Universal basic income

What if we said you were going to receive no-strings-attached money, every month, for the rest of your life? Sounds pretty good, doesn’t it? Well it may not be as outlandish as it first sounds. In fact, many economists and politicians think a universal basic income is the way forward.

What is universal basic income?

Universal basic income (also called basic income, citizen's income, citizen's basic income, basic income guarantee), is a theoretical governmental public program for a periodic payment delivered to all citizens of a given population without a means test or work requirement. The idea is that the money provides people with enough to cover their basic living costs. For example, in Finland, the government decided that the minimum average cost of living was the equivalent of £490 - when universal basic income was trialled in 2017, the government distributed this amount to participants each month.

This type of payment is different from most existing benefits, as it is not means-tested. This means that regardless of income or living situation, all citizens are given the same amount of money for their living expenses.

Thomas More first wrote about the idea of a state-funded guaranteed in his book Utopia back in the sixteenth century. Since then, there’s been lots of discussion about a universal basic income and how it could work, with several trials around the world. Universal basic income also gained popularity with many influential advocates. For example, Civil Rights activist Martin Luther King and popular economist Milton Friedman supported universal basic income, as they believed it could decrease wealth inequality. 

A study published in the Review of Income and Wealth by researchers from UNU World Institute for Development Economics Research in 2016 shows that income inequality is rising in some countries and regions. For example, between the years 2015-16, income inequality in the United Kingdom, Latin America, and South Asia continued to rise by 38%, 25% and 60% respectively.

Reducing wealth inequality is only one of the proposed benefits of universal income. Here are a few more of the main pros and cons.

What are the main pros and cons of universal basic income?

Benefits 

1. Freedom 

An idea behind universal income is to free people from having to earn money to make a living. Supporters of universal basic income, like Belgian political philosopher Phillippe van Parjis and American economist Karl Widerquist theorise in their work that when the need to make enough money to live on is removed, people feel freer to pursue what is best for themselves and their families. This could mean setting up a business, becoming an artist, gaining an education or caring for children or elderly relatives. According to a 2018 report by popular economic historian Rutger Bregman, communities where universal basic income has been trialled report fewer hospital admissions, a decrease in mental health problems, and more young people staying in education for longer.

2. An end to the ‘welfare trap’

The ‘welfare trap’ refers to a problem faced by low-income people who are unemployed and access financial benefits from the government. When low-income people receiving benefits find employment, or their income rises slightly, high taxes and reduced benefits can lead to a ‘trap’ - an encouragement to stay on benefits as the alternative would be a worse financial state than their present condition. This discourages people on financial benefits from finding work. Unlike current means-tested benefits systems, where the amount you receive can decrease as your income rises, a universal basic income may not discourage work as it is paid to everyone, regardless of income. 

This could have a great impact as so many rely on welfare provision by the government - currently,  according to the 2013 Joseph Rowntree Foundation annual report, a UK independent social change organisation, 20.3 million families in the UK rely on some kind of benefit from the government. 

3. A reduction in wealth inequality

In a 2016 Guardian article, journalist Jason Hickel reported that global wealth inequality is worse than at any time since the 19th century, as the richest 1% now have more wealth than the rest of the world’s population. The ‘Economy for the 1%’ report published by Oxfam in 2016, also demonstrated that wealth inequality is rising, stating that the richest 62 people in the world have as much wealth as the poorest half of the global population. Universal basic income aims to reduce this gap by sharing some of the country’s wealth among all citizens, regardless of their current income. 

According to a report by the Conversation website in 2018, some economists also claim universal basic income could help gender equality as it gives value to ‘unpaid work’, often done by women, such as childcare and housework.

4. More cost-efficient than current welfare 

Introducing a weekly universal basic income may be cheaper for governments than means-tested financial welfare support. Records from the Office for National Statistics show the UK government spends around 35% of all government spending on welfare, which was £264 billion in 2017 alone. 

