Basic Income & the Social Democratic Welfare State

August 2017


Policy Issue

This Policy Brief evaluates the proposal to establish a universal basic income as a solution to the problems of the modern welfare state or social protection system.


Could a universal basic income payment successfully replace a substantial part of the welfare system and if so would it be feasible?


Analysis

The British welfare state is an evolving institutional complex comprising state programmes in cash and in kind, a tax system, numerous forms of intervention in the labour market and public regulation of enterprises, households and other actors. The public spending part of the welfare state including education amounts to about £700b, 26% of GDP. Of this £700b about one half comprises cash transfers to households. The remaining half comprises direct government spending on health and education, personal social services, housing etc.. This spending includes rapidly growing contracted-out services and quasi markets. 

The welfare state has been subject to four decades of cuts, privatisation and restructuring with overtly regressive goals. Despite these obstacles and attacks the welfare system persists and continues to pursue citizenship needs and rights rather than private interests, as illustrated in Table 1.   
 

Table 1.
The progressive goals and activities of social policy

Welfare goals Typical existing social programmes
Redistribution Guarantee a minimum income floor; improve income security; reduce inequality Cash transfers to individuals & households, including social insurance, income-related & tax benefit programmes.
Taxation and ‘fiscal welfare’, a major redistributive instrument.
Social consumption Collective provision of basic needs.
Regulate harmful consumption.
Social services in kind: free or subsidised access to health services, social care, housing.
Regulation & prevention: modifing social behaviour & patterns of consumption.
Social investment Develop human & social capabilities;
Provide decent paid employment & opportunities for all forms of social participation.
Education, training, equal opportunities.
Employment policies, ranging from ‘full employment’ policy, labour market regulation & wages policies, to ‘activation’ and working time reduction programmes.

Reform of welfare is no simple task.  In the last few years there has been a groundswell of support in the labour movement and the green movement for a single radical reform, a Universal Basic Income (UBI) or Citizens Income.  The citizen’s income would be an unconditional payment made to every individual as a right of citizenship.  It could be paid to everyone on a monthly basis and aim to provide “a basic amount on which every citizen can survive, excluding housing and any extra costs for disability living”. 

 

UBI: the case in favour

The most important claims in favour of universal basic income are as follows. First, UBI would provide more freedom of choice, a better work-life balance, enhancement of gender equality and expand choices between paid and unpaid work.  Second, it would provide a solution to the mass unemployment that many argue will result from automation.  Third, it would reduce the employment insecurity of young people.  Fourth, a universal minimum would overcome the problem of losing benefits when taking on or increasing employment.  Fifth, it is ‘minimally presumptuous’, in that a UBI entails no official enquiries into a person’s activities or household arrangements, in contrast to assistance benefits in many welfare systems. 

 

Arguments against UBI

At first sight UBI appears to embody Marx and Engels’ goal of communism: ‘From each according to his abilities, to each according to his needs’. Indeed, it was once hailed as ‘the capitalist road to communism’.  However, UBI involves the fallacy of substituting a single policy instrument for a broad policy goal. 

In as far as UBI seeks to be a reform of the social security tax and transfer system it does not address the social consumption and social investment functions of the welfare state.  These functions make a vital contribution to need satisfaction and wellbeing, social solidarity, equity and social sustainability.  Right-wing supporters favour UBI as a route to dismantling welfare states, marketising public services and allowing “customers choice”.  A progressive agenda must search out policies to achieve several goals beyond choice, including equity and sustainability.

Collectively provided public services, such as education and health, available to all according to need, tend to be inclusive and egalitarian.  They represent a very substantial social income that is highly redistributive.  On average across OECD countries, public services account for 76% of post-tax income of the poorest groups and just 14% of the richest (the so-called tertiary distribution).  This social income reduces income inequality by 20% (Oxfam 2014).  In today’s political climate, a basic income could threaten resources currently devoted to public services and intensify the effects that ‘austerity’ policies have had on the post-war welfare settlement. 

Any UBI scheme will be either inadequate or unaffordable – as is recognised by its advocates.  The Citizen's Income Trust ruled out the possibility of a Full Citizen’s Income for everyone as far too expensive. This is because of the arithmetic: as Atkinson (2015, p.218) explains, if a 20% tax rate is needed to pay for all other government spending, then to provide a basic income set at 50% of average income would require a total tax share of 70%. Thus all extant proposals envisage a Partial BI with benefits well below the poverty line and the current minimum wage. The most generous UBI scheme envisaged by the UK campaign group Compass proposes a partial basic income of £3,692 for a single adult and £13,523 for a couple with two children. These numbers are way below the poverty line. Yet the gross cost would be £210 billion pa, some 11% of GDP.

To pay for this, the Compass proposal models a rise in all income tax rates of 5p in the £ plus the abolition of the personal tax allowance and the extension of NICs to all employees. Such an uplift in taxation must be justified by the net benefits it might achieve. But the Compass Report is admirably honest in demonstrating how small these are. Child poverty would be cut substantially, though this can be more efficiently achieved by raising child benefit. But pensioner and working age adult poverty would diminish by derisory amounts, despite working-age poverty being a basic target of BI. Moreover, the numbers reliant on means-testing are predicted to fall by only one fifth – four fifths would continue to face the indignities of claiming social benefits. 

Given this arithmetic the arguments for rights-based welfare, non-presumptuousness and simplicity are undermined. A wide range of means-tested benefits will be required to bring income levels up to the current minimum standard, which would be in addition to housing benefit and additional disability benefits.  The reintroduces many of the eligibility criteria and entitlement terms which the proposal initially seeks to do away with. 

Notwithstanding these problems UBI is increasingly advocated on the left as a mobilising slogan to bring about radical change. This has not so far proved to be the case anywhere in the world, but is it possible that a more globalised and insecure world could bring this about? This seems doubtful.

UBI is an individualistic, monetary intervention that does not in itself encourage social solidarity or address the underlying causes of poverty, unemployment and inequality.  The problem of changing labour relations and reducing precarious employment are not directly addressed by basic income.   According to Cruddas and Kibasi (2016), UBI ‘institutionalises the gap between the disproportionate and increasing rewards for the few and stagnant wages and poor prospects for the many… Issues of class, economic ownership and the productive capacity of the economy are collapsed into lazy utopian remedies.’ 
 

Policy Framework

UBI requires a top-down abolition of numerous social support programmes and their replacement with a single payment.  Policy experience indicates that there is rarely a simple relationship between instruments and outcomes, and that ‘one-size-fits-all’ policies rarely succeed.

A more effective policy approach would be directly to address the underlying causes of inequalities, ill-being and injustice, as is proposed in the Labour Manifesto for the recent election.  Reducing these sources of inequality requires expanding a range of interventions of the social democratic welfare state.  These interventions include labour market reform, as well as public services and other forms of social consumption and investment.  


Footnotes

  • Atkinson, A.B., 2015. Inequality. Harvard University Press, Cambridge, MA.

  • Compass, 2016. Universal Basic Income: An idea whose time has come? By Reed, H., Lansley, S.

  • Cruddas, J and Kibasi, T. 2016. A universal basic mistake. Prospect Magazine June 16.

  • Oxfam 2014. Working for the many: Public services fight inequality, by E.Seery.


Ian Gough is Professorial Research Fellow at the Centre for the Analysis of Social Exclusion (CASE), London School of Economics.

This policy brief may be downloaded as a pdf here.


Social PolicyIan Gough