Transcript

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Unconditional basic income: is it the answer to Europe’s unemployment problems and economic inequality, or a misguided macroeconomic policy that could do more harm than good? Guy Standing, Liam Halligan and Frances Coppola relay their expert opinions in this special World Finance debate.

World Finance: First, let’s take a look at what is unconditional basic income?

[Transition to news clip]

Narrator: Imagine no welfare or means-tested benefit payments. Instead, a set amount of money unconditional, and the same for everyone. That’s the premise of unconditional basic income.

Barbara Jacobson [European Citizens’ Initiative for unconditional basic income]: The main concern is, the people who are very poor at the moment in Europe, and the way that the economies in Europe have been going down very quickly. We feel that basic income would support demand, and also be a fairer way of allocating money within the economy.

Narrator: It sounds idealistic, but the concept is gaining traction, with supporters throughout America and Europe. In Switzerland, the Swiss parliament is voting on whether to implement the initiative later this year. But, if basic income were made a reality, how would it affect economies?

Dr Holger Schmieding [Chief Economist, Berenberg Bank]: If this minimum income is seen as a tool to actually raise the living standard of those currently on welfare, that would sound very nice. But it would mean that those people would have no incentive left to actually start looking for a job. And as a result, there would be few people looking for a job in the economy, there would be fewer people having a job in the economy, there would be fewer people paying taxes, and as a result, the government as a whole could afford less welfare benefits rather than more welfare benefits. So basically, almost everybody would be worse off.

[End of clip]

World Finance: So Guy, “almost everybody would be worse off”. As the co-President of the Basic Income Earth Network, I imagine you disagree with this statement?

Guy Standing: What we’ve got to realise is that in the 21st century, we’ve moved into a global system where insecurities are pervasive, where the growing precariat, about which I’ve been writing, are facing uncertainty in every aspect of their lives. And we’ve got a system of welfare which has moved decisively towards means-testing – that is, only if you can prove you are poor will you get any benefit – you put millions and millions of people into poverty traps!

If they go and take the available low-wage, casualised jobs that are proliferating, they will lose more by taking that job than they had in benefits. You cannot have a greater disincentive to labour than that!

If we move to a system where you have an anchor, a floor of basic security provided by a modest monthly basic income, as a right of citizenship, I would argue very fundamentally – we’ll perhaps come back to that – that it is primarily a matter of social justice.

World Finance: Well Frances I saw you nodding there, what do you think is wrong with the current system? Do you agree with Guy?

Frances Coppola: There’s a lot of uncertainty in peoples’ lives, and the problem that creates is that it’s hard for people to plan. It’s hard for people to look ahead. It’s hard for them to create roots.

It’s partly a matter of social justice; it’s also a matter of social stability. That if people are constantly moving around, moving from job to job, don’t know where their next job’s coming from; they can’t put down roots, it’s hard for them to engage with their communities. And we suffer a fragmentation of our social fabric. Which could be incredibly dangerous.

World Finance: Well Liam, during the clip we heard Barbara say that it’s a fairer way to allocate money in the economy. Do you think that that’s true?

Liam Halligan: I think that it’s perhaps fairer, but I think it creates more problems than it solves. I mean, Guy makes a very strong case of course. Nobel Laureate James Meade argued for a basic income, this is an idea that goes back all the way to Thomas Paine, and maybe even before. And nobody’s saying that advocates of a basic income aren’t making a case from the best possible motives.

My concern is that the state is already almost 50 percent of GDP in this country. I think the idea of a basic income would lead to an even bigger expansion of that, to levels that are completely unaffordable

My concern is that the state is already almost 50 percent of GDP in this country. I think the idea of a basic income would lead to an even bigger expansion of that, to levels that are completely unaffordable. We have a gilts market that’s propped up by printed money in this country. The only reason that the unsustainability of our public spending in this country isn’t in our faces every single day, is because the Bank of England owns a third of the outstanding gilt stock, which is absurd.

I completely agree with Guy; I’ve been studying most of my adult life the problems of benefit traps and poverty traps. I think they can be countered with the use of clever tapering, and people like Frank Field would agree with that.

