe Bourke and @Daniel Walker
I think we’re talking at cross purposes. Torry does indeed say that the total cost of his scheme, *excluding* the tax rises he mentions, is £26m/yr.
What I want is the total cost of the scheme *including* those tax rises.
That’s what the £140.9bn/yr figure from Reed and Lansley’s Compass scheme is. To consider Torry’s proposal, I’d like the equivalent for his scheme.
@Daniel Walker
Thanks for the link to that paper by Torry. I think I’ve read it before, and on a second reading, I’ve still not been able to find the statistic I’m asking for: the total increase in taxation for the country. Table 5 on page 10 does not provide this figure.
Maybe I’ve missed it. If so, please do point me to it.
@James Fowler
I agree that numbers can be confusing and misleading.
On this issue, I think if we simplify the numbers into the total of increased taxation, it can tell us something significant. If that number is not available, we simply cannot access the challenges of a scheme, both in terms of how it may increase spending pressure on other priorities, and whether it is politically possible to sell at a general election.
I also agree there are very important questions apart from cost. But if a single scheme could potentially involve spending twice as much as Corbyn’s entire 2019 manifesto, then cost is clearly a vital issue.
@Peter Hirst
Sorry, I think I missed replying to you
I’m similar to you. I think a negative income tax is probably the way forward: it is targeted, it reduces disincentives to work, and it doesn’t involve prohibitive rises in taxes.
We already have a form of negative income tax in the universal credit. Unfortunately, George Osborne used its introduction as cover to bring in large reductions in benefits. Our 2017 and 2019 manifestos involved reversing those cuts.
I wonder, now that the brand of universal credit as been so trashed by the Tories, if it needs to be re-branded. I’d be loathe to start from scratch, because introducing totally new schemes is fraught with problems. But it does need to be improved.
We shouldn’t underestimate the political difficulties of doing this. The current public mood is against benefits – that’s why the Tories got away with it. But I think it is important. I fear what is happening in the world economy will continue to make life harder for the low paid, and we need to find ways to support them. But we will also have to consider other spending priorities, and, as @Frank West and @Paul Barker say, we have to reflect on how Covid and Brexit could damage UK finances, and make even our existing commitments obsolete.
@Andrew T
Regarding who a scheme should be acceptable to, I think it needs to be acceptable to far more than our voter base. I am not content with us continuing to have only 12 seats, and languishing on 6% in the polls.
George,
there is no total cost. It is designed to be revenue-neutral. If you increased the income tax rate by 3% it might raise 18 billion. If you increased the personal allowance at the same time to the minimum wage you would give back an equivalent amount in extra tax relief. In this case, you are not increasing the personal allowance, You are reducing it and giving a tax credit or benefits payment instead. It is tax reform and redistribution that requires no increase in the government’s deficit and borrowing and that leaves 80% of households with an increased after-tax income.
“there is no total cost. It is designed to be revenue-neutral. If you increased the income tax rate by 3% it might raise 18 billion.”
It might, at least initially, but if everyone has to pay more income tax they’d have less to spend. Other tax receipts such as VAT would start to fall. The economy would slow, employment levels would fall and income tax revenues would then start to fall too.
The mistake is to think you can change one thing and everything else will remain the same.
“If you increased the personal allowance at the same time to the minimum wage you would give back an equivalent amount in extra tax relief.”
And you’d probably get back more in total. You’d be transferring money from higher income groups to lower income groups who are more likely to spend it and create a economic stimulus.
“In this case, you are not increasing the personal allowance, You are reducing it and giving a tax credit or benefits payment instead. It is tax reform and redistribution that requires no increase in the government’s deficit and borrowing and that leaves 80% of households with an increased after-tax income.”
This is household economic thinking. If you’re transferring spending power from the wealthy, who are less likely to exercise it, to the less wealthy who are more likely, you can’t assume that everything else will remain the same. The governments deficit will probably fall but that’s not the issue. There could be an inflationary effect. This is not to say we shouldn’t transfer spending power to the less affluent but the macroeconomic effects do need to be properly considered.
It’s probably better to do it gradually so that any inflationary effects can be compensated for as they start to happen.
This is a big danger if a UBI is introduced quickly. If, as likely, there are mass resignations from low paid jobs at the same time, the UBI will end up making us all worse off. We want low paid jobs to be better paid jobs not even lower paid than they already are. Which is what will happen to net wages if workers have to pay more tax. The UBI won’t change that.
