Fighting Poverty with Universal Basic Income

Read the articles by

Cowan (2017)

and

Painter (2016),

which are required reading for this week. What are the pros and cons of a universal basic income as an approach to fighting poverty? Where do you stand on this issue? 

poverty

FEATURE

14 POLICY • Vol. 33 No. 4 • Summer 2017-2018

The idea of a Universal Basic Income (UBI)—an unconditional payment from government to citizens—has been around for a long time. In recent
years, the movement towards a UBI has gained
momentum, with supporters on both the left and
right—particularly those involved in the technology
sector. But it is a deeply flawed idea and the case for
introducing one is weak.

The spectre of widespread technological
unemployment has become a popular justification
for introducing a UBI, as the effects of globalisation
and automation have been felt in the blue collar
workforce whilst also emerging as a potential
threat to white collar workers—especially given
the rise of artificial intelligence. As dire predictions
about the future of work increase, some believe the
expectation that most people will be able to support
themselves and a family will soon become obsolete.
A UBI is proposed as the answer to this somewhat
dystopian future.

This article argues that there is little evidence of
technological unemployment in the labour market,
or that the nature of work is undergoing a long-term
disruption that would justify a UBI on the basis
of technological change. It then examines the cost
and drawbacks of the main theoretical UBI models:
(a) a universal payment model where every citizen
receives the same UBI; and (b) a welfare reallocation
model where the existing system is reshaped into
a universal payment. It finds that the first model
would be unaffordable with the current taxation
system and would involve enormous additional
taxation, whilst the second model would see a

substantially lower UBI payment level that would
not be sufficient to live on, making it politically
unviable if not impossible.

Technological unemployment
One of the main justifications for introducing
a UBI is the impending changes to the labour
market as a result of technology. Frey and Osborne
have suggested that 47% of US jobs are at risk
from advances in machine learning and robotics.
However, other estimates by Arntz, Gregory and
Zierahn are not nearly as pessimistic, suggesting that
the number of jobs at risk is much lower at less than
10% on average. It is also important to note that the
fact that some occupations are lost does not mean
that the workers in those jobs will be permanently
unemployed.

In the past, disruptions to the labour market of the
size being anticipated by UBI campaigners—such
as the industrial revolution—have
actually led to gains for the economy
and substantial increases in incomes
and living standards; moreover,
evidence suggests that workers do
find other jobs. This tallies with
analyses of unemployment from

Simon Cowan is a Research Fellow in the Economics
program at The Centre for Independent Studies (CIS) and
Director of the CIS Target 30 program. This is an edited
version of his November 2017 CIS research report UBI—
Universal Basic Income is an Unbelievably Bad Idea. A
fully referenced copy is available a www.cis.org.au

UNIVERSAL BASIC INCOME
UNWORKABLE AND UNAFFORDABLE

Universal basic income is a deeply flawed idea that would
require massive increases in taxation, argues Simon Cowan

15POLICY • Vol. 33 No. 4 • Summer 2017-2018

SIMON COWAN

factory closures and the decline of industries like
manufacturing: while some workers do drop out of
the labour force, few of those who remain in the
workforce looking for work are unemployed after
three years.

At the moment, there is little evidence
of technological unemployment in current
employment data. Unemployment today is
comparable with the level in the 1970s, though it
has fluctuated in the interim, and there are relatively
few discouraged workers who cite lack of skills or
jobs disappearing in their industry as the reason
they have left the labour market.

There have been very significant shifts of
employment within industries; for example,
manufacturing employment has declined both in
real terms and percentage terms for a number of
years. Unemployment has also fluctuated regionally;
for example, in the last five years unemployment
in the Hunter Region of New South Wales has
fluctuated between 2.3% and 12.8%. Yet neither of
these statistics provides substantial support to the
case for a UBI.

Fluctuations within industries and regions are
by their very nature temporary events; they are not
permanent shifts in employment that would justify
restructuring the welfare system to support them.
Indeed, if the case for a UBI rested on the fact that
the Hunter experienced a 12.8% unemployment
rate in April 2015, the fact that unemployment
had fallen to 3.7% less than 12 months later would
completely undermine the argument.

