The UNDP considers the case for a temporary Basic Income

In previous writing, I’ve expressed reservations  about the idea of a Universal Basic Income, but I’ve also noted that the key objections – the opportunity costs, and the distributive implications – may not apply in the same way in the current crisis.   The United Nations Development Programme has taken forward the idea of a temporary basic income, which might make provision for half the world’s population in 132 developing countries.  They examine three main options: a top-up income (which would be complex, difficult to administer and liable to be inconsistent); a BI which is different in different countries; or a uniform BI paid at a standard rate across the developing world.

None of the proposals would have the long-term effects that proponents and opponents of Basic Income claim would result from such a scheme – people should not be expected to to change their lives, give up work, enter education, start businesses or start a family just because a change in their immediate income is made for six months.  (I’ve doubts as to whether we’d see those effects fully realised in decades – after old age pensions were introduced in the UK, it took the best part of 60 years, two world wars and a health service before we could see the full effects on labour market participation.)    The primary case for offering something like a basic income is much simpler: to maintain enough demand for an economy to function, and to make sure that people in developing economies are included despite the crisis.

There are, however, major obstacles in the way.  Most proposals for Basic Income are so much concerned with the principles that they don’t get into the practical detail of how such a benefit can be delivered – for example, ID, banking, physical addresses or the lack of them,  responsibility for dependents and communications.  That is all challenging enough for a developed economy, and in a less developed one it is easy to see how the ship could hit the rocks.

The social protection system is failing. We have to find ways round the problem.

We have moved into lockdown, and the government has still given little thought to how to protect the situation of people on very low incomes.  The main concessions relate to the failing system of Universal Credit: work allowances and benefit levels have been increased, the presumptive income of self-employed people no longer applies, and new sanctions have been suspended.  Universal Credit is not, however, equipped to respond to people’s circumstances even in normal times, and it cannot cope with the surge in applications.

First, people have to apply.    This is a clip posted on Twitter by an applicant looking to verify his identity:  it will take nearly a month for the position to rise to the point where it can be dealt with and then there is a 45-minute window to respond.  After that, there is a five week wait for benefit delivery. Claimants are offered loans to fill in the gaps, which means a long-term reduction in the future amount of support available.

What are the alternatives?  There is a strong case being made currently for something like a Universal Basic Income.  UBI only provides people with cash, but that meets the present situation: there are plentiful supplies of goods, and what we need to do at present is to make sure that people have the resources to buy them.  I’ve objected to the idea in the past, mainly on two grounds: the distributive impact, which is likely to exclude people on existing benefits, and the opportunity cost.  Neither of those reservations really applies to the present situation.  The government could do worse than offering a flat rate payment to everyone.

However, the mechanisms to deliver a universal income don’t currently exist, and in a crisis, we need to be considering what can be done quickly and immediately.  There are three benefits which have widespread coverage, making it possible to make special payments using mechanisms that are already in existence.

    • The Xmas bonus currently goes to 17.5 million people, mainly pensioners, carers and people with disabilities.
    • The Winter Fuel Payment, which might be more adaptable to special one-off payments, goes to 12 million pensioners.
    • Child Benefit goes to 12.7 million children in 7.3m households.

It should be possible, then, rapidly to make arrangements to make special payments,  with minimum fuss and no additional verification, to up to 37.5 million people (17.5 + 12.7 + 7.3).   It’s not ideal, but we need to find mechanisms that are practical and effective; this would cover a lot of the ground that needs to be covered.

This still leaves a large hole: the position of adults of working age who have no children.  The government obviously hopes that employees within the PAYE system can be supported through businesses, using roughly the same mechanism as Statutory Sick Pay – it won’t work, unfortunately, for the most precarious workers, or self-employed people.    I’ve canvassed in the past another option: make the tax allowance convertible, so that people can claim the equivalent in cash.   That should, in principle, cover most of the people left out by the first proposition, with the added advantage that people who already have sufficient taxable income will be paying it back in tax.

The Green Party Manifesto proposes a Universal Basic Income

The Green Party is first to reveal its manifesto for the General Election.  An important part is the proposal to introduce a Universal Basic Income, offering £89 a week to every adult, supplements for disability, single parents, lone pensioners and means-tested allowances for families with children.  Housing Benefit (or the housing element of Universal Credit) will be retained only for existing claimants.

