Why I support UBI but fear a pilot scheme that’s not carefully thought through
Dr John Ball is a former lecturer in economics at Swansea University.
It seems that the Welsh Government’s commitment to a Universal Basic Income (UBI) pilot scheme has been exercising the media and encouraged the shadow Minister of Finance to misrepresent, indeed disparage the idea. Any experiment, for this is what the pilot will be, must be carefully constructed so that its outcome is measured and useful policy ideas result. This may not be the case.
The philosophy and practice of UBI is clear. It is a universal payment available unconditionally to all. It is not a replacement for the welfare system or subsidy to a particular sector. It is a payment as of right to everyone above a certain age.
It has two objectives. The first is enhanced disposable income and the financial stability this provides, the second is the removal of complex form filling for those in receipt of benefits.
Whilst it is worth repeating that it is not a welfare replacement scheme, clearly those on benefit would see a difference. Current welfare support remains complex and the means-tested element of Universal Credit often results in people working for nothing. A simple UBI payment removes the complexity, worry over non-compliance with the bureaucracy, encourages work and removes the indignity of claiming.
UBI is not a new idea, I first came across it as a student studying economics in Cardiff in the eighties. 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 reported to be 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, which is too low a payment to make a UBI scheme work.
With a few exceptions, almost all of these have been piecemeal, providing cash grants invariably 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 several issues that must be addressed. 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 unexpected effect is that in almost all cases where there has been research follow up, personal pride and happiness has increased and health improved.
Then there 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 amount paid. Any suggested sum is arbitrary and needs to be carefully considered, 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 suggested an annual payment of £2,500, rising to £4,800. 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, funded by a tax on oil. 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, The issue with all these, past and present, is their inconsistent, piecemeal approach.
Finally, the cost and recovery rate are the tricky issue. There are three ways in which UBI might be financed. The first is the current benefits system; funds used to finance benefits would be diverted, together with substantial administrative cost saving. Potential increases in VAT and non-VAT products and services and other forms of sales tax may be needed with possible additional sources of taxation revenue. However, UBI would potentially lead to greater spending, the increase in spending power would contribute substantially to the overall cost.
After UBI payment, there must be a threshold at which tax would be payable. The scheme in Ontario provides an example; income tax at 50% was paid after the equivalent of £20,000 for a single adult and £27,000 for a family. Opponents of UBI argue it is wrong that the wealthy, along with everyone else, receive the payment. It will of course be recovered through income tax, as was the case with the former child benefit scheme.
The Welsh government’s plan to introduce a pilot scheme is to be welcomed. However, if not carefully constructed, targeted, supervised and measured it will fail and any hope of a fully functioning UBI scheme might be destroyed. With some justification, opponents of UBI point to evidence from past trials that UBI type schemes have not been successful; overlooking piecemeal approach and that almost all were used as welfare replacement.
In keeping with the principal of UBI, it has been suggested, notably by the Future Generations Commissioner, that the pilot be a full payment scheme aimed not at a sector (as is the current thinking of government) but a geographic area to include all its inhabitants. This may be worthwhile but presents further problems. The first is the so-called Hawthorne effect; those taking part and being observed unconsciously act in a way they think they should.
Secondly, there must of course be a control group such that a comparison between the two groups (in receipt of UBI and those not) can be examined.
The third is perhaps the most worrying. Those in the chosen area currently on benefit would forego that benefit, but when the experiment is complete then be faced with form filling and potential payment delay when returning that benefit.
It seems there are early signs in Wales that the philosophy of UBI is not understood by seeing it as a replacement for welfare payment, following the mistakes by earlier schemes. The government is apparently giving serious consideration to the pilot scheme applying only to those leaving care.
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.