Universal Basic Income: Do It Right Or Don’t Do It At All

A five pound bill covered with coins.

Dr John Ball argues that – without major changes – the Welsh Government’s proposed Universal Basic Income falls at the first hurdle.

The Scottish Government’s recent realisation that it lacks the powers to go ahead with a Universal Basic Income pilot programme is understandable, if disappointing.

However, it seems that the Welsh Government remains keen on such a pilot programme, a surprising decision especially with less tax raising powers than the Scottish Parliament. 

I suspect that this initiative, worthy though it may be, will be quietly dropped.

I am a supporter of UBI and, perhaps surprisingly, hope that any pilot scheme will not actually go ahead. Simply because; understanding the purpose and structure of the scheme is the issue that needs to be understood by everyone. 

A properly constructed UBI scheme must be comprehensive and apply to all adults of working age. My worry is that in its hurry to – understandably – address poverty in Wales, this scheme will not address the universality that underpins UBI.

Why? Wrapped up in misunderstanding of the principle of universality and sniped at from both left and right, it is time to be clear about an idea that may initially be expensive but has the potential over the longer term to attack poverty and drive the economy. 

“A genuine UBI scheme must work alongside the existing tax system and not the existing benefit system.”

UBI is, as its name suggests, a universal payment available unconditionally to all. It is not – and this is the most misunderstood aspect of the scheme – a different form of welfare payment. 

This error seems worryingly to be behind the Welsh Government’s thinking. Properly constructed it has a clear objective; enhanced disposable income and increased financial stability for recipients coupled with the removal of complex form filling. 

A worry about the application and potential success of UBI is that, to date, almost all schemes across the many countries who have trialled it – with few exceptions – have been piecemeal, providing cash grants aimed at existing welfare recipients. 

However, a genuine UBI scheme must work alongside the existing tax system and not the existing benefit system. 

Opponents of UBI point to evidence from past trials that UBI type pilot schemes have not been successful; omitting to note that almost all were used to replace welfare payments – which is precisely what UBI should not do. 

Opponents of UBI present four arguments against its use. 

“The amount of UBI payment… must be an amount sufficient to provide basic financial stability.

The first is that it is a disincentive to work. Evidence from the four most complete trials report no such problems, most certainly because receiving welfare militates against finding employment and an unexpected benefit was an increase in personal pride and happiness.

Following on from this is the so-called ‘recovery rate’, which is the earnings threshold of the UBI payment and earned income after which income tax is paid.

This addresses the argument that UBI should not be universal, which is the same argument presented against universal child benefit. An example is the scheme in Ontario where tax at 50% was paid after the equivalent of £20,000 for a single adult and £27,000 for a family, inclusive of course of UBI.

The final issue is the amount of UBI payment. It must be an amount sufficient to provide basic financial stability in keeping with the philosophy of UBI.

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Pilot schemes have varied, but in the main, the payments have been around £450 a month – as in Finland.

The latest scheme in Poland, pays £43 per week although this is in addition to a child benefit system, whilst earlier this year a group of 500 MPs, Lords and councillors called for a UBI scheme to pay £48 per week, or £192 a month. 

This is the conundrum. A comprehensive scheme would apply to all adults of working age in Wales which approximates to 1.9 million people between the ages of  16 and 64 – the scheme would not apply to pensioners.

“Without control over welfare, full taxation powers and therefore the ability to construct and operate a comprehensive UBI scheme, any pilot will fail.” 

If a payment such as that paid in the Finland trial was applied in Wales, £450 per month (£5,400 per annum) would equate to approximately £9.5bn per year in total.

At face value this seems excessive, but it must be remembered that there would be substantial savings in reducing welfare administration, increasing tax revenue from greater spending and from the aforementioned income tax recovery rate.

UBI is an exciting and innovative way to provide financial security, attack poverty and through extra spending power, move the economy forward – and this is the problem. 

The Welsh Government may well support the ideal of UBI, but the reality is that without control over welfare, full taxation powers and therefore the ability to construct and operate a comprehensive UBI scheme, any pilot will fail. 

Do it right or don’t do it at all.

All articles published on the welsh agenda are subject to IWA’s disclaimer.

Dr. John Ball is former lecturer in economics at Swansea University.

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