Basic Income Part I- Why Consider It?

‘There shall be paid to every person, when arrived at the age of twenty-one years, the sum of fifteen pounds sterling, as a compensation in part, for the loss of his or her natural inheritance, by the introduction of the system of landed property. And also, the sum of ten pounds per annum, during life, to every person now living, of the age of fifty years, and to all others as they shall arrive at that age’– Thomas Paine

What Is Basic Income? Is Basic Income a good idea? Is it feasibility? Is it affordable?

There is much talk of the possibilities of setting up a basic income for citizens and I wanted to take the chance to set out my own early thoughts. This is such a large topic that I can’t hope to cover all the bases but I do want to make a contribution. I’ll draw on the already vast literature on this and try and add my own contribution. In this blog, I’ll focus on the what and the why, returning in part two to look more closely at costs and the wider issues a basic income raises.

I am in-principle a supporter of Basic Income, but I recognise that there are practicalities and costs to consider, and that on its own, it is far from a ‘magic bullet’.

It’s worth saying that, although there is a lot of thinking and activity now happening on this, that the idea is not new with support going back in Europe to the civic republicans of Concorcet and Paine (quoted above) but taking a longer view, the first Caliph Abu Bakr (albeit for controlling his newly acquired lands!) introduced some form of basic income.

What Is A Basic Income?

Put simply, a Basic Income (BI) or Citizens Income or guaranteed basic income is a payment by the state to its citizens which is (largely) unconditional and is paid regardless of earnings. The key points are that normally the income is unconditional, with minimal conditions attached, and that it applies to all citizens (with minimal conditions on that too).

I’ll come back to proposals on the correct level in part 2, but a very good report from the RSA (1) proposes a level around £3600 per annum for the UK for example. A recent Swiss referendum, which included a lively campaign with gold coins dumped in square as above(!), rejected a proposal to introduce a much higher income of around £2,000 per month.

A few seconds spent googling tells us more but I found this note from the RSA and this video to be a useful starting point. You can also find more here and here and here . And even more here .

More substantially I found Malcolm Torry’s ‘Money for Everyone’ book (2) to be very useful.

Why On Earth Would the State Give Free Money Away?

There is plenty of differing arguments about the reasons for a BI but they are generally of three types:

(1) Increasingly the nature of work is changing with evidence of greater anxiety and stress in the lower reaches of the workforce,rising inequality and some evidence of unfair or dehumanising practice. A BI set at a proper level would free up citizens to chose work that they really wanted, as opposed to work that they had to take, particularly for those with lower incomes and who currently have less choices.

Often a related argument is that in a world expected to see a rapid ‘Rise of the Robots’ over the next 30 years, we need to find ways to both protect vulnerable workers from automation, and to prevent a disastrous collapse in demand in the economy as jobs disappear. The argument runs like this: automation and robots are advancing rapidly- up to 50% of all jobs will be threatened; we need to find alternative ways to ensure people have jobs and income not just for their own dignity and self-worth, but because consumer spending is essential to keeping the economy moving so that no jobs= no incomes=no spending=no demand=no investment or production or services and so on.

A further related point is that BI advocates claim that as a society we simply don’t recognise, value or reward unpaid activity sufficiently well. Things such as volunteering, neighbourhood support, caring and a host of others could be freed up to focus on things that benefit society, with those doing such things free by their BI to do more.

Also included in this batch of arguments is that at a time of greater change, insecurity and anxiety, a BI generates a stronger safety net.

(2) Our (UK) welfare system is too complex, too arbitrary and too harsh. There are ample horror stories about harshness, petty detail and incompetence in the UK welfare system. Putting aside arguments over political motives and morality, one can argument that for three reasons the current ever increasing complexity of the welfare system is wrong and needs changed

– firstly, the system penalises low income people who face crazy marginal tax rates of 70% plus at certain largely arbitrary income thresholds and this acts as a harsh, unfair and punitive disincentive to take certain types of work

See for example this graph of marginal tax rates from the aforementioned RSA report:

– secondly, the cost of writing the complex rules, enforcing them, checking and waste and fraud is huge and both frustrating and largely without economic value. A BI scheme would be much simpler, more cheaper to administer and virtually eliminate fraud as its unconditionality means its extremely easy to check for compliance and extremely hard to defraud

