Recently there has been plenty of discussion about reviving the UK economy after Covid to create new (and “greener”) jobs, especially to “level up” former “Red Wall” parts of the country, and “Build Back Better”. One solution gaining interest and scrutiny is Universal Basic Income, through schemes which guarantee everyone enough for their minimum needs.
In October 2020 more than 500 Peers and Councillors wrote to the Chancellor urging consideration of the idea (see note 1), and this year 172 MPs and Peers did the same, although Rishi Sunak had already responded to a Scottish enquiry that the government was “not in favour of a universal basic income”, and instead had “strengthened the safety net for the most vulnerable” through the existing welfare system (see note 2). Nevertheless many of those elected on May 6th this year think it worth considering (see note 3).
In many ways this idea was set out in the 1924 book “Social Credit” by Clifford Douglas. Put very simply (possibly to the point of seriously misrepresenting him), he argued that, except for companies about to go bankrupt, the costs of production were always higher than the value of wages, salaries and dividends paid out. So consumers were unable to buy all they had made, forcing companies and countries into a battle for exports, leading to Trade Wars (and sometimes actual wars). As employers tried to reduce their costs by mechanising, so creating more unemployment, the problem would only get worse. John Maynard Keynes came to similar conclusions, but whereas Keynes argued that governments must invest in the economy to create full employment (a policy which was adopted by post-WW2 governments), Douglas wanted banks to advance credit to individual citizens to build what he called “economic democracy”. This, he said, is modern Christian economics, based on a theology of “unmerited grace”, and giving everyone their own “vine and fig tree” in a “system….. made for men, not men for the system”. “Social Credit” ideas were put into practice in Alberta, Canada, in 1935, though Douglas opposed their insistence on maintaining a “balanced budget”. His ideas also won a good deal of support in New Zealand.
More recently several places and a few countries have run experiments in Social Credit. Alaska pays each citizen annually between $1000 and $2000, financed by oil revenues. North Carolina gives each member of the Cherokee nation between $4000 and $6000 a year from the proceeds of a casino built on tribal land. 130 countries have tried schemes, sometimes for small groups, and sometimes setting conditions (eg sending children to school, or going for health checks). Spain is embarking on a scheme, and Kenya will give 20 thousand rural people regular income. In 2011 Iran began to use UBI to replace former subsidies on bread, water, electricity, heating and fuel. From 2017 to 2019 Finland gave 2000 unemployed people 650 Euros every month. Many of these schemes have noted improvements in education and mental health, with reductions in addiction and crime, though the schemes which aimed to reduce unemployment have been judged failures, and the Alaskan scheme is said to have led to larger families.
Many economists and right-wing commentators have vociferously argued against UBI for a number of reasons: it reduces the incentive to find work, it is far too expensive (requiring a 25 percent rise in income tax), especially if added to existing welfare programmes, rather than replacing them- and if it is funded by borrowing rather than by taxation it harm the economy long term. Some say boosting consumption is not the way to stimulate the economy, because promoting investment in increased efficiency is far more effective. And encouraging “indulging” in more pleasant and “fulfilling” work makes society poorer if the production of basic goods falls. Others fear that UBI will increase the power of the state, and because it is a benefit for everyone it will be impossible to reform if it proves problematic (because too many people will vote for it to continue).
But there are also studies which refute many of these arguments. One by Richard Pereira, of the University of Birmingham (UK) in 2015 (see note 4) notes that claims of UBI reducing incentives to find work have been debunked by several studies (see note 5). Based on Canadian estimates that at $15,000 per person per year UBI would cost between $392 and $418 billion (some 28% of total Canadian wealth) he goes on to show how in his view it would not be more expensive than present systems, and would not require any substantial increase in income tax (he quotes, for example, R Rainer and K Ernst in “How can we not afford a basic annual income?” in the Toronto Star of February 27 2014: “the cost of poverty alone is between $72 billion and $86 billion annually”.)
We might ask whether a UBI scheme goes far enough, while the richest ten percent of the UK population (according to Thomas Piketty) own more than half the total wealth, and earn 40 percent of the country’s income. And the richest one percent own 40 percent, and receive a quarter of the income. These people to a very great extent control and run the economy and decide its purpose. In the UK today some five and a half million people work in the Public Sector- they do jobs which the community as a whole decides should be done, and which we fund through taxation. Another 5 million are self-employed- either they own the resources and skills which enable them to set up on their own, or they are being forced into the “gig economy” by unscrupulous employers who avoid paying regular wages and benefits. A million work in the voluntary sector, funded by charitable giving and other means. That leaves more than 20 million working for a commercial employer. They have jobs because their work is more profitable to their employer than the wages they earn. If it were not so the job would not exist, however useful it might appear to be by other criteria. Paul Collier is no doubt right to say that the poor are far more concerned with who gets the income than with who owns the capital (see note 6), but in the long run it seems that income will not be sorted without changing patterns of ownership. Perhaps UBI, though, is an important step on the way to a more just society, and certainly one that is worth debating in our present situation. This article hopes to provoke more of that discussion, and in no way claims to cover more than a fraction of the issues involved.
5. Pereira mentions studies by E. Forget in 2011: “The Town with No Poverty” published in a Canadian Public Policy Report, Vol. 37, no 3, and by the University of Manitoba; also by B. Steensland in 2008: “The Failed Welfare Revolution”, published by Princeton University Press.