I’m sure that advocates of Basic Income will welcome the direction of movement, but there are problems with the specific proposals.  First is the distributive effect.  If other benefits are stopped, the financial gains to better-off households far outstrip any benefit to people on lower incomes.  This scheme is highly regressive.  Secondly, there are the supplements.  Disability benefits will require a test; supplements for lone parents will require a cohabitation rule; means-testing for families will inevitably be complex.  Third, there is the proposal to freeze Housing Benefit.  That means, bluntly, that new claimants (mainly younger people) will not be able to afford housing; and that social housing providers will not be able to provide it.  Overall, this scheme will leave many poor people worse off.

Some reservations about Basic Income

Yesterday I was at the launch of the report from a seminar series organised by the Scottish Universities Insight Unit in conjunction with Citizen’s Basic Income Scotland.  My role has been as the resident sceptic; I prepared a series of background papers and a paper outlining the reasons for my doubts, and how they might be overcome.  The results are in the report, Exploring Basic Income in Scotland, available here.  There are my papers on Basic Income and Human Rights and Equality on pp 12-17, Care  on pp 47-52, Housing on pages 62-65.  The longer paper on Reservations about Basic Income is on pp 90-104.

The summary of those reservations goes like this:

Even if we accept all the arguments for Basic Income in principle, there are serious issues to resolve relating to cost, distribution, adequacy and practical implementation.

  • Cost. Basic Income schemes are all very expensive. The first question to ask is not whether we can afford BI, but whether we should – whether the money would not be better used in some other way.
  • Distribution. All the Basic Income schemes which have been developed to date make some poor people worse off. That mainly happens because they try to pay for BI by cutting or reducing existing benefits. Any scheme which does that it is going to benefit some people on higher incomes more than it benefits people on lower ones.
  • Adequacy. The treatment of existing benefits and of current tax allowances cannot work as intended. Basic Income cannot meet all the contingencies currently covered by social security benefits. It should not even try to do so.
  • Implementation. BI will not be without its complications. It is time to address them.

Basic Income cannot be ‘adequate’, but it does not need to be; it only needs to be basic. A modest income could be provided without damage to poor people, so long as it does not affect the status of other benefits.

 

Nothing personal: a proposal to convert the personal allowance from tax to benefits

About ten months ago, I put an argument for a convertible tax allowance on the blog – here is the link. The New Economics Foundation has just floated a very similar idea, in a report called Nothing Personal. The main difference between their proposal and mine is that they are proposing not an optional conversion, but a universal one.  That would have the advantage of ensuring coverage, but it would also have two large disadvantages.  One is that it would call for much more extensive direct administration, because it doesn’t use the existing PAYE system in the same way. The other is that the personal allowance would be reduced to zero, requiring declaration of every penny earned.

Unifying benefits is hardly a new idea

In the comments to a previous posting, Andrew Hatton asks when the idea of first unifying benefits was seriously considered by a UK Government. I started to respond within the comments, and then thought it might stand as an entry on its own.

It might reasonably be argued that governments in these islands have always thought in terms of unified systems. The Tudor poor law  of 1536, inspired by the model of Ypres, created national law for responding to poverty. The statutes of 1598 and 1601 – the “Old Poor Law” – instituted a national scheme, at least in principle. The 1834 Poor Law Amendment Act – the “New Poor Law” – was designed to implement a uniform regime within that scheme, treating for example older people and unemployed people on the same terms. The Beveridge scheme was supposed to create a unified national administration based on insurance – popularly described as a system to cover people ‘from the cradle to the grave’. National Assistance initially included income and welfare services for every group not covered by insurance. And Supplementary Benefit, its successor, incorporated a range of provisions into a single means-tested benefit: income, unemployment, disability, rent, mortgages, sickness, old age, residential care for older people and child support among them. Universal Credit is not a great, original idea; it revisits the portmanteau benefits of the past.

Marina Hyde, writing in the Guardian, puts her finger on one of the key problems with Universal Credit.  “The most dangerous type of politician”, she comments, is “the sort who thinks that very complicated things are actually very simple.”  And I wrote something similar in the Guardian myself shortly after Universal Credit was first mooted.

Benefits deal with millions of people, and recipients’ lives are diverse and complicated. If universal credit responds to their needs, it will also be diverse and complicated – and therefore expensive. If it does not, it will cause hardship – and it will look unfair.

