This post is part of the sequence Arguments for a Universal Basic Income.

Demonstration of Viability for the UK

It is a complaint often made about a Universal Basic Income, that it would be impossible to finance. Using the UK as an example, I will demonstrate that this is not the case, by estimating the likely actual cost of such a programme, showing that it is in fact no more unrealistic than the system of state benefits in place now. I have used the UK government’s statistics for the financial demographics of the UK.

The key figures forecast for the 2018-19 financial year are set out in the table below:

Range of total income (lower limit) All taxpayers Total income of taxpayers Tax liability £ Number £million £million 11,850 4,090,000 54,800 1,130 15,000 6,170,000 107,000 6,130 20,000 8,520,000 209,000 20,000 30,000 8,010,000 305,000 37,800 50,000 3,220,000 214,000 42,800 100,000 558,000 66,800 19,600 150,000 181,000 31,000 10,400 200,000 191,000 55,200 20,500 500,000 37,000 24,900 9,860 1,000,000 13,000 16,900 6,740 2,000,000+ 6,000 26,200 10,400 Total 30,996,000 1,110,800 185,360

This shows that there were 30,996,000 tax payers in the UK in 2018, who in total contributed £185 billion of income tax. This table does not include Employee’s National Insurance, which makes a significant contribution to the government’s tax revenues, but this can be calculated using the thresholds mentioned in the previous post.

The following table does this, however these calculations are only an estimate, as they ignore the fact that some of these people’s income may be from pensions, on which no National Insurance is paid, they ignore people earning between £8,400 and £11,850 that pay National Insurance but no Income tax, and they ignore the slightly different National Insurance payments made by the self-employed, but none of these should cause the numbers to be out by enough to make a meaningful difference.

Range of total income (lower limit) All taxpayers Average Income Estimated Average NI Payable Total National Insurance £ Number £ £ £million 11,850 4,090,000 13,399 600 2,453 15,000 6,170,000 17,342 1,073 6,621 20,000 8,520,000 24,531 1,936 16,492 30,000 8,010,000 38,077 3,561 28,526 50,000 3,220,000 66,460 4,956 15,959 100,000 558,000 119,713 6,021 3,360 150,000 181,000 171,271 7,052 1,276 200,000 191,000 289,005 9,407 1,797 500,000 37,000 672,973 17,086 632 1,000,000 13,000 1,300,000 29,627 385 2,000,000+ 6,000 4,366,667 90,960 546 Total 30,996,000 78,047

When added to the first table’s £185 billion, this gives us a total government revenue of £263 billion across Income Tax and Employee’s National Insurance, which is summarised below:

Range of total income (lower limit) All taxpayers Total income of taxpayers Tax liability Total National Insurance Net Tax Contribution £ Number £million £million £million £million 11,850 4,090,000 54,800 1,130 2,453 3,583 15,000 6,170,000 107,000 6,130 6,621 12,751 20,000 8,520,000 209,000 20,000 16,492 36,492 30,000 8,010,000 305,000 37,800 28,526 66,326 50,000 3,220,000 214,000 42,800 15,959 58,759 100,000 558,000 66,800 19,600 3,360 22,960 150,000 181,000 31,000 10,400 1,276 11,676 200,000 191,000 55,200 20,500 1,797 22,297 500,000 37,000 24,900 9,860 632 10,492 1,000,000 13,000 16,900 6,740 385 7,125 2,000,000+ 6,000 26,200 10,400 546 10,946 Total 30,996,000 1,110,800 185,360 78,047 263,407

From this we can see that despite earning less than the minimum wage full time, the people in the first row still contribute over £3.5 billion in taxes on their income (£7.83 per hour, 8 hours a day for 240 days per year is £15,034 per annum).

The final piece of information that we need is the cost of the existing state benefits that are provided. This is also published by the UK government.

The forecast figures for the 2018-19 financial year, published in the autumn of 2018, consist of a total of £182 billion administered by the Department for Work and Pensions (DWP), and a further £37 billion that is administered elsewhere.

As will be mentioned in the next post, “The Conservative” – any benefits for disabilities or health purposes should be administered by relevant healthcare professionals, which would mean that in the UK’s case, they would be transferred to the National Health Service. These disability-related benefits are the following:

Personal Independence Payment Disability Living Allowance Attendance Allowance Industrial injuries benefits Severe Disablement Allowance Mesothelioma Pneumoconiosis 1979 Armed Forces Independence Payment Specialised Vehicles Fund

After removing these from our review, we are left with a list of the state benefits that a Universal Basic Income would be aimed at replacing. Some of these are rather small, so have been combined together into “Other Benefits” in the list below, however the largest of these (coming in at around 50% of the total) is the State Pension. Importantly, this does not include pension schemes payable to government employees, as these do not fall into the category of welfare – these are effectively private pensions, where the pension fund happens to be run by the government.

