Patrick Spencer

Labour’s universal basic income would leave the poorest worst off

Labour's universal basic income would leave the poorest worst off
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Google the words ‘Universal Basic Income’ and you will be find high praise and excitement from a wide-ranging collection of people. Richard Branson, Mark Zuckerberg and now John McDonnell have all announced they believe that ‘free money for all’ is a good policy. UBI has fans on both the left and the right. Dutch author Rutger Bregman published his bestseller Utopia for Realists earlier this year that championed a basic income for all; while American Conservative author Charles Murray has also supported the roll-out of a similar programme.

Understood simply as a single cash transfer to each individual, regardless of how rich or poor they are, it would guarantee a minimum income and economic security for all. The idea is nothing new. Thomas Paine proposed a citizen’s dividend in the eighteenth century and Richard Nixon proposed a negative income tax in the seventies. Finland, Ontario, Canada and California have all launched UBI trials recently (with varying degrees of success). The Scottish government has extended a basic income trial to four cities at a reported cost of £20 billion. So, has the time for a Universal Basic Income in the UK arrived?

Our work at the Centre for Social Justice suggests not: in fact, UBI would actually be a worse deal for the most disadvantaged families across the country.

Firstly UBI is unaffordable: assuming an effective programme would ensure that each individual over the age of 16 had a minimum income at the income poverty line (approximately £16,320), it would cost £850 billion. This is more than 105 per cent of the UK’s current government spending. Set at £20,000, it would cost more than £1 trillion.

At this point, UBI advocates say that higher earners would pay back this income in taxes, that savings related to social breakdown would cover some of the cost (but with these estimated at £102 billion, the impact is not big enough) and that savings can be generated through the cutting of other public spending (this would have to include the health budget, defence, education, and pensions before it would start to balance out cost). In reality, none of these really hold.

Secondly, even if UBI payments were reduced to make it more affordable, allowing for an entitlement of approximately £6,240 per year, many families would be worse off than they would be on the alternative Universal Credit system. Universal credit provides a single unemployed parent with two children approximately £16,746 a year, more than double the £6,240 afforded under UBI.

Many supporters of UBI argue that other forms of social security would continue, offering extra support for families and individuals who need it. But you are left asking yourself: what then is the point of UBI in the first place? If it is not replacing a broken system and it isn’t helping anyone, why would it be worth £850 billion?

There remains a myriad of other problems that face UBI: at what level of government should it be administered? Should there be regional weighting for claimants to reflect the variation in cost of living across the country? Or would it have any impact on the perception of inequity in our economy that many people feel right now? My guess is no.

The trials in Finland and Canada have barely got off the ground before administrators have closed them down. In Ontario, the Provincial Social Services Minister said they wanted to refocus resources to more proven projects. The Finnish finance minister said in April of this year that he was looking in to other welfare schemes including a Universal Credit style dynamic benefit.

John McDonnell is wrong to advocate for a UBI, it won’t help the poor and it will most likely bankrupt the country. Universal Credit on the other hand is cost effective and has helped deliver the strongest labour market on record.

Patrick Spencer is the Centre for Social Justice’s head of welfare and work