“if everyone has to pay more income tax they’d have less to spend” 80% of workers will not pay more tax under the Torry Permanent UBI scheme they will pay less. Workers receive their UBI as a tax credit and their take-home pay is increased.
As spelled out above, the Torry scheme increases the average household income of the lower deciles by £45pw from £202 per week to £251 pw and the 2nd lowest income decile by £26pw, while reducing the overall spending power of only the two highest income decile. There is no additional government spending, borrowing, or money creation required to effect these reforms. It is highly unlikely to have any impact on inflation. Even if there was mild inflation that would be one-off adjustment much in the way that an increase in VAT might temporarily increase consumer prices. The higher propensity to consume may aid in spurring demand in the economy and offsetting deflation.
The job guarantee scheme that would accompany the UBi would require additional government spending and increases in borrowing. This may have some small inflationary effects depending on the monetary value of output produced by workers in a job scheme vis a vis wages paid. Mild inflation increases may assist in keeping to an inflation target of 2%, which is thought to be helpful in maintaining a steady rate of economic growth.
There is absolutely no prospect in the foreseeable future of mass resignations from any job, low-paid or otherwise. There is, however, not just the prospect but the actuality of mass redundancies and hiring freezes during this recession that is upon us now.
These threads show just how poorly understood UBI, Minimum imcome guarantee and negative income tax is among many political activists – Labour activists in particular. Not a good trait among those who would seek to govern us.
@ Joe B,
“There is absolutely no prospect in the forseeable future of mass resignations from any job, low-paid or otherwise.”
You don’t know that. Anyone who has had three teenagers might have had difficulty getting them up in the mornings. They might have said something like “You’d better get moving because no-one is going to pay you for lying in bed all day”. If they’d the choice of working all week for, say £13k pa, after tax and UBI, or half that for lying in bed …..
They’ve all turned out fine but it really wouldn’t have done them any good at all to have just been handed money unconditionally. It’s making a big assumption that many, even non-teenagers, will act in a more socially responsible manner. Many will take the UBI but won’t like paying a relatively high rate of tax on additional earned income. So they’ll work cash-in-hand to make up the rest.
Peter Martin,
policy should be based on evidence rather than anecdotes about teenagers. UBI trials show no loss of work incentives, In fact, there has been a slight increase in work take-up in the Finland Trials.
UBI or a minimum income guarantee should be introduced at modest anounts – £60 per week (replacing much of the personal allowance and NI thresholds) as suggested by Torry or Compass and accompanied with a job guarantee scheme to ensure work availability and skills development. The two programs complement each other.
With the onset of Coronavirus cash-in-hand work is becoming rather scarce. Cash is hardly used anymore in China. I understand, consuner transactions are settled almost entirely by mobile app payments there.
Benefit or tax fraud is often raised as an objection by Conservative MPs, but it is relatively insignificant compared with the tax gap that exists at the corporate level.
@Joseph Bourke
Normally I enjoy discussions with you Joe, but I’m finding these arguments about terminology frustrating.
I think you know the stats I want. I don’t care what terminology you use, but if you know the statistics it’d be helpful if you could give them.
In their paper advocating UBI, Lansley and Reed talk about the gross cost of implementing UBI, minus savings from reduced benefits, minus tax rises, and then there being a very small net cost that isn’t covered by their stated tax rises. (In my simplified table above, I’ve assumed this net cost would be covered by other, unstated, tax rises)
You clearly don’t like their terminology. So how about the following: I’d like:
– the total cost of sends out the UBI payments
– the savings made because some benefits payments will be less
– total increase in taxation levvyed by Torry’s tax proposals.
Torry does provide the tiny bit of spending not covered by reduced benefit costs and stated tax rises (£26m). But that’s not what I’m asking for.
If you don’t know, fair enough; but it’d be helpful if you’d say so.
If you know but aren’t prepared to say, I think that’s a pity. as I think it makes our discussion futile, but please just say so.
George,
the point I have made in comments above is that gross cost is irrelevant for the purposes of tax reforms that redistribute how and to whom already existing relief is given. The personal tax allowance can be shown as costing £100 billion in so-called tax expenditures and NI allowances another £50 billion. If we give the exact same sum as a tax credit instead of as an allowance there is no meaningful cost. It certainly does not mean that there is another £150 billion that can be spent on health, education or other programs. To say the cost of the program is £150 billion when you are merely changing the way tax and NI relief is given and the money could be better spent elsewhere is rather fatuous.