– thirdly, a BI system would eliminate one type of state overreach- whereas at present bureaucrats are empowered to require very long forms to be filled out asking all kinds of detailed questions about a citizen’s business- their income, who they live with, where and how they work, if they have kids and so on, but a BI eliminates all that (up to a point anyway)

(3) A BI scheme would force companies paying lower wages for boring, repetitive and soulless jobs to compete for workers who would now have real choices if the work does not appeal. Companies may have to pay more, improve conditions or autonomy or simply be nicer to their workers. As a related bonus, it may be that BI encourages entrepreneurship across private, public, third sector and social enterprise as peoples’ creative energies are freed up when their basic needs are covered.

Proponents of BI also point out that a BI scheme could be phased in over time, over place and according to age or type of income scheme.

So, to summarise the stated or proposed benefits of BI:

– it gives greater choices and fosters human dignity, especially for those on lower incomes

– it is easier to administer

– there could be substantial admin savings from having a less complex welfare system

– it has potential to promote entrepreneurial citizens’ action

– it provides a much stronger safety net (depending on level of income set)

– it will greatly reduce waste and fraud as it’s very hard to claim fraudulently

– a BI scheme faces the future in terms of automation

– can be phased in

Plenty of other people have listed their thoughts on the pros and cons, for example here and here. The Brookings Institute gives its 3 reasons here

Great! Free Cash! Let’s Do It Right?

Not so fast- not surprisingly given the enormous change in theory and practice that such a policy would require, plenty of people have raised plenty of objections. I may have missed some, but let me list the main objections and then say why I think most are mistaken, some require more evidence, and some are simply turn on your view of humanity itself.

Three of the biggest ones can be summarised like this ‘A BI would be morally corrupting of the will to work, and ruinously expensive, and destroy the freedom and rights of the rich’. Dear reader, I’ll deal with two of those in a moment, and defer the costs issue to Part 2 of this blog.

The Common Objections

Objection 1- It Will Destroy the Impulse to Work

This is a common objection- that providing a BI at any sort of non-trivial level will destroy people’s incentive to work, rendering them work-shy fops lying around boozing and watching TV. Or more seriously, that the nature of humans, or at least poorer humans, means that absent strong incentives or penalties, people will take the path of least resistance. Or put another way, a BI scheme is unfair as it rewards the workshy and penalises the worker. Or that people need the structure and ‘whip’ provided by a strong welfare state.

Whether you think this is true depends on why you think people work, what makes people tick, and ultimately on your view of humans and their motivation, ethics and psychology. I note in passing the odd thinking that suggests that poorer people need penalties to make them work, but that any penalty at all is considered a disincentive for the rich to work, and that apparently, rich people need incentives to work and poor people need penalties.

For me, I do not think for a moment that there won’t be some people who do indeed chose not to work and laze around. However I am of the view that the vast majority of people want to work and make a contribution, that the BI has the potential to increase work activity by removing penalties and disincentives like the high marginal rates we saw above. I think that a BI would be one of the clearest possible demonstrations that we are indeed, ‘all in this together’ and give people confidence and the ability to try new things, to experiment and to even do unpaid work for a while, confident that no one can take their BI away. I think that BI is an excellent example of the state recognising and valuing the need for people to follow their life plans, and maintain a sense of dignity and equality.

As for fairness, I’m sorry you’ll need to explain to me why providing a BI that allows for a basic level of dignity is unfair, when we currently have a societal system where those born rich live longer, are happier and have more opportunities simply because of their circumstances of birth. I honestly think a BI has the potential to strengthen societal bonds and by creating a more equal society, has the potential to strengthen democracy too.

Objection 2 This Is State Overreach on a Massive Scale, Penalising the Rich for Being Successful

It’s pretty clear that a BI will cost money if it is to make a difference, and that the rich will have to pay for it. There, I said it.

But in a world where recently, pay for the highest earners and wealth is rocketing along with inequality, then I’m afraid that I think things like BI are the price of a decent society (you can see my thinking on inequality and on the principles for a liberal society here and here ). So, for the reasons I advanced in my earlier blogs, a BI is a key means of fulfilling the fairness test in society, not a perversion of it.