There have been, of course, other types of unifying scheme, and currently the one which is most discussed is Universal Basic Income – an idea which has been around since the eighteenth century.  Some of the models for UBI are utopian, but if we take UBI to mean an all-singing, all dancing answer to every human problem, it will fail for the same reason that all the other combined schemes fail: people’s lives are too complicated to be covered neatly and simply in a uniform way.  It’s more important to focus on the idea that Basic Income is meant to be basic – a springboard, an element of income that can be mixed with other income – and forget the idea that it will then be possible to junk everything else about the benefit system, because it won’t be.

Discussions of Universal Basic Income

I’ve written several background papers for a series of seminars on Universal Basic Income, and the first of them has been put online by Citizens Basic Income Network Scotland.   The series will include specific discussions about employment, rights and equalities, housing,  care and implementation; I was asked to do papers for three of them (rights, housing and care).  (The seminar series is organised by the Scottish Universities Insight Institute at Strathclyde University; details are available on request.)  In due course, after the seminars are finished, I’ll be revising the papers for an integrated presentation.

I’m still sceptical.  While I’ve always been sympathetic to arguments for more universal benefits and services, there are lots of key problems that need to be thought through before a scheme could be introduced.  Too many of the published schemes either wave those problems aside or try to manage them by making poor people worse off.  As things stand, the best possible schemes would not offer anything like an adequate, secure income.

Terminating a Basic Income experiment tells us something, too

The decision to terminate the Basic Income Experiment in Ontario is a sort of finding, too.  The design of related experiments has usually been based on short term economic or behavioural effects – because that, after all, is all one can hope to pick up from an experiment for two or three years.  However, the arguments around Basic Income, on both sides, are about something different – about social and cultural change.   That kind of change can take a generation or more, and it’s simply not going to appear in the way that economists usually model such effects.  I’ve previously drawn the parallel with the introduction of old age pensions, where the effects in the UK weren’t fully resolved in sixty years.  It’s not possible, more than a hundred years after the introduction of pensions, to be certain what the implications were for older people at the time – and people considering retirement would have been right to be uncertain.  The costs of the 1908 scheme led the UK government to threaten retrenchment, and after massive post-war cuts in other services (the “Geddes axe”, applied 1921-22, cut spending worth 10% of GDP), in 1925 pensions were fundamentally reformed to raise money through contributions instead.   Most older people were retiring by the 1940s, but many people who were retiring in the 1970s were still deferring their pension claims.

The decision in Ontario comes shortly after a (somewhat less brutal) decision in Finland not to extend their experiments.   The message coming over is clear and strong: Basic Income is pushing at the limits of what politicians are prepared to consider.

What does this imply for Basic Income?  First,  politicians won’t leave Basic Income alone – they just can’t stop themselves from tampering.  Look at Child Benefit, which was working really well before the Coalition government decided to create special conditions for wealthy people. If Basic Income comes, it won’t be forever.

Second, there’s no such thing as an unconditional benefit.   Issues which may seem relatively minor now, such as the treatment of migrants, prisoners or religious communities, are going to surface eventually.   Some of the conditions are more liberal, some are less intrusive, but there will be conditions – tax exemptions to “send a message”, rewards for virtue, or whatever.  People advocating for Basic Income have to argue for conditions to be kept to a practical minimum.  That’s hard to do when politicians and the press will convert it into “benefits for paedophiles” or “benefits for members of ISIS”, with specific instances.  Be prepared.

And that leads to the third point: whatever people use their Basic Income for, they’d be unwise to bank their long-term security or future life-plan on it.  How long would it take before the system is so strongly embedded that the future becomes certain?   I can’t be sure, but it’s not going to happen in a three year experiment.

Experiments with Basic Income were never going to settle the arguments

Many advocates of Basic Income will be disappointed at the decision in Finland to discontinue the experiments.  The decision seems to have far more to do with a change in the political climate than with any concern about how Basic Income operates; but moral judgments about rewards or disincentives are not the sort of issue that can be resolved with a proof of concept.

