Wales’ UBI pilot is to be welcomed – but I fear the government’s piecemeal plans will fail
John Ball, former lecturer in economics at Swansea University
Not surprisingly, the Welsh Government’s announcement of a Universal Basic Income (UBI) pilot scheme has been welcomed.
But any scheme, whether dressed as a pilot or truthfully an experiment, must be carefully constructed such that its outcome is measured and useful policy ideas result. I worry that this will not be the case here.
A fundamental understanding is needed of the philosophy and practice of UBI. It is a universal payment available unconditionally to all. It is not as many see it, a re-worked welfare system, but a payment as of right to everyone above a certain age.
It has two objectives:
- Enhanced disposable income and the consequent additional financial stability this provides.
- The removal of complex form filling for those in receipt of benefits.
The current Universal Credit benefit, by combining six separate schemes was intended to make welfare support simpler. It has not and remains complex. Payments vary by the month and unlike earlier schemes, applies to both those unemployed and those in work. The means tested element of the scheme for those in work often results in people working for nothing.
A simple UBI payment removes the complexity, worry over non-compliance with the bureaucracy, encourages work and most important of all the indignity of claiming.
There have been several schemes in many countries, as of April last year there were 22 different active or experimental support schemes. So far this year, four cities in California have launched different schemes, Scotland is actively pursuing the idea of introducing one whilst earlier this year a group of 500 MPs, Lords and councillors called for a UBI scheme to pay £48 per week.
With a few exceptions, almost all have been piecemeal, providing cash grants aimed at existing welfare recipients. However, a genuine UBI scheme must work alongside the existing tax system and not the existing benefit system. If the latter became the case, the whole philosophy of UBI would be so compromised as to become irrelevant.
There are four issues. The first is the freeloader problem. Opponents of UBI see it as a disincentive to work. Evidence from Alaska, Canada, Finland and California (the four most complete trials) report no such problems, not least because receiving welfare militates against finding employment and working was seen as a monetary gain. An interesting and unexpected effect is that in almost all cases where there has been research follow up, personal pride and happiness has increased and health improved.
The second is who exactly qualifies. Some suggestions have been made that payment should be to all adults, only those in work (thus doing nothing to improve the welfare system) or those on welfare. A comprehensive scheme would apply to all adults of working age.
The third issue is payment. Any suggested sum is arbitrary, especially in a pilot scheme, it must be an amount sufficient to provide basic financial stability in keeping with the philosophy of UBI. The Scottish government has suggested an annual payment of £2,500, rising eventually to £4,800 with a payment of £1,500 for children (this latter payment is at odds with the idea that UBI is, in theory and practice, a payment to adults).
The experiment in Finland paid the equivalent of £450 a month, in Ontario single adults the equivalent of £10,000 a year, families £15,000 and payments in Alaska can vary from $2,000 to $900 for each person per year, depending on oil prices. Los Angeles is about to launch a $1000 scheme aimed at 2000 specific families whilst three other Californian cities are paying $500 a month, again aimed at specific groups and not the general population,
Finally, the cost and recovery rate are the tricky issue. There are three ways in which a scheme might be financed. The first is the current benefits system; funds currently used to finance benefits would be diverted, together with the concomitant staff and administrative cost saving.
Increases in VAT and non-VAT products and services and other forms of sales tax would be needed with possible additional sources of taxation revenue. Importantly, UBI would potentially lead to greater spending, the increase in spending power would contribute substantially to the overall cost.
The threshold at which tax would be payable is also somewhat arbitrary. The scheme in Ontario provides an example; tax at 50% was paid after the equivalent of £20,000 for a single adult and £27,000 for a family.
The Welsh government’s plan to introduce a pilot scheme is to be welcomed. However, if not carefully constructed and equally carefully targeted, it will fail and any hope of a fully functioning UBI scheme might be destroyed. Opponents of UBI point to evidence from past trials that UBI type schemes have not been successful; overlooking that almost all were used as welfare replacement, which is precisely what UBI is not.
Worryingly, there are early signs in Wales that the philosophy of payment to all is either not understood or ignored by seeing it as a replacement for welfare payment, following the mistakes by earlier pilots. The government is apparently considering whether the scheme will apply only to those leaving care. The MP for the Cynon Valley has welcomed the scheme on behalf of those “let down by the existing welfare system” and UBI Lab Wales, whilst rightly calling for a wide trial hopes that the scheme will focus on areas most in need and – strangely – “creating our generation’s NHS.”
The future generations commissioner sees it to tackle poverty and health inequalities. A generous UBI would do just that but this too sounds like a call for a limited welfare experiment.
Fundamentally and as the First Minister has already pointed out, the Welsh government is not responsible for welfare payments and indeed, may well lack the funds needed to organise a meaningful pilot – which is why it must be undertaken with care.
I am in favour of UBI, but any pilot scheme must be carefully thought through. I worry that this will not.