I also agree about the rising precariat. But this is at least partly because working class people, and lower-middle class people, for want of a better phrase, find it very very difficult to own assets, to get onto the property ladder. And that’s a problem that can be solved by something beyond a basic income. Building more homes! We’re building 115,000 homes in this country last year; that’s one of the lowest figures in peacetime since the general strike. We need to build 250,000 homes a year at least to meet the demand hard-wired into our democracy. That’s what will get people security.

Look: I’m the son of immigrants from the west of Ireland. We had no security whatsoever. What did my parents do? They went out every single day and worked their backsides off. They managed to get a small home. That was their security that they owned. That dream has now gone for a large number of people, that you are – for the best possible motives – trying to help, because they can’t get on that property ladder.

That’s where we really need to focus our intellectual energies and ire. Not on an idea which to all intents and purposes sounds good in the senior common room, but is never going to cut it in the political real world.

World Finance: So Guy: advocating hard work to get on the housing ladder. Is that right? What do you think of that?

Guy Standing: Everybody always opposes a new social idea, and says ‘It will have perverse effects, it won’t work, it’ll impede other things’. And then after they’ve been introduced, 10 years later they say, ‘It’s obvious’. That’s often the case.

We’ve just been doing basic income pilots in India. You could say of course, India’s not Great Britain, it’s totally different. But they said we couldn’t do it, they said it would divert other facilities, they said it wouldn’t lead to having property, and everything like that.

All I can say is, after two years of receiving that basic income, the thousands of people who’ve been receiving the basic income, have transformed their lives.

Liam Halligan: And the average income per head in India is?

Guy Standing: It doesn’t matter

Liam Halligan: It does! It’s $1,500. In this country it’s $25,000 plus!

Guy Standing: It…

Liam Halligan: In India the alternative is to have a medieval existence, that hasn’t changed for hundreds of years. Yes in that instance, a tiny little bit of income can transform people’s lives.

Guy Standing: All right, let me… it’s the same in Britain. If you’re in a homeless situation. If you are not receiving any benefits because you’ve been sanctioned by kind Mr Ian Duncan Smith. And if you are in chronic debt to Wonga or whatever. To have a little liquidity will actually…

Liam Halligan: So you have a basic income across the income distribution to fix this?

Guy Standing: Let me finish, please. No no, you have a universal base, because the thing is, you need to get rid of the poverty trap. We also need from psychological research – not common room stuff, that’s a cheap point! But we also know from applied research that people who have basic security as a right, actually work harder. They have more confidence. They work more productively. They become more tolerant to others. And one of the problems…

Liam Halligan: Let’s get our low income people on the housing ladder then!

Guy Standing: No no, you.. the housing ladder is a dream!

Frances Coppola: Liam, why do you think that housing is security?

Liam Halligan: Because…

Frances Coppola: Because since 1970 we have had three housing crashes?

Liam Halligan: Because the market’s been hyped up by politicians with a deliberate lack of supply in order to generate feel-good factors in the run-up to elections.

Guy Standing: And cheap credit!

Frances Coppola: Right. So rather than giving people the basic security that they need, you want to raise the prices of property and prevent the market, artificially prevent the market from crashing, in order to create the illusion of security?

Liam Halligan: No, exactly the opposite. That’s exactly the opposite of what I said. We need people to own assets in their lives…

Frances Coppola: Assets whose value can fall?

Liam Halligan: …not government promises that can be taken away by the electoral cycle.

World Finance: Well can I just introduce the… we’ll just go to the next clip, who is Selwyn Parker, who is a financial journalist and author of The Great Crash, and he has points I think that follow on nicely, so let’s just listen to that clip.

Selwyn Parker: Probably the best example was in America, in the early 40s, when Roosevelt was trying to get America out of the Great Depression. And he threw lots of money at the problem. It worked for a while, and then it stopped working. Economists would now say that if he’d adopted a different tactic, and allowed the economy to work normally without throwing in these enormous stimuli, then America would have got out of the depression much sooner.

Unconditional wages is similar, in the sense that unearned wages are being paid. But the stimulus would be absolutely massive. And I would suspect hugely destabilising. Income should be paid for work. Any kind of work! The problem for this is that the income is being paid out of taxpayer funds. If you allocate money willy-nilly like this, you’ve got something entirely new and pretty dangerous.