Even more permanent decline in an industry
or cluster of industries offers little support to those
arguing for a UBI unless it is accompanied by a
system-wide increase in long-term unemployment.
Workers are clearly transitioning from
manufacturing to service industries—a profound
change to be sure—but those workers are not falling
out of the workforce in large numbers. Unless the
problem is system-wide, it is hard to see how a
generalised intervention in the form of a UBI can
be superior to targeted assistance for regions and
workers in industries affected by decline.

There has been a rise in part-time employment
over the past 40 years, which could be seen as
evidence for technological underemployment.
However, data suggests the opposite: the proportion

of part-time workers seeking full-time employment
fell slightly between 1996 and 2007 before rising
from 2007 to 2013. While there may indeed be an
increase in involuntary underemployment between
2007 and 2013, it is more likely that the Global
Financial Crisis is the cause than technology. The
data does not show a steady increase over time of the
kind expected if technological underemployment
was the cause. It is more likely that the rise in part
time work was driven by an increase in female
workforce participation. At a minimum, more
evidence is needed to claim that there is currently
a problem with technological underemployment of
sufficient size to warrant a complete re-ordering of
the welfare system.

The lack of evidence for technological
unemployment is not the only flaw in the case for
a UBI. There is a concern that providing money to
people without the obligation to seek employment
or become self-sufficient may result in people
choosing to work less. While UBI trials suggest
that overall these effects are fairly limited, and the
reduction in working hours is mostly limited to
young men and mothers, these trials systemically
underestimate the disincentive effects of a UBI
because they do not include the effect of additional
taxation needed to fund a UBI.

Once the cost of a universal style UBI is
calculated, it becomes clear just how important it
is to factor this in.

Modelling a UBI: Type 1: A payment to all
The most popular proposal, particularly from those
on the left, is a UBI scheme in which every citizen
would receive a payment from the government for
the same amount. These payments would not be
contingent either on any activity test or income
level—unlike, say, the main unemployment
benefit (Newstart) which is targeted to support
workers through a short-term transitional period of

Unless the problem is system-wide, it is hard
to see how a generalised intervention in the
form of a UBI can be superior to targeted
assistance for regions and workers in
industries affected by decline.

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UNIVERSAL BASIC INCOME: UNWORKABLE AND UNAFFORDABLE

unemployment. In effect, UBI payments would be
made ‘no questions asked’.

Though the basic features of a truly universal
UBI are determined by the design decision, there
are important considerations that will significantly
impact the political saleability of this type of UBI
as well as the financial viability. While the most
important consideration is obviously the level of
the payment, the extent to which top-up payments
to certain groups are needed also matters.

There is an existing disparity between the amount
of money paid to recipients of ‘pension’ style
payments such as the Age Pension and the Disability
Support Pension compared to those received by,
for example, Newstart recipients, which would be
rectified by a UBI under which all recipients get
the same payment. This discrepancy has largely
arisen as a result of the more generous indexation
and benchmarking arrangements for ‘pensions’:
the Age Pension is benchmarked against average
wages, while Newstart is indexed to inflation.

In the wake of the 2014/15 budget it is clear
that attempts to limit the growth in Age Pension
costs to inflation—indeed any changes to the size
or growth rate of welfare payments—are politically
very difficult. In fact, it is hard to see how any UBI

that substantively reduces the income of welfare
recipients is viable.

Therefore, to avoid a situation where welfare
recipients are worse off, either the payments can be
set at the level of the highest payment—that is, the
Age Pension (option 1 above), or a baseline UBI can
be introduced with supplements for existing welfare
recipients (option 2). The third option is to limit
the payment to working age recipients, while the
existing welfare payments are retained for retirees
and for disability pensioners.

• Modelling suggests that a UBI where everyone
over the age of 18 is provided with a payment
equivalent to the age pension will have a net
cost of $230.9 billion a year, despite nearly
$100 billion in year savings and $89 billion
in additional taxation.

• For a UBI where everyone over the age of 18
was provided with $10,000 a year and top ups
were provided for current welfare recipients,
the net cost would be $102.7 billion a year.