This article discusses the cost of UBI https://qz.com/1355729/universal-basic-income-ubi-costs-far-less-than-you-think/ and makes the point “…both critics and even many supporters don’t understand how much the program would really cost. To calculate the cost, most people just multiply the size of the monthly income (say, $1,000) by the population (it’s universal, after all) and—voilà—a number that seems impossibly expensive.”
“But this is not how much UBI costs. The real cost—the amount of money that actually needs to be taken from someone and redistributed to someone else—is just a small fraction of these estimates.”
“The key to understanding the real cost of UBI is understanding the difference between the gross (or upfront) and net (or real) cost.
“This is a fundamental point that often gets missed: those that are taxed to pay for the UBI will get some of that cost back—by getting their UBI. You can also think about it in reverse: while the UBI goes to everyone, the rich in effect give it back in the first chunk of taxes they pay, so you don’t need to count their UBI in cost estimates.”
In your article, you write “A key issue with UBI is how it will be funded, and if it is funded, whether other priorities will have to be dropped”. The answer with the revenue-neutral Torry scheme is it is funded by changing the way tax and ni allowances are given and increasing the headline tax rate by 3%. There is no exchequer funding required, the total amount of tax and ni (net of tax credits) collected remains the same and no other priorities are dropped.
George,
the Compass scheme Scheme 1 would be close to revenue-neutral – with a net annual cost of £0.7 billion – but would still require an increase in the standard rate of tax to 23p. The net cost of £0.7bn is missing from the last line of the chart in your article.
The gross cost is equivalent to the cost of eliminating much of the personal allowance and NI lower threshold and the increase in the income tax rate by 3% (1% raises about 6 billion – 3% about 18 billion). It would be difficult to raise income tax rates by 3% and impossible to withdraw tax and ni allowances, if the money was not being given back in the form of tax credits/UBI.
Hi Joe,
Thanks for providing a £150bn tax increase figure.
You are right, of course, that tax increases that are spent on either public services or benefits like UBI aren’t a simple cost to the public. If we increase taxes to improve the NHS, there’s a cost and a benefit.
I’d argue that NHS spending brings a net gain to most people: the value they receive in healthcare cover is far better than if they didn’t pay those taxes and had to get them via the private sector. (Apart from the cost to our social fabric of many people having no health cover, if we look at the US model, while there are inefficiencies in the NHS, it’s clear a private sector solution can be far more inefficient)
There are a few wealthy people who don’t get a net benefit from the NHS because they pay so much income tax. In 2018, the highest earning 1% in the UK paid an estimated 28% of all income tax (though the proportion of total tax was far smaller). https://fullfact.org/economy/do-top-1-earners-pay-28-tax-burden/
I think this is a good thing. A lot of rich people agree: some even say they are net beneficiaries in non-financial ways, because our welfare system creates a healthier society for them to live in.
It is always a challenge to persuade the public to vote for tax and spend, because they fear that the money might be wasted. But, if we sound measured and careful in our spending promises, we’ve shown, between 1997 and 2010, that we can persuade many voters to elect MPs on this basis.
Exactly the same issues as the NHS apply to Torry’s UBI scheme. It has a cost in terms of raised taxes (including very high tax increases for the rich, mainly because of the 10% increase in payroll tax due to NI being applied to the entirety of earnings). But with benefits that come with the unconditional payments to everyone, regardless of their circumstances, and also the potential benefits to our social fabric.
1/2
2/2
But public’s appetite for tax increases is limited, and they also appear to oppose raising taxes on the rich too high. There are also practical difficulties. Academic research indicates that too high taxes can mean a reduced tax take because rich people engage in tax avoidance, perhaps by recategorising income as increases in share value or moving overseas. If that’s true, then Torry’s model would have to increase taxes on lower income people.
In my article above, I assume that the above problems would be resolved by taxing in some different, unspecified way. But that still leaves an enormous political problem.
At a general election, organisations like the IFS will analyse the manifestos, and compare how much taxes they would raise. They will publish figures like the ones in my article above and the news media will publish their conclusions.
Imagine if the headline taxes we were proposing were £150bn/yr, plus extra taxes to improve other public services. Then imagine if Starmer were proposing, say, Corbyn’s £80bn/yr. How would the public react?
Then imagine the Tory leaflets in our Tory/Lib Dem marginals. How would the authors of our leaflets respond effectively? I cannot think of a simple effective way they could.