The experiments were always likely to be inconclusive. There are things that tests can show – for example, whether there are issues in the mechanisms of payment – and things they can’t, such as the impact of basic income over a person’s life cycle.  If anyone imagined that two years of Basic Income would resolve arguments about work incentives, they haven’t been paying attention.  In the first place, Basic Income is designed to be neutral as to whether or not people work; in the second place, previous income experiments have generally shown incentive effects to be feeble (and the economists who are convinced there have to be such effects have had to work hard to isolate them).  There’s a more substantial problem.  We know, from the introduction of pensions after 1908, that pensions have materially changed the way that older people engage in the labour market; but we also know that the effects took seventy or eighty years fully to materialise.  What that demonstrates, in economic terms, is that not that labour supply is something that responds directly to economic stimuli, but rather that, over time, the curves are liable to shift, reflecting changing patterns of behaviour, norms, expectations and the economic context.   (Two world wars and a health service might have had something to do with it, too.)   A two year programme can’t possibly replicate or predict such effects.

I’ve not seen any evidence to  support the view that Basic Income materially changes work incentives; while there is reason to think that some people will take the opportunity to disengage from work, there will be others who will be encouraged into casual work or self-employment.   The principal concerns I have about BI are quite different – related to the distributive implications and the relationship to existing benefits.  Those issues won’t clearly be addressed by experiments, either.

Bogus arguments about Basic Income

Martin Ravallion has put together several arguments against ‘straw men’ used to criticise Basic Income (he calls it BIG, for Basic Income Guarantee).  The points he particularly tackles are assertions that

  • BIG is too expensive
  • There are better ways to eliminate poverty
  • Targeting is good enough
  • A BIG would destroy work incentives
  • BIG diverts attention from health and education.

Most of his arguments are good ones.  Expense is a matter of how we choose to organise ourselves; targeting doesn’t work; Basic Income is neutral about work incentives.  However, not all the arguments are as strong.

The first problem is his assumption that BIG is there to eliminate poverty; most basic income schemes are providing a limited foundation income, not an adequate one. There are good arguments for considering what Basic Income can do for women, for example, which are about something else.  Ravallion is also right to say that “A BIG should be among the options to be considered by any developing country in a package of antipoverty policies ”  The situation in developed countries is different, in so far as Basic Income is seen as substituting for an existing benefits system.  In the case of the UK Basic Income wouldn’t favour the poor – the effect of eliminating benefits would mean that the Basic Income would exclusively help people who do not currently receive benefits, most of whom are on higher incomes.  Nearly all the schemes I’ve seen leave some poor people worse off.

The second problem is the assumption that what gets paid for education can be treated as part of the income package – it can’t be.  The money spent on BI would have an opportunity cost (as he acknowledges); many of us would like  more to be spent on other things (such as child care, disability benefits, public services, infrastructure, environmental protection) which either favour particular categories of recipient, or can’t be attributed as personal income.

Lots of the objections to Basic Income are ill-founded – there are other “straw men” he might have picked on.    One is the argument that the whole thing is likely to be unexpectedly complicated.  We know from the administration of universal, categorial benefits like Child benefit that it doesn’t need to be.  A second, which overlaps with that, is the accusation that the idea is “untried” – it has been, just not comprehensively. The third is the argument that it would call for a penal rate of taxation.  Taxation is done by convention, some countries have much higher rates of income than others, and income tax is not the only way that governments can raise funds.

Having said all this, there are bogus arguments and straw men being set up in favour of Basic Income, too.  Among them are the arguments that

  • We need Basic Income because there will be no work to do.  There will always be more work to do, and presently we have major shortages of activities that we just aren’t ready to pay for – among them social care, the maintenance of the public environment, security, child care, and many others.
  • There’s no harm in some people living off others.  This is Philippe van Parijs’s argument for supporting ‘surfers’.  It greatly underestimates the capacity for resentment and hostility – especially when people who deny the legitimacy of the community that is funding them use violence and intimidation to impose their values on others. 
  • We won’t need tax thresholds if there’s a Basic Income.  Yes, we will.  Taxing every penny people make threatens to become an administrative nightmare.
  • We won’t need existing benefits if there’s a Basic Income.  Yes, we will.  Benefits don’t just provide people with a basic income.  Among them are income smoothing, housing finance, economic management, support for special needs, and many others.

The “Experiments” that are being tried out won’t, and can’t, settle these issues.  When old age pensions were introduced, it took more than sixty years before we could get a clear idea of the impact on how they had changed people’s lives.  The Scottish experiments should reassure us about practicality, but I’m doubtful that they can tell us much about long-term shifts in behaviour.