• A UBI where only working-age Australians
were provided with a UBI equal to the level

Table 1: Characteristics of a UBI where welfare recipients don’t lose out

Characteristics Option 1 Option 2 Option 3

Amount $23,000 $10,000 $14,000

Taxable Yes Yes Yes

Eligibility Everyone 18 and over Everyone 18 and over Everyone 18–65

Replaces existing income
support payments

Yes
Supplements paid to
existing welfare recipients

All those paid to working
age recipients abolished

Welfare recipients Included in model Included in model ‘Pension’ recipients excluded

Table 2: Modelling results UBI type 1

Characteristic Option 1 Option 2 Option 3

Population in age range 18.2 million 18.2 million 14.8 million

Taxpayers in model 13.1 million 13.1 million 12.4 million

Annual UBI payment $23,000 $10,000 $14,000

Gross cost $418.5 billion $119.4 billion $174.2 billion

Less welfare savings $98.9 billion Nil $28.8 billion

Less additional tax $88.7 billion $37.0 billion $49.6 billion

Less adjustment for non-taxpayers $20.3 billion $11.5 billion

Total net cost $230.9 billion $102.7 billion $107.3 billion

17POLICY • Vol. 33 No. 4 • Summer 2017-2018

SIMON COWAN

combined supplement and UBI is equivalent to
their current payment. However, in many ways this
model is the worst of all worlds, and mathematically
it is functionally identical to maintaining the
existing welfare system in its entirety and bolting a
UBI on top.

Modelling a UBI Type 2:
Reassigning welfare
If the options for a truly universal UBI where no-
one is worse off are too unaffordable, the next
obvious question is what can we afford?

One option to consider is whether a UBI could
be funded within the existing parameters of the
welfare system; that is, redistributing the existing
welfare budget (together with any additional
taxation revenue generated by the UBI) to the
relevant population. The welfare system is not
without flaws, in addition to its substantial cost.
There is certainly merit in considering whether
the money might be spent more efficiently and
effectively—although the question of whether a
UBI is a better policy than means-tested welfare in
principle is of less consequence in this context than
the question of whether it is a better response to the
potential crisis of technological change.

This leads to three different options for how
a redistributive UBI might operate. The option
most appealing to those who believe in a small
government style UBI—such as Charles Murray
at the American Enterprise Institute—is one that
completely abolishes all programs and services
within the Department of Social Services and
redistributes those funds to all citizens over the age
of 18 (option 4 overleaf ). The second option is to
abolish income support payments and redistribute
that money, retaining all programs and services with
other functions. A third option worth exploring is
to limit the payment and the abolition of welfare
programs to those of working age.

Not surprisingly, in each case, modelling suggests
that the payment to be made is substantially below

of Newstart would have a net cost of $107.3
billion. However, such a UBI would likely
be combined with a universal age pension,
increasing the cost to between $135 billion
and $145 billion.

These three options are all unaffordable with
the current taxation system and would involve
enormous additional taxation. There are no easy
ways to raise more than $100 billion in taxation:
current proposals by Labor and the Coalition to
raise additional taxation combined would cover less
than 10% of the cost of a UBI. Nor is the corporate
tax base anywhere near broad enough to raise this
money; estimates of multinational tax avoidance
are 3%–5% of the cost at best.

Moreover, if a UBI abolishes income support
payments, compensating current welfare
recipients for increases in broad base taxes (such
as the GST and land tax) would be very difficult,
either undermining the universality of the
payment or causing current welfare recipients to
be worse off.

The GST rate would need to rise to more than
40% to fund a UBI, costing low income households
more than $10,000 a year. An alternative is land
tax, yet the rate there would need to be set between
$20,000 and $30,000 a year, which is particularly
problematic for pensioners, who could see their
whole pension/UBI eaten up in land tax payments.

If the government were to raise progressive
income tax instead, they would avoid these issues
but at best the marginal tax rates for median income
earners would rise above 60% and those for high
income earners above 80%. At these levels it is not
even clear that income tax rates would actually raise
extra revenue, as the rates would be on the far side
of the Laffer Curve. Funding tax increases of this
size would profoundly distort incentives to work
and invest, and none of these disincentives are
accounted for by UBA advocates.