I fear it would destroy us, gift the Tories those seats, and ensure another Tory majority.
That’s why these total tax figures matter. The public clearly thought Corbyn was profligate in proposing £80bn/yr in increased taxes to pay for improved public services. How will we persuade them that we are not profligate in proposing a £150bn/year tax increase to pay for the benefits of UBI?
Can you understand my concern about that political challenge?
Hi Joe,
Thanks for taking the trouble to feedback on the details of my article.
In their original table, Compass separated out the total of their proposed tax increases (£140.2bn/yr), the unfunded element of their their proposal, which would obviously have to be funded by other forms of tax (£0.7bn/yr). In my table above, I’ve simply added the two figures together to give £140.9bn/yr.
(By the way, the gross cost of Compass’s proposals also involves applying NI to the whole range of income, thereby increasing payroll taxes for he rich by 10%)
I agree that it would be impossible to persuade people to vote for these tax increases, without the benefits of UBI. Just as it would have been impossible to persuade people to support Charles Kennedy’s penny on income tax for education, without the benefit of the increased spending on education.
(BTW I tried as hard as I could to avoid mistakes, but one did creep in, as I describe in the errata at the end of this comment:
https://www.libdemvoice.org/what-kind-of-universal-basic-income-do-you-support-65686.html#comment-539276
George,
Employers NI is already payable on all earnings. It is employee NI that is subject to an upper limit. There are always going to be attacks on any progressive measures. This is what Trump is doing in attacking Bidens economic plan as a tax hike when most Americans woudn’t actually see their taxes increase https://markets.businessinsider.com/news/stocks/trump-rnc-biden-economic-plan-taxes-hike-middle-class-increase-2020-8-1029545003?utm_campaign=browser_notification&utm_source=desktop#
Torry has spelled out the net impact of the tax and NI increases. The only significant increases come in the top decile (7% of household income net of UBI credits) i.e. £112 pw on an average income of £1,564. 80% of taxpayers will see an increase in take home pay or increased benefits. That is not only a pretty easy sell; higher taxes on those who can afford are supported by many higher earners themselves.
There is no way that the UK economy could absorb a £150 billion tax increase to fund public services or other government spending commitments. UBI/Minimum Income/Negative income tax is a method of integration of the tax and benefit system to distribute tax relief and benefit payments more equitably between lower and higher earners. The Torry scheme allows lower income recipients to keep more of their earnings and supplements the income of those with no taxable earnings. Basic income provides a level of security that does not currently exist in the form of a non-withdrawable benefit to all long-term residents regardless of their income status.
I mentioned on another thread the party needs to listen to what people are asking of government and develop policies to meet those needs. Opinion polls indicate there is strong public support for three policies – UBI, job guarantees and housing security https://www.independent.co.uk/news/uk/politics/coronavirus-poll-universal-basic-income-rent-control-job-safety-a9486806.html
This is a deliverable and costed policy in the tradition of social justice that requires no extra borrowing to fund it. If we worry about Trump like attacks from the Tories we would never put forward any progressive policies.
Might be a bit late and end of queue, but here goes. What is the basis of all this?
“All Europeans should enjoy the right to basic goods (e.g. nutrition, shelter, transport, energy) in their home country, along with the right to paid work contributing to the maintenance of their communities while receiving a living wage, to decent social housing, to high quality health and education, and to a sustainable environment.”
Is this it?
So what does it cost to provide this? UBI must hold people to the minimum of these provisions surely.
So it’s no good putting top down numbers, we need a bottom up analysis of how to give a sustainable acceptable life to everyone, then there’s the challenge of incentivising them to work…
No George, Taxing people and giving them the money back is not exactly the same as tax and spend. It is exactly the same as not taxing. There will not be revenue officers carting sacks of gold around. For most people there will be a change to the wording on their pay slip or benefit advice.
Well said, Antony Watts. And thank you for encouraging another late-comer.
And I agree very much with your brief assertion or reaffirmation.
But I think your concluding challenge is easily met. I believe any UBI will not be so large as to encourage idleness, or indeed to make it possible to anyone without other income. Many people do plenty of work for no financial return: parents at home bringing up small children, offspring at home caring for grannies and aunties, Volunteers. Would-be volunteers who have to find dull paid work to support their charitable intentions. There is so much necessary and valuable work done willingly by many, so let’s encourage that by eliminating cruel necessity. Toil undertaken without pay tends not to be called ‘work’, and it is wrong to think a UBI would just allow the lazy to be idle: it can enable thousands to do socially valuable — ‘valuable’ — work they could not otherwise afford to do.
