Would a universal basic income work in the UK?

Would you like to receive a no-strings-attached monthly payment from the government?

The idea has moved a step closer in recent months, with the UK joining an increasing number of countries trialling the idea of a “universal basic income” (UBI).

A UBI is a guaranteed income for everybody in society, designed to cover people’s basic needs and create a minimum level of income. It is paid to individuals, rather than households, at regular intervals.

Importantly, there is no means-testing or requirements people must meet. Everyone gets it, regardless of how much they earn, and it is paid as “cash” rather than in the form of vouchers or food or services.

The idea has gained much traction in recent years, with advocates including Elon Musk, Richard Branson, and Mark Zuckerberg. They say a UBI could provide flexibility for workers who could lose their jobs to robots or automation – especially in a growing era of AI.

So, how does the UBI work? And could it be successful in the UK?

The UK is trialling a basic income of £1,600 a month

After two years of discussions and planning, the UK is set to launch its first trial of a basic income.

Run by the think tank Autonomy, 30 people in two areas – East Finchley in London and Jarrow in the north-east – will receive £1,600 each month, with no conditions.

Researchers will work with the recipients to understand how the money affects their lives. Alongside this, the pilot will also recruit a control group who will not get UBI, so researchers can compare the experience of people receiving a basic income with those not getting one.

CNBC reports that the project is estimated to cost £1.15 million across its two-year duration.

Will Stronge, the director of research at Autonomy, told the Guardian: “Universal basic income usually covers people’s basic needs, but we want to see what effect this unconditional lump sum has on people’s mental and physical health, whether they choose to work or not.

“Our society is going to require some form of basic income in the coming years, given the tumult of climate change, tech disruption and industrial transition that lies ahead. This is why building the evidence base and public engagement now is so important, so the ground is well prepared for national implementation.”

In addition, Wales is running a basic income pilot for 18-year-olds leaving the care system.  The Welsh government chose to focus on this group because of the barriers they face transitioning to adult life.

Around 500 people are eligible for the scheme and will receive £1,600 for two years after turning 18.

Advocates say it could reduce poverty and increase jobs

One of the main criticisms of a UBI is that it could decrease productivity. If everyone received some sort of income, the argument is “why would anyone work?”

However, advocates say that a basic income can increase employment.

Think of it like the game Monopoly. Every player receives a small amount of money to start (without it, the game simply wouldn’t work). Under a UBI everyone would also start with a little bit of money and the theory is that this could help them into employment.

To get a job you need secure housing and a shower, appropriate interview clothes, and the money to commute to the interview (and to your place of work if successful). Just like in Monopoly, the money you receive could give you the boost you need to become wealthier and more successful.

It could also enable people to take time out of work to develop their skills, perhaps through retraining or going to university.

A trial of UBI in Finland found that people receiving a basic income payment of around £500 a month worked an average of 78 days between November 2017 and October 2018 – six days more than those on unemployment benefits.

Additionally, the US state of Alaska has been running a form of guaranteed income since 1982. Every resident in the state, including children, receives an annual payment from the Alaska Permanent Fund. The payment varies depending on oil prices, but it’s normally between $1,000 and $2,000.

Reviewing the Finnish and Alaskan schemes, Ioana Marinescu, professor at the Penn School of Social Policy and Practice, says that UBI had no impact on employment. “What we found was astonishing, which is that on average, Alaskans work at the same rate as comparable states.”

The expert also pointed out a positive effect on the broader economy, saying local businesses, such as cafes or shops, see increased sales as a result and then hire more employees to handle the boom. “The two put together end up seeing no effect on employment.”

The Finnish trial also found that people who received UBI reported a significant boost to their mental health, wellbeing and levels of confidence when thinking about the future.

A McKinsey analysis of the trial, reported by the World Economic Forum, concluded that, “a relatively small positive intervention seems to have generated multiple mutually reinforcing positive effects”.

Critics say it would be costly and would just entrench inequality

While trials across the world have shown positive results, critics say that rolling out a UBI on a wide scale would simply not work. Indeed, despite the benefits shown in the Finnish trial, the government decided not to proceed at its conclusion.

Many critics believe that a UBI would imply entrench inequality as everyone receives it, irrespective of existing wealth or income. Giving higher earners an additional sum each month could widen the gap between rich and poor as, for example, they could save more to buy property, pay for private education, or pass more wealth intergenerationally.

There is also the issue of the cost of implementing such a scheme.

Penguin report that such an idea in the US would cost about $3.9 trillion per year (around £3 trillion) while, in the UK, some estimates have put the cost of reworking the tax and benefits system at £28 billion.

Of course, evidence suggests that guaranteeing a person’s income leads to improved physical and mental health, while also reducing their likelihood of falling into crime, so there could be significant cost savings in other parts of the economy.

Other have argued that UBI would not be able to meet the complex support needs of many households. As some people – for example, those with a disability – would still require additional financial assistance, large elements of the current welfare system would have to remain in place anyway.

Finally, introducing a basic income would force many countries and people to completely rethink their ideology.

The UK and other countries are essentially built on the foundation that “money is earned” – it’s a lesson you likely teach your children and grandchildren! – and so moving to a UBI would be a radical shift.

Get in touch

While we can’t provide you with a universal income every month, we can help you to ensure you are working towards generating the income you need to live the lifestyle you want in retirement.

To find out how we can help you, email enquiries@blackswanfp.co.uk or contact your adviser on 020 3828 8100.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.