According to a report by economists Stewart Lansley and Howard Reed published by the Thinktank Compass in 2019, the total administrative costs of implementing universal basic income would be £28 billion. Furthermore, according to a study on universal basic income headed by Professor Guy Standing, if the UK population of 60 million people were paid £48 a week, that would come to about £150 billion per year. 

So, the total bill for the UK government for implementing UBI would theoretically be £178 billion in the first year, and £150 billion each year after. The existing cost of welfare is £264 billion, so UBI could lead to enormous savings of just under £100 billion per year.

Cons

1.Motivation to work

One of the biggest counter-arguments against universal basic income is that giving people money for doing nothing will reduce their motivation to work. In the Improving Social Security report by researcher Gilles Seguin in 1994, he argues that universal income would encourage millions of workers to quit, as their living expenses are a huge determining factor of their choice of work. 

However, many small-scale experiments show that this may not be true. For example, in Mincome, Canada, 10,000 people from the city of Winnipeg in rural Manitoba in the 1970s were given a guaranteed income equivalent to their family size (roughly between 35 to 75 cents per dollar earned) every month. The researchers observed that the reduction in work was only significant for new mothers and working teenagers.

2. Does not tackle specific inequalities

Although universal basic income may tackle some wealth inequalities, others may continue to exist beyond the system. The means-tested systems that currently exists allow governments to help individuals who really need extra financial assistance. Implementing universal basic income would result in wealthy individuals receiving financial support.  Even worse - universal basic income may not cover the needs of individuals who may need extra support, like children, the elderly or individuals with disabilities. In the example of the United Kingdom, the initial £100 billion saving may end up evaporating if the government decide to provide these groups with additional support. 

3. It may lead to inflation

Inflation refers to the rise in prices of goods and services we use daily, like food, housing, leisure and transport. Inflation normally happens when there is a change in the economy, such as an increase in the cost of production materials, an increase in demand for products, or extremely fast growth in the wealth of all citizens. Economics reporter Paul Boyce in the Foundation for Economic Education magazine in 2019 notes that universal basic income may spur higher consumer spending on these daily goods, as well as higher taxes which will reduce the impact of universal basic income.

Real-world case studies: universal basic income in practise

Although there’s a lot of discussion about its pros and cons, at present no country has universal basic income enshrined in law and public support varies from country to country. In 2016, Switzerland held a referendum on introducing a universal basic income that was rejected 77% to 23%.

There’s currently a large-scale experiment in Kenya where GiveDirectly, a charity backed by Google, are paying unconditional payments high enough to meet basic needs to thousands of people to eradicate poverty. The initiative started in 2017 and will run for 12 years so maybe we’ll have to wait and see the results...

• Namibia 2008: A pilot scheme by a German Protestant church in Namibia in 2008-9 involved paying out N$100 (8% of the average income, around £9) per month to the 2500 inhabitants of the villages Omitara and Otjievero. The study found that when people were paid a universal basic income, the economy of the village improved. Several small businesses were set up and the local market was given a boost as households had more money to spend. After the end of the study, a monthly allowance of N$80 was paid to participants until 2012 when it became unsustainable for the church funds.
• Iran 2010: The government of Iran gave universal basic income transfers of 29 percent of the median income each month to all its citizens. They paid the equivalent of £31 to every citizen per month. Poverty and inequality were reduced, and there was no sign of large amounts of people leaving the labour market. In fact, people used it to invest in their businesses, encouraging the growth of small enterprises. This formed part of the Iranian Five Year Development Plan, intended to rejuvenate Iran’s economy, and has been extended until 2021.
• Finland 2017: The Finnish Government paid 2,000 unemployed people £490 (€560) a month for two years, instead of unemployment benefit. Whilst not a true universal basic income trial as it was only paid to those out of work, supporters were keen to see the outcome and initial results looked promising. However, the government refused to extend the study which shows how difficult it can be to get politicians to commit to funding universal basic income for a whole population.

Good stuff from elsewhere

Report on Universal Basic Income by Georg Arendt

Visit now

Global Inequality Paper by Minguel Nino-Zarazua

Visit now

The OECD on Universal Basic Income

Visit now