@Peter Davies
Thanks for your contribution to the debate.
I’d don’t recall reading any detailed proposal for the mechanism by which UBI would be paid, do provide a link if you’ve read one from one of the experts. I’m not sure making it part of PAYE would work, too many people aren’t part of PAYE, and having two payment methods, one via PAYE and another by a different route sounds like it could have administrative complications. So, I fear your analogy of revenue officers carrying sacks of gold around would apply, except hopefully they’d do so via bank standing orders.
If UBI were just about taxing people and giving them money back, it wouldn’t do anything useful. It is a redistributive benefit:
It involves giving some people money and taking nothing back (eg people who fall between the cracks of existing benefits, trust-fund kids who have huge assets but no income, and in some schemes, those on benefit who would lose pretty much lose as much benefit as they would gain in UBI). The UBI for these people would be paid for by those who paid additional taxes.
In the taxes most UBI supporters advocate, This includes extremely heavy extra payroll taxation on those in the top decile (mostly due to increasing their NI payments by 10%). However, the authors of the Compass paper acknowledge, as the have not been able to do the modelling, this may not be realistic.
In it’s redistributive nature, UBI has similarities to other benefits, such as universal credit, child benefit and the state pension.
The voters regard these as state benefits as paid for with their taxes. The fact that the combination of UBI and taxes would leave many people neither worse nor better off wouldn’t change that. And if, while trying to sell this policy, we claimed it didn’t involve taxes, I fear voters would just stop listening to us.
@Antony Watts
Welcome to this debate 🙂
I wasn’t familiar with that quote, but it appears to come from DiEM25, a group I hadn’t heard of before.
I agree that advocates of UBI need to look at what it is trying to achieve. The reason I wrote this article was that, in the debate in the LIb Dems, there has been plenty about what it was trying to achieve, but mostly silence on the issues around how it would be funded.
Above, in choices 1) and 2), I put forward two suggestions. Do you have a preference? Or do you have an alternative?
@Roger Lake
Welcome too 🙂
There is a real debate about whether UBI might provide a disincentive to work. Some looking at pilot studies argue they show it does not. I’ve not the expertise to know if those provide enough evidence to prove that. One option I rather like would be to pilot making Universal Credit non-conditional for a random group of people, and seeing how that affected the rate at which they found work.
I agree that many volunteers give their time for free. Our society is deeply endebted to these people and could not function without them. I like the idea of providing them support.
I presume Ed Davey’s suggestion of a UBI for carers would provide that support. I don’t have details, however I have a lot of sympathy for that. I haven’t watched enough of the debates to know if his proposal is restricted to carers. If it were, it wouldn’t be a true UBI, in that it wouldn’t be universal and would be conditional on them performing a caring role.
If it wouldn’t apply to everyone that would make it far more affordable and far easier to persuade voters to support it. It would be interesting to see the numbers for how much it would cost.
The most efficient way of paying UBI is to pay it directly into their bank account. Employers and financial institutions would deduct standard rate tax at source. Those in higher tax bands would need to fill in returns though in most cases they would merely confirm the income on which they have paid standard rate and pay the extra.
In the short term though, only a small number of people would go on to this system immediately. Those on benefits would just get a note saying £140 of their fortnightly or £300/£310 of their monthly benefit was now UBI and most employees would stay on their existing tax code until they got a direct payment set up. That need not happen until they change jobs.
You will notice that under this scheme, most of the enormous additional “Cost” will not occur when the scheme is introduced. It will happen quietly over a number of years and will make no difference except in admin costs.
“One option I rather like would be to pilot making Universal Credit non-conditional for a random group of people, and seeing how that affected the rate at which they found work.”
A better measure would be whether it made any difference to the rate at which employers filled their vacancies. I suspect not. There would just be a slight tendency for jobs to go to people who wanted them rather than those that didn’t. One happy worker, one happy idler, one happy employer.
Making Universal Credit unconditional might be a good first budget measure while putting in place the structures for UBI and taxes like LVT and inheritance tax. If the work-hours requirement were removed, it would replace job-seekers allowance and provide a small income for students.
@Peter Davies
It’s not so simple, Peter.