World Finance: Well Guy, in your most recent book you argue that Europe’s people are starved of their basic human right to live free of financial hardship. But we just heard Selwyn there speak about unconditional basic income and unearned wages, and that it’s hugely disabling and even dangerous. So surely there must be a middle ground?

Guy Standing: Every government spends well over five percent of its GDP, its national income, on subsidies to rich corporations and rich individuals. Okay? We also have a dysfunctional welfare system which is increasingly relying on tax credits. Every single year this country spends £21bn or more on tax credits! They are completely dysfunctional.

Liam Halligan: Agreed.

Guy Standing: Because what they do is they actually subsidise low wages. It’s a subsidy to capital. It isn’t a subsidy to the poor. So when you say we haven’t got the resources, how come we’ve got the resources to give to corporations? While I’m in favour of what you’re saying about building houses, and we need more homes, no policy is a panacea for dealing with every problem. You can’t win a golf match with just one golf club!

Liam Halligan: Nor is the basic income! That’s not a panacea for dealing with all problems.

Guy Standing: Exactly! The basic income is not a panacea. Don’t expect it to cure all our economic and social problems. But it must be part of a policy package. Because means-tested, behaviour-tested, workfare, sanctions? They’re a disgraceful way to run a society!

Liam Halligan: Of course! It’s a disgrace that when people are in a really bad situation, the administration, the bureaucracy moves very very slowly. That’s because it’s run by lots of surly public sector civil servants.

Guy Standing: ATOS! ATOS, which is a private French multinational. What are you talking about?

Liam Halligan: And it was surly for years before that! Let’s not get idealogical about it. These are not priorities for politicians, because cynical politicians feel that very poor people don’t vote anyway. They’re often not even on the electoral register. Why should they help them? That’s the problem.

We need to use our brains and our platforms to campaign for people to be helped within the

existing system

We need to use our brains and our platforms to campaign for people to be helped within the existing system. Because your extremely well-made and well-meant points, with which I concur in many many ways, would just be blown away because people will dispute your use of basic income in order to solve them. Because basic income is so ambitious a policy, it’s so arithmetically unachievable with all respects in terms of the public finances of the country…

Guy Standing: It’s easily achievable. It’s easily achievable.

Liam Halligan: …you will detract from the very problems that you want to solve at the bottom end of the income spectrum.

Frances Coppola: Liam I’m not sure I agree with you there. If you actually look at what we have, we’re not actually that far off a basic income now. The difference is, and this is something I keep talking about. We talk about benefit traps, but actually it’s the economic effects of trying to reduce the value of out of work benefits. The moment you start trying to push down the value of out of work benefits relative to in-work ones, you create downwards pressure on wages straight away.

If you actually bring them together, so they’re at the same level. And you remove the sanctions so that people can refuse work that simply is not well paid enough, then you’ve effectively created something very like a basic income.

World Finance: Can I just ask how you think we’d pay for this?

Frances Coppola: I’m kind of in favour of dismantling a lot of what we already have!

Liam Halligan: Okay, on that point. A huge chunk of the welfare system of course is paid to housing benefit, which often goes to private landlords. If we had more homes, those private rents for people on welfare that the state effectively pays, will come down.

There’d be a lot less money spent on housing benefit, and then there would be a lot more money Guy, to do what you want to do – which I agree with – which is to plug the holes, have a proper safety net, for the genuinely vulnerable in society. Not giving a basic income to people who are well capable of making their way in the world. That would discredit your very good ideas about the people on the lowest incomes and no incomes.

Guy Standing: The trouble with all means-tested schemes, and all behaviour-tested schemes, is you automatically get a low take-up. You exclude many people who should be included. And there is no means-tested system in the world where they get a very high take-up. And what this means is that 20, 30, 40 percent of the people who should be getting an income out of need, don’t get it. Whereas if you have a universal basic income – and then you claw back the income going to richer people, by having a slightly higher marginal tax or something else – you actually guarantee that everybody gets a basic security.

Liam Halligan: We already have a taxation system, and a benefits system, that are absolutely riddled with fraud, corruption, and also basic errors. Maladministration.

Guy Standing: I completely agree with that! I agree with that!