As noted, part of the difficulty with a truly
universal UBI structure is that if it replaces the
welfare system it either has to be quite a large
payment, which is prohibitively expensive, or
welfare recipients are worse off. Option 2 aims to
side-step this dilemma by adding in supplementary
payments to existing welfare recipients so that the

Funding tax increases of this size would
profoundly distort incentives to work
and invest.

18 POLICY • Vol. 33 No. 4 • Summer 2017-2018

UNIVERSAL BASIC INCOME: UNWORKABLE AND UNAFFORDABLE

under the reallocation models above they would
receive as little as $13,780 or $19,750 (in 2014
dollars). For single mothers the picture is worse.
A single mother with four children who may have
received as much as $52,523 in 2016, would receive
just one UBI payment of less than $10,000 under
these models.

A UBI model that is largely funded by the
existing welfare safety net is more likely to find
support from the right—certainly more so than
models that involve a massive increase in taxation.
However, the difficulty for those who do advocate
for this style of UBI is that these models seem to be
so unviable politically. None of the three options
result in a welfare payment that is sufficient to
live on. So, far from finding support among UBI
advocates on the left, these models are likely to be
opposed on the basis that they substantially reduce
the income of vulnerable citizens.

At a minimum, it is clear the flaws in this UBI
model significantly outweigh the flaws in the
existing welfare system.

Winners and losers
The issue of who benefits from a UBI is as important
as who loses through the payment of additional
taxation.

Those currently receiving income support would
not see an increase in their disposable income from
a UBI, as there is little likelihood the payment
would exceed their welfare payment. Of those who

the current levels of welfare, resulting in a substantial
loss of income for current welfare recipients.

Unlike the options under the universal payment
to all model discussed earlier, particularly in the
case of Option 4 there could be a substantial loss
of income for some welfare recipients as all family
benefits, child care assistance and even disability
support are rolled into one payment. If the entire
welfare budget was reallocated to a UBI and paid to
all citizens 18 years old and over, the payment would
be just over $9,870 a year—a substantial reduction
of income for pensioners and single mothers.

Option 5 would see pensioners lose up to 70%
of their support, though even recipients of the
much lower Newstart payment would lose half
their income. If just the budget for income support
payments was redistributed to citizens 18 years
and over, the payment falls to $6,630 a year—
although this option doesn’t have the potential to
reduce incomes for welfare recipients by more than
$20,000 a year unlike Option 4.

Option 6: If only the welfare payments that were
available to working age recipients were abolished
and redistributed to those between the age of
18-65, then the payment would be $6,890 a year.

Options 4 and 6 are less punitive on pensioners
(particularly Option 6 that excludes them from
the model), but achieve this by taking much larger
sums of money from other welfare recipients. An
unemployed couple with three children would
be eligible for $48,000 under the current system;

Table 4: Modelling results UBI type 2

Characteristic Option 4: all welfare Option 5: ISP only Option 6: working age

Population in age range 18.2 million 18.2 million 14.8 million

Welfare savings $145.7 billion $98.9 billion $78.9 billion

Total additional tax $33.9 billion $21.8 billion $22.8 billion

UBI per person $9,873.88 $6,632.98 $6,889.93

Gross cost $179.6 billion $120.7 billion $101.7 billion

Total net cost $40,755 $69,763 $21,953

Table 3: Characteristics of a UBI redistributing welfare

Characteristics Option 4: all welfare Option 5: ISP only Option 6: working age

Taxable Yes Yes Yes
Eligibility Everyone 18 and over Everyone 18 and over Everyone 18–65

Replaces welfare All welfare payments
All income support
payments

All welfare for working age
recipients

Welfare recipients Included in model Included in model Included in model

19POLICY • Vol. 33 No. 4 • Summer 2017-2018

SIMON COWAN

are unemployed, only those who fail the means test
for Newstart would see any income increase from
a UBI.

Those working full-time and earning above the
median wage are likely to be worse off as a result
of the additional taxation needed to fund a UBI.
So, it is unlikely anyone earning the median income
or above would see any substantial increase in
income from the introduction of a UBI. And for
those on the average income and above, it is likely
the tax increases would exceed the value of an UBI.