If you want the system to work as you propose, you could integrate UBI into univesral credit (UC). Then, the income from UBI would be counted against their UC and payments adjusted accordingly. For the vast majority not on UC, they’d have to be added to get their UBI payment.
Sadly, I think the number filling in tax returns would be far more than you think. 32.7 million were on PAYE in 2017-18. Anyone with income who is not on PAYE would have to include UBI in their tax returns, but so too would anyone on PAYE with an additional income source.
As there are more people who pay tax, I’d have thought, if you wanted to integrate UC into something, it would be better integrated into the tax system. But that too would be enormously complex and difficult.
I suspect the least complex way to introduce it would be an entirely separate payment system, like child benefit.
It’s true that UBI might be introduced in tranches, perhaps for different parts of the country. I imagine that would be necessary, particularly if they were added to complex systems like UC or income tax, in order to iron out bugs in the system. The government would be wise to be mindful of the initial chaos caused by the creation of UC and plan accordingly.
As for people not noticing income tax increases in their PAYE, I fear that’s not true. We know people notice, because whenever it goes up, they loudly complain. This is why New Labour were so reluctant to increase it. Sadly, it’s the so-called “stealth” taxes they seem not to notice so much. Sad, because these are often less progressive than income tax.
Overall, I don’t think this change would happen as quietly as you suggest. I think the disruption would be just the same as any other other major tax and benefit change, except it would affect every person in the country.
32.7 m on paye. 12.5 m on state pension. Perhaps 3 m claiming benefits and not in one of the other groups. That’s a big majority of the adult population of about 50 m that already have a method of payment set up. None of them has to move over immediately. In the long term though you are right. the simplest way is a separate payment like child benefit. I’m suggesting they would move to that system the first time they changed employer or employment status or whenever they chose once the initial rush was over. The advantage of a separate payment is that once it is set up, you don’t have any manual intervention until the recipient changes bank account or dies. The gaps and opportunities for mistakes when changing between systems is one of the most hated aspects of the current regime.
The people with non-paye income already have to fill in returns. My suggestion was that we could reduce this number by making interest and dividends taxed at source.
The reason that I don’t think that most paye taxpayers would notice the initial change is that for most of them (those below average income) there would be no change to notice. Some would see an increase in their UC payments but sadly they probably wouldn’t notice that either.
I am sorry I am coming late to this debate, but I hope those who I am responding to will respond back to me.
Peter Martin,
Where did you get a JRT figure of £144 a week from for the poverty line? Their most recent report (page 15) states that for a single person the poverty line in 2017/18 was £152 a week (https://www.jrf.org.uk/report/uk-poverty-2019-20). The Social Metrics Commission state it is £157 a week for 2018/19.
Joe Bourke,
Please can you give a quote and a reference for the claimed policy of providing “living cost support for entrepreneurs”? I looked in a ‘Fairer Share for All’ but couldn’t find it.
On a more general note. A few years ago I was an enthusiastic supporter of a UBI and set out how it could be funded – https://www.libdemvoice.org/can-we-afford-a-universal-basic-income-56572.html.
Nowadays I am much more concerned with increasing working-age benefits to the poverty line, which according to the Social Metrics Commission is £157 a week for a single person and £271 for a couple. I suggest it can be done over ten years at a cost of £52.9 billion on top of our costed manifesto commitments of £9.43 billion.
it is wrong to think a UBI would just allow the lazy to be idle: it can enable thousands to do socially valuable — ‘valuable’ — work they could not otherwise afford to do.
This all sounds very nice. But, can you take off your Lib Dem issue rose tinted spectacles for a moment?
What do people do when they retire or win big on the lottery? Some, perhaps, do a bit of voluntary work but most don’t do anything at all other than what thy might have done for themselves previously. They don’t look at it as being lazy they just look upon it that they have enough income to not need to have to go out to work any longer.
Speak to anyone running a charity shop. Yes they’ll have volunteers coming in to help from time to time. Usually it’s because they a bored and need someone to talk to. But often they are highly unreliable. They’ll want to come and go as they please. If the weather is too good they’ll want to be out in their gardens. If its too bad they won’t want to make the effort to get there in the rain and snow.
Michael BG,
the reference above “d) Liberal Democrat policy has in recent times included living cost support for entrepreneur” is from the submitted conference motion., presumably based on reprsentions made in parliament by Tim Farron and other Libdem MPs https://www.libdemvoice.org/four-ways-lib-dem-mps-stood-up-for-those-with-no-income-in-the-last-week-65251.html
It will quite likely prove difficult to make the case for increased working-age benefits in an economic envoronment when wages are stagnant or falling. One of the reasons UBI or a minimum income guarantee garners public support is because it is Universal in the same wat that healthcare, education and Child benefit is for most.