Objection 3- A BI is An Egregious Example of Dead-Weight Costs- We Need to Target Limited Resources!

This objection is trying to say that normally, our state interventions want to avoid ‘dead-weight’ costs- that is costs and payments for things that would have happened anyway. In other words, why pay rich people a Basic Income when they don’t need it, which is what you have to if the system is to be unconditional?

Actually, this is easily answered- we tilt the tax and benefits system to ensure that richer people pay more tax, and make adjustments so that they don’t see an increase in income overall. Simples.

Objection 4- It’s Just Too Complex to Try

Actually this objection has some merits- this is a huge change and we would need to proceed with caution. That is why in practice, so many proposals for BI schemes start at a local level and with pilots. We do want to have a rigorous before and after evaluation. We do want to understand what savings can be made administratively, or how local pay rates changed, the impact on business and employment, which differing rates of BI have what impacts, the interactions of BI with the remaining parts of the social protection system, how BI affects the housing market, and most importantly, how people in receipt of BI chose to behave and whether it actually makes a difference.

But these are just reasons to experiment and to pilot, at sufficient scale to draw lessons, not reasons not to do it. The most promising proposals look at a locality,a city or a rural environment, and evidence from all three would be important.

Objection 5- Companies Will Take Advantage and Lower Wages

There is clearly some risk that left to their own devices, at least some companies who knew that citizens were about to receive a BI would act to (overtly or covertly) lower wages or other benefits as a chance to make a free buck. Now in locations with no minimum wage, that is a serious issue. However in the UK at least, we have a minimum wage, and we simply need to keep an eye on company behaviour and act accordingly. It is clear to me that BI would merely be one part of an overage package of ‘fair and empowering modern work’ – and this is another issue I’ll return to in due course. Meantime, we ask the Low Pay Commission to keep an eye on the issue.

Objection 6- Immigrants Will Take Advantage

Given our current lively debate on immigration, some people would have a real fear that a generous UK BI, for example, would encourage even more immigration to the UK and that this would be an outrageous burden on good honest UK tax payers.

In reply, we can note that either outside the EU we will be free to control immigration as we see fit. Or, if my preference to remain in the EU ever comes to pass, we can look at ways to ensure that the definition of UK citizen is tight enough to ensure that abuse is minimised. I don’t know what the right level is, but we could for example introduce a rule into our BI that only those citizens born in the UK or children of those born in the UK are automatically entitled, and that other people would either have to become UK citizens and live here, or have to be working for a defined period first (5 years? 10 years?) to qualify. We can also introduce a rule that ex-patriats are not entitled to the payment. I suspect this could raise some issues should we remain in the EU, but the basic point that this can be fairly easily addressed stands.

Objection 7- A BI Destroys the Link Between Benefits and What Has Been Paid Into the System

I think two replies are possible to this objection. The objection is based on a feeling that, actually, our social protection system should be based on payments that reflect how much people have paid into the system, and personal payments adjusted accordingly. And further, that it is unfair that someone who has not paid in much or anything, should receive the same rights as someone who has spent a lifetime working. And that with falling support for the welfare system, we need to go back to where we started in the 1940s, where welfare was a form of pooled collective insurance, not a means of redistribution.

Up to a point, I am sympathetic to these ideas when we are talking about the standard welfare approach- and the importance of the so-called contributory principle. Policy makers and people are looking for ways to make the system fairer and to reclaim that sense of ownership of welfare that originally made it so popular. But as this article discusses, actually we need to think more creatively about how to give people a stake in the system, and I think BI does that far better than trying to return to the original ideas of Beverage.

It’s also worth noting that a pretty small fraction (less than 15%) of the welfare system now relies on contributions to determine payments.

So, my response is that (a) we need a better means of securing support for the welfare/social protection system and that is exactly what BI gives us and that (b) look the link is already broken so let’s not pretend our current system links contributions and payments very closely anyway.