Those working part-time are likely to be better
off as they will be eligible for a UBI, are not
currently eligible for welfare but not likely to earn
enough that the additional taxation outweighs the
benefit. In some ways, a UBI is better understood
not as a welfare policy but rather a way of
transferring income from full-time employees to
part-time ones.

The reduction in Effective Marginal Tax Rates
(EMTRs) may assist those on low incomes who
are currently facing withdrawal of welfare as well
as increased taxes, but many others will face much
higher marginal tax rates instead.

The biggest beneficiaries of a UBI are likely to
be those outside the workforce but not currently
receiving income support. Stay at home mothers,
primarily those who have a partner who works full-
time and earns average wages, will see an increase
in disposable income. University students and
young men with marginal attachment to the labour
market would also see substantial gains.

A relatively small cohort who are not in the
workforce due to travel, holiday or leisure activity,
around half of whom are aged 55–64, would be
expected to benefit from a universal style UBI,
though whether this is desirable is altogether a
different question. They are already voluntarily
absent from the labour market, so a UBI cannot
improve their participation. They must also must
have some means of support independent of
income from employment (such as superannuation
savings); in effect this means that a UBI payment
would be a windfall gain for these people.

Two main conclusions can be drawn from the
above observations: the winners from a UBI policy
are not the same as the beneficiaries of the current

system; moreover, the cost would be the single
biggest obstacle to implementation.

The most obvious point to make is that a UBI is
not targeted at improving the disposable income of
welfare beneficiaries. To the extent that they benefit,
it is from the removal of onerous compliance
obligations on welfare, and from removing the
disincentive effects of high EMTRs. However, the
flipside is that the removal of activity testing may
also make it easier for welfare recipients to rely on
passive welfare income, and high EMTRs will still
be a problem, just for a different cohort.

In a sense this should not be a surprise. After
all, a UBI is a universal alternative to the existing
targeted welfare system: it has a broader range
of beneficiaries. The difficulty is that the main
arguments for supporting income redistribution
have been based on the need to combat poverty—
that is, those at the very bottom of the income
distribution—not the need to facilitate transfers
in income from those in the upper middle of the
income distribution to those in the lower middle.

Indeed, the groups most likely to benefit
from the policy, outside of those who work part-
time, are those who are excluded from the welfare
system primarily because they have access to other
support (for example, a spouse working full-time
or parents who are supporting the person while at
university) or are too well-off to be eligible under the
current system.

Overall, it is not clear that those benefiting from
a UBI are the right targets for additional income
support, nor is it clear that they are the people most
likely to be affected by technological unemployment.
If a UBI can be justified as providing a benefit to
these groups, it is on a different basis to the one that
is being pitched now.

What is perhaps even more problematic for
those in favour of a UBI, is that it is not enough to
demonstrate that these groups have an unmet need
that should be met by taxpayers, contrary to the

It is not clear that those benefiting from
a UBI are the people most likely to be
affected by technological unemployment.

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UNIVERSAL BASIC INCOME: UNWORKABLE AND UNAFFORDABLE

principles of the current system, but also that a UBI
is the best method of assisting those groups. There
is simply no evidence that this is the case. If the
basis for wanting to provide assistance to a group
or groups is that they face a specific disadvantage,
that disadvantage is more likely to be remedied by a
payment made available to the disadvantaged group
alone, not to everyone.

For example, if your primary motivation was
to provide additional support to stay-at-home
mothers, why would a payment available to single
25-year-old men be better than one directed at
stay-at-home mothers? The broader the cohort, the
more expensive the fiscal cost of the program and
the less likely the payment will be generous.

Cost and impossibility of a UBI
The other big lesson to be learned in relation to a
UBI is that all the objectives of a UBI cannot be
met in practice. Anyone who promises that a UBI
will be a payment for everyone, sufficient to live on,
and will be a viable cost, is either being deliberately
misleading or hasn’t done the sums. If a payment
is sufficient to live on (and won’t leave current
welfare recipients worse off) it cannot be both
affordable and universal. At the moment, welfare
systems across the Western world deal with this by
putting significant limits on accessibility (that is,
they are not universal) and many also have quite
limited payments.

