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Perhaps it is the paucity of other interesting ideas in politics; perhaps it is the thrill of an idea that appeals to idealists of both right and left. The basic or citizen’s income, by which multi-faceted welfare systems are replaced by an unconditional fixed payment per head, has been gaining a respectful audience across the developed world.
The basic income idea, which has been around for about a century, appeals to the kind of person who wants to stand above all the messy politics of who gets what and instead run things on clean, simple lines.
In theory, rather than encouraging idleness, handing out a fixed payment will provide an incentive to work more. Even if it is withdrawn as recipients’ wages rise beyond the minimum (the “negative income tax” variation on the same idea), effective marginal tax rates will be less steep than for those who at present would receive targeted means-tested benefits.
Eliminating a multiplicity of welfare programmes may reduce bureaucracy. But it will also require either politically improbable rises in taxation or a severe cut in the amount of help given to the badly off. In both cases, a pure basic income will remove support from groups in society in particular need of help.
Modelling shows that, if low-income households are not to lose out relative to the current arrangements, overall taxation will have to rise sharply. In the UK, if tax-free allowances are kept, this would probably mean pushing the combined tax and national insurance rate to 50 per cent across the range of incomes, compared with a basic combined rate of 32 per cent now.
Universal basic income
Amid anxiety over technological disruption, is a guaranteed payment from the state the future of welfare?
Of course, some would welcome lower payments instead, even at the cost of making the poor much poorer. The libertarian-leftist alliance in favour of a basic income would soon fall apart when it became clear that the Milton Friedmanites wanted to use it to turn the economy into a small-state paradise and the social democrats to create a Scandinavian welfare wonderland.
Even if rises in taxes or cuts in benefits were politically manageable, a BI might well result in a reduction in labour supply if households decide to cut back on hours of work in response to higher non-wage income. This would depress the amount of tax revenue available for redistribution, requiring yet higher tax rates. Reintroducing work requirements to prevent this would mean resurrecting the apparatus of coercion that the BI is supposed to eliminate.
Moreover, the payments that most societies make to particular groups — the long-term disabled, parents, the elderly — would either have to be ditched or separately added at extra expense. Some associated bureaucracy such as fitness-to-work requirements on the disabled would also have to be retained.
This gets to the heart of the problem with BI. The complexity in welfare systems directly reflects the fact that we, as collective democratic societies, have decided that we are going to support certain groups. To each, as the saying goes, according to their needs.
We compensate the long-term disabled because their lives are often more expensive and challenging, and their ability to work circumscribed. We give extra money to parents because having children is expensive and yet has general benefit in generating future taxpayers to fund public spending. We subsidise housing costs because rents differ so much across the UK and failing to do so will in effect drive out or impoverish lower-income families in the richer areas, such as London. We support the elderly because they are less able to work and because being old has often been associated with poverty.
Shifting from this to a basic income system is essentially saying that we consider the challenges of disability, old age, parenthood and prohibitive rent less important than administrative simplicity and the inefficiencies associated with means-testing. Handing out free cash to any old punter rather than looking after the elderly and disabled seems an unlikely political sell.
Declan Gaffney, a policy consultant who advised the previous Labour government, has put it best: basic income, he argues, is a thought experiment allowing us to imagine what kind of social welfare system we want. In reality, it will probably show us that the public desires something closer to the current arrangements than to the neat but highly problematic idea of a single unconditional income for all.
The system is messy but then so are people’s lives and needs. Throwing out that complexity in pursuit of a simple system ignores this fundamental fact of the human condition. The basic income is an idea against which the reality can be tested. It is not a replacement for it.