What is universal basic income and how would it work in practice?

The idea is simple: all adults receive a no-strings-attached sum from the state to cover the basic cost of living

Ben Chapman
Tuesday 31 July 2018 20:29 BST
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A rapid rise in the number of jobs being replaced by robots is one reason for increasing interest in a universal basic income
A rapid rise in the number of jobs being replaced by robots is one reason for increasing interest in a universal basic income (AFP)

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Louise Thomas

Louise Thomas

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Labour shadow chancellor John McDonnell has become the latest public figure to back the idea of a universal basic income (UBI). In an exclusive interview with The Independent, he said he would look to include a pilot scheme for UBI in the Labour Party manifesto.

But how does basic income work and why has the idea attracted so much attention?

What is universal basic income?

The idea is simple: all adults receive a no-strings-attached sum from the state to cover the basic cost of living. The amount is paid to everyone, regardless of their employment status, wealth, marital status, or any other circumstances.

This unconditional safety net will, it is argued, ensure nobody lives in poverty which will, in turn, free the creative, entrepreneurial instincts of the population.

It’s not a new idea.

In Thomas More’s novel Utopia, a character suggests that giving everyone a guaranteed income would be a novel way to prevent theft. Hanging was the preferred approach in 1516.

But interest in basic income as a genuine policy option has increased rapidly in recent times, from both sides of the political spectrum, particularly in response to a much-hyped “rise of the robots” that could see millions of jobs automated in coming decades.

A number of ways to implement UBI have been proposed, none of which have yet been demonstrated on a national level.

Where has it been used?

Small-scale trials have taken place around the world including in Finland, Canada, the US, India and Namibia, each using different methods and delivering different results.

The US

Pilot schemes in Seattle, Indiana and Denver in the late 1960s and early 1970s drew on the libertarian ideas of economist Milton Friedman, who advocated using a “negative income tax” system.

People earning above a threshold paid tax, while those below it were given money to bring them up to that level, eliminating the need for many other social programmes.

Friedman, an ardent backer of a small state and minimal regulation, backed this as a way to reduce bureaucracy and administration in the welfare state.

A study of the trial noted a 17 per cent reduction in work effort among women and 7 per cent reduction among men among men.

Canada

A more successful trial that took place in Manitoba from 1974 to 1979 resulted, according to one study, in an 8.5 per cent drop in hospital visits, fewer incidents of work-related injuries, and fewer emergency room visits from accidents and injuries.

Less people were admitted to psychiatric hospitals, and doctors recorded fewer appointments for mental illness.

The research found that while some groups worked less, only new mothers and teenagers did so to a substantial degree; new mothers so that they could care for their babies, and teenagers because they were under less pressure to support their families financially.

This resulted in a higher proportion of teenagers graduating from school. A new basic income pilot began in Ontario in July 2017 and was supposed to run for three years, but it has now been scrapped by the state's conservative premier, Doug Ford.

Canada is trialing universal basic income

Finland

Most recently, in January 2017, Finland began a trial for 2,000 people, who are each receiving €560 (£516) a month for two years, paid directly into their bank accounts

Some observers have argued that this was not truly universal as everyone selected was already unemployed. If they find work during the trial period, which runs to December this year, they will still be paid the same amount by the government.

Data from the trial is not yet available but participants have reported that it has increased the incentive to find work.

What is Finland's universal basic income scheme?

Juha Jarvinen, an unemployed young father in a village near Jurva, western Finland, told the Economist last year that under the normal welfare system it made no sense for him to accept part-time work as it would jeopardise his welfare payments.

He said he is also in the process of starting a business, is much less stressed and no longer has to go through the “silly show” of filling out forms or attending regular interviews with employment agency officials.

“I’m an artist and entrepreneur. Sometimes I’m too active, I don’t have time to stop,” he said.

What does it mean for working people?

Only small-scale trials have ever taken place, so we simply don’t know. We can only go on limited empirical evidence and lots of theories, most of which are espoused by people with a political point to make.

For supporters on the right such as the late Milton Friedman, it would improve the efficiency of the welfare state, something that may be welcomed by those on universal credit, the benefits system that has taken years longer than planned to implement and has seen some people forced to used food banks thanks to delayed payments.

For supporters on the left such as John McDonnell, it will hugely reduce inequality, relieving the increasing pressures on those at the bottom end of the income scale in the UK who have seen their benefits slashed and wages stagnate in recent years.

For detractors on all sides, UBI is a vastly expensive, unproven experiment that will reduce the incentive to work, encourage dependence on the state, ruin the economy and bankrupt the state.

Given the fact that the idea has been around for 500 years and been stubbornly resistant to actually being implemented, perhaps it will remain as Thomas More indicated in the title of his book: Utopia.

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