Politically, as noted earlier, there is practically
no constituency for a redistributive UBI of the sort
examined in Options 4, 5 and 6 above. The biggest
problem is that the resulting payment would not
be sufficient for an unemployed person to live on
once they had exhausted their savings; it would
leave people in dire poverty. However attractive the
idea of the abolition of the welfare state is to certain
ideological groups, there is simply no realistic
prospect that voters will approve a system where
large numbers of people will be destitute. Nor does
this deal with any potential transition costs from
the current system.

One consideration stemming from that
conclusion is that many of those on the right who
support a UBI on the basis that it will be largely
or wholly funded by the reallocation of existing
welfare should reconsider that support. There are

no viable UBI options that do not involve much
bigger government.

A consequence of the political impossibility of
abolition of the welfare state without the retention
of a viable safety net is that there is a limit to how
low the transfer could be—it has to be set above
the level of absolute poverty at a minimum. Once
it is set at this minimum level there is no way it
can be universal without requiring tens of billions
of dollars of additional taxation. It cannot be set at
a higher level where no-one on welfare is worse off
without requiring hundreds of billions of dollars of
additional taxation.

The savings that would accrue from the abolition
of the monitoring system and bureaucracy for the
welfare state are nowhere near sufficient to bridge
this gap. The 2015-16 Department of Social
Security Portfolio Budget Statement accounts for
$6.25 billion in Departmental Appropriations, yet
none of the relevant bodies or departments would
be fully abolished under Options 1, 2 or 3, meaning
the savings available would almost certainly be less
than $5 billion a year, maybe as low as half that
amount. The funding for a UBI can only come
from massive tax increases. But if marginal tax rates
climb over 50%, and potentially much higher, the
disincentives to work and invest may threaten the
viability of the entire system.

Conclusion
No Western country has been convinced of the
merits of replacing its welfare system with a UBI,
and no proposal to do so exists. Indeed, without
the impetus of impending and widespread
technological unemployment—for which there is
no evidence—it is doubtful there would be any real
momentum behind the push for a UBI at all. UBI
is not a normal welfare reform proposal. It would
require an enormous reorganisation of the tax and
welfare system.

Even if it could be demonstrated that
technological unemployment was a major problem,
it would still need to be shown that a UBI is the
most appropriate solution—something that is far
from certain. UBI is a deeply flawed idea, with
theoretical arguments that do not stand up to
scrutiny and practical issues that have not been
accounted for.

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© 2016 The Author/s. Juncture © 2016 IPPR Juncture \ Volume 22 \ ISSUE 4

The progressive left is perpetually locked in a dynamic of competition
between idealism and pragmatism. Normally these two mindsets sit
uneasily alongside one another, each nudging the other. However, in the
past few years, across Europe and now in the US too, these two political
strategies have begun to go their separate ways. We now have one left
that is versed in the language of technocratic resolution and is almost
disdainful of imagination and ideas, and another left that is willing to
hurl itself at political headwinds – with inevitable consequences. Both
strategies have been and will continue to be defeated. I will leave it to
the reader to decide whether this is tragedy or farce.1

The debate around a universal basic income has come to prominence at
just the same time as this divergence, and as a test of the current state
of the left it represents a useful political experiment. Explanations for why
the basic income discussion has emerged only now are well-rehearsed:
concerns about the brutal nature of the low-pay-no-pay sanctioning welfare
state; anxieties about the impacts of automation and other technological
change on employment; questions about how we can meet social needs
such as caring for relatives; and the prospect of a number of basic income
trials in at least two countries. This debate poses interesting challenges for
both the left’s idealists and its pragmatists.

‘Nice idea, but this isn’t Utopia’
The idea of a basic income is as old as philosophy itself. At a simple level,
the basic income is an unconditional payment to every citizen (and in some
models, such as that adopted by the RSA, children too). That it has only
ever happened in a limited form is indicative of the challenges of both
implementation and legitimacy. In philosophical terms, basic income has
some considerable merit (and has advocates among many on the free-
market right as well as liberal centrists). Basic income’s appeal is that it
provides a platform from which people can plan and improve their lives:
whether through work, learning, caring, performing or entrepreneurship.