Funding of any program will always be an issue. The Tories will argue that tax and spending cuts will stimulate economic growth https://www.theguardian.com/politics/2020/sep/02/minister-warns-rishi-sunak-against-tax-hikes-to-cover-covid-shortfall. Labour will make the same argument around greater levels of state spending paying for itself through economic growth even when fiscal multipliers are negative.
Both arguments are flawed and have been shown to have been by long experience, The Libdem approach should be focused on allowing people individual control over their own lives with a guarantee of an minimum income to cover basic living costs and a job opportunity to improve their level of income and work skills.
“The Tories will argue that tax and spending cuts will stimulate economic growth …… Labour will make the same argument around greater levels of state spending..”
To an extent, they are both right. Except the Tories don’t generally have VAT in mind, even though that is the most important tax for most, when when they are making their lower tax argument. It’s just a single argument in Keynesian terms with two aspects to it according to political preference.
The downside of both sides is that extra spending/lower tax can lead to higher than desirable levels of inflation. That’s the time to tighten up fiscal policy and not before.
“The Libdem approach should be focused on allowing people individual control over their own lives….”
This is just right wing waffle! What is really meant is that the Govt should take a hands off approach and tell everyone that the problem of low wages, high levels underemployment and poor employment prospects generally is eveyone else’s problem but theirs.
Peter Martin,
Lots of retired people are glad to retire because they found going to work in the last few years difficult. This was true for my mother who retired at 60 and I expect it will be true of many more with the retirement age moving to 67 for both men and women. Also it is harder to find employment the older one gets.
When people talk of a UBI they often are talking of quite a small amount. Even if it was £70 a week as suggested by someone in this thread that is not enough to live on long term. If a person has no housing costs and has some savings to use then a person could manage to live on that amount so long as they have the savings to pay for expensive items such as the expenses of having a car such as tax, insurance and servicing etc. Therefore a UBI of £70 will not encourage many people not to work. It is likely to make part-time employment a better option and this can allow a person to do a part-time education or training course, especially if they are young and are still living at home with low or no housing costs. Even if a UBI was set at the poverty level for a single person (£157 a week) it would be hard to manage on if the person is paying £78.59 a week in rent or £159.95 for a couple (my LHA rates).
A young person of 19 if working 35 hours a week on the minimum wage of £6.45 would earn £225.75 a week even after reducing this by 32% they would have £153.51 a week. If the UBI was £157 a week and it is not taxable being in work would still be beneficial.
You haven’t said where you got your £144 a week figure from.
Joseph Bourke,
I too couldn’t find, “living cost support for entrepreneurs” in our policies and like you thought it might be a reference to recent calls by some of our MPs. It has now been pointed out to me that on page 20 of our 2019 manifesto it states, that we would “Create a new ‘start-up allowance’ to help those starting a new business with their living costs in the crucial first weeks of their business”, which is not how I understood what is in the motion. I thought it was long-term support.
I think a Minimum Income Guarantee would be better than a UBI and because it is means-tested students and those doing training courses could be eligible for it. However, a Minimum Income Guarantee is not universal. I don’t think the opinion polls on a UBI ask a realistic question. I wonder how many people would support a UBI of £61 a week for those aged 25-66 at a gross cost of £140 billion a year and the cost to all income tax payers of more than £70 a week (Compass scheme 1)? I would hope there would be support for ensuring no one in the UK lives in poverty even if people were told it would cost over £60 billion. And especially if it was done over ten years to ensure taxes for the average income earner did not increase.
Michael BG,
your are proposing additional spending of £60 billion on benefits. Neither the Compass Scheme or Torry scheme proposes additional spending. It is a revenue-neutral reallocation of existing tax reliefs and benefits to a UBI. So the real question is how many people would support a UBI of £61 a week for those aged 25-66 at a net cost of £26million versus additional spending of £60 Billion to cover the cost incurred by benefit claimants for more expensive items such as the expenses car tax, insurance and servicing etc?