Objection 8 Some Low Income People Will Lose Out and/or Basic Income is Too Blunt a Tool

A final objection I want to consider is a very real one, which has two parts. Firstly, people worry that those currently in receipt of welfare or other social protection payments will lose out if the BI is set at too low a level.

The second objection is that people are very diverse- with a vast range of ages, needs, circumstances, geography and expectations. On that basis, a BI which starts out with the intent of empowering people and their choices simply ends up straightjacketing them. Or that in order to account for variances in need, the BI would need to be set so low as to make no difference, and with supplements needed, or at a level so high to cover all cases that the costs would be ruinous.

The sorts of things people have in mind are families with kids with some working and some not, or the vast variation in housing costs across the UK, or the varying needs of disabled or sick people, or the needs of carers etc.

This is a serious objection and the reply comes in two parts. Firstly, the transition to a new system from the old will indeed likely create winners and losers and hard cases, and that these will need careful management and transitional arrangements. At one level that is simply the stuff of policy design and government. So, one could say, noted, and move on.

That’s a bit glib though so a second response is to say yes, this is an issue but point to work from the BI network or the RSA looking at exactly those issues and findings ways to manage them. See this table for example:

The second objection is really important and one that shows that, whilst important, BI on its own is not a single answer. I think is is indeed the case that despite being able to remove large swathes of the current welfare system and its accompanying administration, that we would need at least 3 types of additional payments:-

– public pensions would need to remain (though depending on the level of BI even this might not be true over time)

– payments for disabilities or other physical or mental health or special circumstances which mean that life is more costly for some citizens, would need to be retained.

– Housing costs vary so substantially across the country that a standard element for housing built into the BI simply wouldn’t work, so we will continue to need a housing payment system

So, any BI in the short-term would likely need to be accompanied by pensions, special payments for circumstances outwith personal control, and housing. But over time, we may be able to merge BI with pensions. And we should note that special payments are a relatively small proportion of the total social protection system (c17%). And finally, our whole approach to housing needs to change, which may over time render direct housing payments a less important element of the system.

So, this is a good objection and we need to concede that any BI could not replace the entire social protection system, but I’d argue it could do a tremendous amount meantime.

A Word on Conditions

The aim of BI is to keep conditions as simple as possible. As I mentioned above, we do need to write in some conditions on who qualifies as a citizen, to give us the best chance of securing public support.

I would argue that there is a further opportunity that could be built into BI however. I think there is a clear case to use citizens BI payments as of right, but to add in a responsibility as well. That responsibility would come in the form of a requirement to participate in democracy. In its simplest form, this could be just a requirement to ensure that if you want to receive a BI, you must be on the electoral register. Or slightly more ambitiously, if you want to receive BI you need to vote in at least 80% of all elections over a defined period. I think people would grumble but I think that most would choose to comply, if nothing else for the large incentive! If we did insist on voting as an actual requirement to receive BI, I’d suggest we’d need to add in a need for ‘none of the above’ style options.

To Conclude Part I

To summarise so far. I think BI is a potentially really strong idea with plenty of benefits. I think most of the objections I listed above can be overcome. I accept that we would need to start slowly and carefully with pilots, and move to a fuller system over time once we understand the issues better. I also agreed with those who say that, initially at least, things like pensions, housing and social payments for individual circumstances will need to be retained.

I argue that BI meets my tests for the principles of a liberal society, and that whilst it clearly is a means of distributing income and wealth, it is a necessary one. BI can’t replace all of the welfare system however.

I also feel that BI needs to be part of a wider package of fair work which includes things like pay ratios, higher taxes, how we tax wealth and capital, and worker empowerment. This is a wider debate about the future of work, and for another day.

However, if you have made it this far you’ll have noticed that costs and levels of payment have yet to be covered. I’ll return to that in Part II of this blog piece. Thanks for reading.

Notes

(1) The Royal Society of Arts Creative citizen, creative state: The principled and pragmatic case for a Universal Basic Income 2015

(2) Malcolm Torry Money for Everyone Policy Press ISBN 878-1-44731-125-6

(3) The Royal Society of Arts accessed at https://www.thersa.org/discover/publications-and-articles/rsa-blogs/2015/12/in-support-of-a-universal-basic-income–introducing-the-rsa-basic-income-model#comments-section