1 This essay, with those by McLean and Steiner, forms part of a set of articles on basic income in this volume.

Opinion

Pragmatism, idealism and
basic income
A transformative investment in human potential

Far from being a utopian pipedream, a basic income has been successful whenever it has
been trialled. Anthony Painter argues that those on the left who pride themselves on their
pragmatism should consider the evidence: a basic income is not only a sound investment,
but a new approach to progressive statecraft capable of responding to the needs of our times.

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Some denounce it as welfarist, statist universalism. This misses the point.
It is a basic support that enables people and society to flourish. Basic
income systems are not ‘welfare’ as traditionally understood; rather,
they are about investment in human potential, just as education is. If we
were to put the case for basic income in terms of Roberto Unger’s wider
philosophy, it would be one support for people to live a ‘larger life’.

It is not surprising that the more idealistic left has warmed to basic income
more than the pragmatists have. It largely does not compute with the
pragmatists at all. There is little doubt that basic income would represent
an ambitious change to the social contract. Yet so was the Beveridgean
welfare state, the Turner commission on pensions, the foundation of the
NHS, the expansion of tax credits in the 2000s, the introduction of the
minimum wage and its extension towards a living wage, and the expansion
of universities from the 1960s onwards. The point here is that ambitious
changes to the social contract can and do happen.

So the ‘nice idea, but this isn’t Utopia’ critique is not a convincing one.
A basic income will be trialled in Finland and the Netherlands, and
possibly elsewhere too (Quebec is a possibility). A form of basic income
already exists in Alaska (and is wildly popular). Everywhere it’s been
tried – in the US, Canada, India and Namibia – the results have been
very encouraging. It basically does all the things its proponents say it
will: it fosters entrepreneurialism, has minimal or positive impacts on
work incentives (other than for some very particular groups), has positive
impacts on equality and health outcomes (including mental health), and
improves educational engagement and outcomes.

There is, therefore, enough core evidence to support the hypothesis that
basic income has a significantly beneficial social and economic impact.
Once this is established, the argument quickly turns to cost. Figures
of 40–50 per cent tax have been thrown around without much (or any)
justification. The RSA’s proposed scheme2 has been estimated as costing
up an additional 1 per cent of GDP which, if funded purely out of income
tax, would imply a 4–5 per cent increase on current rates. However, as
was the case with tax credits, it is likely that a basic income would be
partly funded by positive ‘fiscal drag’ (increased tax revenues arising
from growth). The additional sum could be funded by some increase in
the basic rate of tax for those earning over £20,000 (who will themselves
certainly benefit from basic income, as it is significantly higher than the
total personal allowance). There are, of course, other forms of taxation that
could contribute towards funding a basic income: consumption, wealth
and corporate to name just a few. So the cost issue is vastly overstated –
unless, of course, the basic income were to be very much higher than the
£3,900 or so proposed by the RSA on current prices.

2 See Painter A and Thoung C (2015) Creative citizen, creative state: The principled and pragmatic case for a
Universal Basic Income, RSA. https://www.thersa.org/discover/publications-and-articles/reports/basic-income/

Opinion

“It basically does
all the things its
proponents say
it will: it fosters
entrepreneurialism,
has minimal or
positive impacts on
work incentives,
has positive impacts
on equality and
health outcomes
(including
mental health),
and improves
educational
engagement and
outcomes.”

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291

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Overcoming moral-political objections
The stronger arguments against a basic income are moral-political
(concern about free-riders), and the end of welfare ‘conditionality’ that
it implies. This latter critique has been articulated very effectively by
Declan Gaffney.3 He makes the very sound point that work is usually
a good and should be encouraged. While it can be argued that basic
income encourages work by ensuring that people keep a greater amount
of additional earnings than universal credit will allow (other than at the
very bottom end – although those working very few hours per week
who are usually a dynamic group in any case), research has shown that
the introduction of ‘conditionality’ has increased employment rates for
certain groups – the rate for single parents, for instance, increased by
4 percentage points outside of London, and by 12 percentage points
within London.4 This is a very real challenge to those who advocate a
basic income.