Liam Halligan: You’re suggesting Guy that for a huge proportion of the population – hold on, let me finish – we pay our taxes, the state takes the money off us in taxation, then the state gives us some more money, then it takes it back again…

Guy Standing: No no no no no….

Liam Halligan: …how can that possibly be efficient?

Guy Standing: …the point I was trying to make…

Liam Halligan: That’s what would happen if you had a basic income right up the income scale, and then you correct for it.

Guy Standing: If you don’t have a universal base, I guarantee that at least 20 percent of those in need will not receive it!

Liam Halligan: Well let’s plug the holes at the bottom end, not give money to everybody, then take it back three or four times!

Guy Standing: You can’t do that!

Frances Coppola: Liam, how are you going to decide who should receive and who shouldn’t? We’ve been trying to decide who deserves support and who doesn’t since the 14th century, and we’ve failed every time.

Liam Halligan: So you give money to everybody?

Frances Coppola: And you claw it back through the tax system.

Liam Halligan: So it’s a four-way movement?

Guy Standing: I would go back to the affordability. The ideal way of dealing with it in the long-term is something like the Alaska Permanent Fund. Okay? The Alaska Permanent Fund, what it does is, it takes part of the profits from oil – but it could be from high-tech, it could be from patents or whatever – puts it into a national capital fund that’s invested, and the returns are paid into a basic income for every individual.

Liam Halligan: It’s a sovereign wealth fund.

Guy Standing: It’s a sovereign wealth fund. We can now create national capital funds that are not dependent on oil per se. They can be from high tech industries, they can be from fracking if we decide to go ahead. What we should be doing, just as the French have decided to do, and a number of other countries, is you set up a national capital fund that can be then used to gradually build up a right to a basic income.

Liam Halligan: What’s the national debt of this country?

Guy Standing: I don’t know the exact figure offhand, but the national debt is not something that is constrained…

Liam Halligan: It’s £1.2trn.

Guy Standing: So what?

Liam Halligan: Within four years it’s going to be £1.7trn on the government’s numbers.

Guy Standing: Then raise corporation tax please sir! Raise corporation tax!

Liam Halligan: I completely agree with that, but that’s hardly…

Guy Standing: But a capital fund would actually retain in this country more of the capital. The $1trn or whatever it might be today debt is only going to increase because that tendency will go to wherever taxes are lowest, corporation tax, now Osborne has lowered corporation tax to a ridiculous level, which is going to drag other countries down to the same sort of level.

So you’ve got a totally dysfunctional, regressive fiscal system, and unless you address that fiscal system nothing else will change. You’ll still have that debt!

Liam Halligan: If…

Guy Standing: So here we have a situation where you’re charging your precariat 80 percent tax, and you’re charging corporations less than 20 percent, and you’re charging patent holders 10 percent. So you’ve got a totally dysfunctional, regressive fiscal system, and unless you address that fiscal system nothing else will change. You’ll still have that debt!

Liam Halligan: So after your basic income, what percentage of GDP do you think would be accounted for by taxation? From the current high 40s.

Guy Standing: I would say it should be about the same. But it should be redistributed. It shouldn’t be that somebody who’s a wealthy earner pays 10 percent, and somebody down in the precariat.

Liam Halligan: No no no, you can’t promote one idea by just saying it will solve lots of other realities that many people, including me, will find egregious. Corporate behaviour, corporate excesses, our ridiculous banking sector that we have to bail out every 10 years, that doesn’t even make a positive contribution in net terms once you include all the bailouts.

My concern is, the public finances of this country are extremely precarious. Balanced on a pinhead. I do want to see a lot better welfare system for people at the lower level. I do want to see a lot less means testing. I do want to see an end to Brown’s ridiculous tax credits. But I think that basic income is so pie in the sky – with respect – that it discredits the whole notion of good government policy to alleviate genuine poverty at the lower end.

World Finance: This leads us very nicely onto our next clip with Selwyn, so let’s just listen to that, and then we’ll get back to this.