Joe,
George states that the additional government spending required by the Compass 1 scheme is £140.9 billion a year. To get to your £26 million net cost, taxes and national insurance are increased. It has been stated in the comments that the abolition of the Income Tax Person Allowance and National Insurance threshold would cost an income tax payer £70 a week. If they earned £12,500 it would also cost them an extra 3% which is £7.21 a week. So for a single person earning £12,500 a year they would receive £61 a week and have to pay an extra £77.21 a week in taxes. For every £1000 on top of the £12,500 they earned a tax payer on the basic rate of income tax would have to pay an extra 57.7 pence a week.
To use your logic if I stated where the government could increase its income by £60 billion and so bring the net cost down to zero and you would then say there is no additional government spending!
Do you think that a person who is not well enough to work should not receive enough benefit for them to have a car? If that person lives in the country then a car is likely to be very necessary for them to have much freedom at all. You seem to think it is fine for those living on benefits to be enslaved by poverty. As a liberal I do not.
Michael BG,
there is no increase in taxes or reliance on economic growth required ti implement a revenue neutral UBI. The UBI replaces the existing tax relief given in the fom of allowances with tax credit payments. . What is relevant is take home pay and benefit payments. For most people these will increase or remain the same. For the top income deciles they will reduce. The state’s taxation levels (net of UBI tax credits) and spendng as a share of GDP is unchanged.
Joe Bourke,
Do you dispute that the Compass scheme 1 proposes the abolition of the income tax personal allowance and the national insurance threshold as well as increasing the income tax rate by 3% to 23%, 43% and 48% and the higher rate of national insurance contributions to 12% from 2% (page 15). Do you dispute that someone earning £12,500 a year will pay an extra ££77.21 a week to the government and an extra 57.7 pence a week for every £1000 they earn on top of this?
The scheme that I advocated in February 2018 was near to revenue neutral with a net cost of £650 million, and basic income tax payers received a UBI which is equal to the amount extra they pay in tax, unlike in the Compass scheme 1.
Guy Standing has producd a short report on the cost and distributionl impact of a basic income floor https://www.compassonline.org.uk/wp-content/uploads/2020/04/BasicIncomeFloor_SL_FINAL.pdf
As an illustration, rates of £60 for adults under 65 and £40 for children
“would pay a significant, unconditional £10,400 a year for a family of four. A study for Compass has shown that such a scheme would be feasible, affordable and highly progressive.
It would:
• create for the first time an unconditional BIF
• boost the incomes of the poorest families, and cut child poverty by
more than a third and working-age poverty by over a fifth.
• reduce inequality, strengthen universalism and cut means testing.
• act as a counter-cyclical devise, with rates adjusted to handle both economic and natural shocks.
The would be concentrated amongst lower income groups. The losers, in contrast, would be concentrated amongst the top fifth.
Figure: the distibutional impact of a modest BIF can be seen on page 10.
This illustrative scheme would cost around £20bn net. This is less than the aggregate cuts to benefits (of nearly £40bn) since 2010, and the cost of the government’s wage subsidy scheme over 3 months. It would take the UK back to a level of social security spending slightly less than in 2010, but with a much more progressive and watertight system in place.
It would be possible to implement a scheme at a higher starting point (say £40 per child and £100 per adult per week) though at a higher net cost.
Meeting the gross cost of the scheme would need tax adjustments. The most important of these would be the conversion of the current personal income tax allowance into a cash payment and a small rise in existing tax rates. The personal allowance costs a huge £110bn but is of no benefit to those with low earnings and those not in paid work. If paid to adults of working age, this, on its own, would enable a weekly cash payment of
over £40 at no additional cost to the Exchequer. Though other forms of funding could be used, these tax changes would ensure that the benefit of the BI payments would be clawed back from the better off, thus raising the progressive impact of the scheme.
Despite its strengths and growing support, the idea of a BI – like the national health service, child benefit and the national minimum wage before it – remains controversial, although it is now being backed by some former critics.
Joe Bourke,
It is good to know that you do not dispute the figures I set out at 3.09 on 7th September. Abolishing the Income Tax Personal Allowance and replacing it with the equivalent amount as a Basic Income of £48.08 a week would have a cost to the Exchequer. As you correctly point out not everyone of working-age uses some or all of their Income Tax Personal Allowance and in February 2018 (https://www.libdemvoice.org/can-we-afford-a-universal-basic-income-56572.html) I calculated that it would cost £26.75 billion to provide this amount of Basic Income to those people. Therefore if my calculation was correct this is what it would cost the Exchequer to change the personal allowance into a Basic Income.