State Benefit £million State Pension 96,620 Child Tax Credit and Working Tax Credit (non-DWP) 25,073 Housing Benefit 23,955 Employment and Support Allowance 15,881 Child Benefit & One Parent Benefit and Guardian’s Allowance (non-DWP) 11,161 Pension Credit 5,042 Carer’s Allowance 3,228 Jobseeker’s Allowance 2,526 Statutory Maternity Pay 2,520 Income Support 2,184 Winter Fuel Payments 1,979 Bereavement related benefits 496 Over 75 TV Licences 468 Maternity Allowance 448 Tax Free Childcare (non-DWP) 239 Financial Assistance Scheme 229 Other Benefits 644 Total 192,693

This tells us that the system that we are trying to replace generates £263 billion in tax revenues, and spends £193 billion of this on state benefits, giving a net contribution to the government’s revenues of £70 billion. As a side note, this £193 billion figure does not include the costs of administering these benefits, which could result in additional cost savings.

With this information, we can now calculate the equivalent figures under a system with a Universal Basic Income. I shall base this on the same system outlined in the last post – “The Accountant” – a flat tax of 47% on all earned income, and a Universal Basic Income of £8,000 to every adult in the country. It is worth noting at this point that £8,000 per annum is very similar to the UK state pension it is looking to replace, of £164.35 per week (2018 figure, coming to £8,546.20 for the year), meaning that people shouldn’t lose out too much under this change of approach.

Per UN estimates, the UK population was approximately 66,700,000 in 2018, and 18.8% were under-16. The adult population was therefore approximately 54,200,000. This can be incorporated into the taxpayer figures used above, to calculate how many adults paid no tax. The results of these calculations are in the table below – the tax liability column is the total income multiplied by 47%, while the Universal Basic Income column is the number of taxpayers multiplied by £8,000:

Range of total income (lower limit) All taxpayers Total income of taxpayers Tax liability Universal Basic Income Net Tax Contribution £ Number £million £million £million £million 0 23,204,000 0 0 185,632 -185,632 11,850 4,090,000 54,800 25,756 32,720 -6,964 15,000 6,170,000 107,000 50,290 49,360 930 20,000 8,520,000 209,000 98,230 68,160 30,070 30,000 8,010,000 305,000 143,350 64,080 79,270 50,000 3,220,000 214,000 100,580 25,760 74,820 100,000 558,000 66,800 31,396 4,464 26,932 150,000 181,000 31,000 14,570 1,448 13,122 200,000 191,000 55,200 25,944 1,528 24,416 500,000 37,000 24,900 11,703 296 11,407 1,000,000 13,000 16,900 7,943 104 7,839 2,000,000+ 6,000 26,200 12,314 48 12,266 Total 54,200,000 1,110,800 522,076 433,600 88,476

Again, this is an estimate, as some of the 23 million people in the zero-income bracket will have part time jobs, meaning that their total income is not zero. It is currently difficult to find out what this income is however, so it is prudent to treat it as zero, to avoid overstating the tax that will be received.

As you can see, the total net tax contribution is £88 billion, after the Universal Basic Income has been subtracted from the government’s tax revenue. This is very similar to, and in fact slightly higher than the £70 billion that we calculated was contributed by the current system of taxes and benefits.

Looked at a different way, summing the positive and the negative figures in the Net Tax Contribution column separately gives us £281 billion in net tax revenue from people that earn over £17,000, and £193 billion in net payments to people earning less than this amount. These figures are readily comparable to the £263 billion in tax revenue and the £193 billion in state benefits that are paid under the current system.

This shows that the “impossible to finance” argument is not accurate – far from needing to “print money” to pay for it, the system of Universal Basic Income demonstrated above is remarkably similar to the existing system in terms of net contribution to the country’s finances, whilst having many other positives, which will be detailed in subsequent posts. With that argument out of the way, the rest should be just tweaking around the edges – from the UK having a population of 54,200,000 over-16s, 12,500,000 under-16s and a combined countrywide gross personal income of £1,110.8 billion, we can calculate that:

Every £500 of UBI given per person over-16 will cost £27.1 billion Every £500 of UBI given per person under-16 will cost £6.3 billion Every 1% of tax applied to personal incomes will raise £11.1 billion

Armed with this knowledge, we can go on to investigate alternative policies quickly and easily. Should the Universal Basic Income and tax rate both be higher? £9,000 and 50% would reduce the net contribution to £68 billion. Should children under-16, or families caring for them be eligible for some additional Universal Basic Income? £3,000 per annum for each of the 12,500,000 under-16s in the UK would cost an additional £38 billion. Neither of these render the system fundamentally unaffordable, but more importantly, visualising and discussing these concepts has become far more intuitive, due to the simplicity of the system.