Selwyn Parker: You would have a massively inflationary effect from all this money ending up in people’s pockets unearned. But on the other side of the coin, you would also have an extremely destabilising effect too. Because this money will come out of taxes. It can’t come from anywhere else. In fact I think it’s dead in the water. The whole concept is really based on the idea that work from home, or care type work is somehow superior to any other kind of work. I don’t buy that at all. I do think that the economic assumptions behind it are wrongheaded. However, I think it’s a philanthropic kind of thing, and I would say that people’s hearts are in the right place. But I don’t think that’s really good enough these days.

World Finance: Okay, so Frances I want to start with you. “Hearts in the right place but wrong-headed economics by people who don’t understand economics.” That’s what Selwyn said, and I think we have to look at this in inflationary terms. How do you think it would impact inflation?

Frances Coppola: If you guarantee jobs, the effect of a job guarantee tends to be deflationary, because it tends to depress wages. Conversely a basic income, if there are no sanctions – in other words if people can refuse work – tend if anything to push up wages, and that has an inflationary effect. Okay? So he’s right on that.

I just look at where we are now and say…. yeah. And we’ve got wages that have been stagnating for the last 10 years, well below productivity. Looking ahead, it might be that you would say, it could potentially create an inflationary spiral. It’s hard to say. I’m of the opinion myself that big inflationary spirals are mostly caused by lack of confidence in government rather than by excess pressure on wages, really.

Also there is the whole monetary policy side of things. Do we expect our central bank to take action to calm inflationary pressures in the economy? Yes we do.

World Finance: So Liam, there was nodding – are you in agreement?

Liam Halligan: My fear is that a policy like this would be paid for not by taxation, it would be paid for by more borrowing, and therefore by more printed money. It’s ridiculous: we’ve broken a massive policy taboo, and in the end when you break taboos you warp your society. And that’s what’s happened. A big reason we’ve got such inequality, and growing inequality in this country – and it’s something that bothers me deeply – is because of QE. Backdoor bank bailouts that juiced up the stock market, juiced up oil prices, juiced up the housing market, and now there’s an iron triangle of interest between governments, banks, and homeowners, to the detriment of everybody else in the society. And it’s a disgrace.

So the problem is that if we did a policy like that, it would be paid for out of printed money inevitably. That would be inflationary, and of course that again would hit people at the lowest end.

Guy Standing: I thought the speaker was doing what we call one-hand economics. Okay? I mean basically it’s not going to be inflationary if we’re talking about expenditure switching. All right? If we’re talking about phasing out tax credits, you’re talking about shifting £21bn that is already being spent into a basic income. Right? So you’re not talking about suddenly finding new money and raising taxes and borrowing and extra stuff. That is a complete red herring.

World Finance: So finally my question to all of you really is: what is the likelihood of it being implemented? So Liam, do you think we’re ever going to have an unconditional basic income?

Liam Halligan: My hope is that the interest generated by discussion of this policy, and other books that are out at the moment, including those by Guy, will make a higher starting rate of tax not just a policy that the coalition sees as a little side issue, but a centrepiece of our electoral discourse in the run-up to next year’s election. That’s my hope.

World Finance: Frances?

Frances Coppola: I guess if you’d asked people in the 1920s whether we would ever have a free universal healthcare system they’d have said ‘Don’t make me laugh!’ And yet we do, free at the point of delivery. So we can do big, and we can do radical. We can make radical changes.

We’ve actually experimented in the UK with basic income before. And the last time we did it was during the last industrial revolution. It foundered on all sorts of things, for which it was largely incorrectly blamed. I think this time we have an opportunity to look at it, and I really hope we do. Because last time we replaced basic income we replaced it with possibly the cruellest form of workfare ever devised. That was the workhouses.

World Finance: Guy?

Guy Standing: I don’t think we should be pessimistic, or dismissive in calling it ‘pie in the sky’ or somesuch nonsense. But as you said. A lot of things were dismissed as pie in the sky, and then 10 years later, ‘Well, that’s obvious’. So let us be open-minded about it.

What I’ve liked about this discussion is that I think the values that we share are what the mainstream British people share. They want decency, they want less inequality. They don’t want their fellow people insecure throughout their lives. If those are the values we share, then we’ll start looking more positively towards new ideas. Because the old ideas certainly aren’t working.

World Finance: Guy, thank you. Francis, Liam, thank you.