It is precisely for this reason that a basic income trial is necessary. Until we
put basic income up alongside the current system it will be very difficult
to be certain of its relative impacts. Employment rates are important, but
a short-term boost can quickly be reversed (as, indeed, research on the
universal credit trials and other welfare-to-work programme has found).
We don’t yet know the impact that the ‘national living wage’ will on the
system. Basic income and living wages go very well together in terms of
work incentives.

There are wider considerations. What is the impact of conditionality on
career progression? Does it help people escape the no-pay-low-pay trap?
What longer term impacts does it have on family life, mental health and
educational achievement? Are there other means of encouraging work other
than the blunt and often coercive tools of sanctions and conditionality? It is
only by initiating a basic income trial – with design knobs on – alongside
wider research on the current system that we will gain satisfactory answers.

At this point the pragmatists reach for their trump card: moral politics. This
is less simple than it might first appear. The obvious critique is that basic
income isn’t aligned with the moral impulse of contribution and reciprocity
(you should get out what you put in). No system of income support that is at
risk of moral hazard – which is to say all of them, including tax credits – can
fully align itself with that impulse.

The counterargument in favour of basic income takes us back to Unger’s
concept of a ‘larger life’. Basic income is designed to support a greater
contribution – contributions of all types, from caring to entrepreneurship
– from all individuals than any other system can support. It is also more
honest about moral hazard. Every system is gamed. The current state
response is to erect an enormous welfare bureaucracy armed with
arbitrary power. Yet that system isn’t working – it is still gamed. Basic
income calls time on this mad state of affairs. It asks, ‘How can we

3 Gaffney D (2015) ‘Even in Finland, universal basic income is too good to be true’, Guardian, 10 December 2015.
http://www.theguardian.com/commentisfree/2015/dec/10/finland-universal-basic-income-ubi-social-security

4 Ibid.

Opinion

“Basic income
is designed to
support a greater
contribution –
contributions of all
types, from caring
to entrepreneurship
– from all
individuals than
any other system
can support. It is
also more honest
about moral
hazard.”

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http://www.theguardian.com/commentisfree/2015/dec/10/finland-universal-basic-income-ubi-social-security

Juncture \ Volume 22 \ ISSUE 4 © 2016 The Author/s. Juncture © 2016 IPPR

292

support people as they endeavour to live a larger life?’ It models itself
upon empowering universal institutions such as education or the NHS,
rather than on law and order as the current system does.

A new model of statecraft for the left
A basic income trial would present an opportunity for a ‘democratic
experimentalism’. There is a bigger goal here, and that is an ambitious
recasting of our institutions to meet the needs of our times. It is not
enough to simply default back to Beveridge as a safe harbour. Technical
fixes are important, but insufficient. In the words of Roberto Unger:

‘This programmatically empty and deenergised politics fails to solve the
practical problems for whose sake it renounced larger ambitions.’5

Yes, basic income is idealistic in spirit, but there are practical pathways
towards its realisation too. Neither idealism nor pragmatism alone are
convincing as a statecraft for an ambitious left. Yet the left is asking
electorates to choose between the two, and has become split as a result.
A smart statecraft would look at our rapidly changing economy and society
and set its own ambitious goals while accepting that political impediments
are real.

Advocates of basic income need to be very alert to the real and significant
impediments to its coming to fruition. But if every ambitious policy is
given up on before it even reaches the first hurdle, what is left? If there is
one set of values that unites the left, it is the desire to redistribute power
from the few to the many. If there was ever a time to be open to new and
practical ways of thinking, it is now. Basic income combines principle and
pragmatism. It is one example of how a new left statecraft might evolve.

Anthony Painter is director of policy and strategy and leader of the
development team at the RSA (the Royal Society for the encouragement
of Arts, Manufactures and Commerce). The report Creative Citizen,
Creative State: the principle and pragmatic case for a Universal Basic
Income by Anthony Painter and Chris Thoung (2015) is published by
the RSA.

5 Unger RM (1998) Democracy Realized: The Progressive Alternative, Verso: 4.

Opinion

“Basic income
combines principle
and pragmatism.
It is one example
of how a new left
statecraft might
evolve.”

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