Universal Basic Income (UBI)

Key words: Universal Basic Income, Welfare, Economy, COVID-19.

Abstract:

Universal Basic Income (UBI) is a liberal radical concept that aims to replace current welfare systems and seeks to enforce a fair redistribution of wealth. UBI is an unconditional welfare policy, were regardless of an individual’s socio-economic background every individual are eligible. Trails have shown positive and negative results, all of which are surprising. UBI’s initial purpose seeks to obtain economic prosperity and provide a stable economic floor for everyone. As not enough research has been conducted, I attempt this puzzle by illustrating the criticisms, benefits and possible economic solutions that could potentially happen under the concept of UBI.

Introduction: Welfare, and Universal Basic Income

The purpose of a state’s welfare system is to prevent poverty, hunger and homelessness, yet the impact of globalism has placed numerous amounts of pressure on welfare states, creating the assumption that welfare is a drain on the economic system. A UN report has revealed that welfare funding in the U.K has decreased by 44% since 2010 and have driven 20% of the population into first world poverty. Kartik Raj a researcher for Human Rights Watch stated in an interview with Euronews that welfare ‘policy choices in the last decade, motivated by austerity have squeezed families and children’ , women, racial and ethnic minorities, people with disabilities, single parents and children are at serve risk of poverty. Economist Branko Milanovic has shown, inequality has been rising steadily, the income of the middle and lower-middle classes has dramatically decreased while the richest one per cent have seen a wealth increase, earning twice as much as the bottom 50 per cent.

Additionally, since the outbreak of COVID-19 and the financial impact is has had on the globe, has drawn attention towards the concept of Universal Basic Income (UBI). A radical libertarian concept that promotes an alternative welfare system, that would allow individuals regardless of economic background a tax-free sum every month. Applications for Universal Credit (UC), [a welfare system in the U.K.] has increased and has seen more than 5.6 million people apply for the benefit since the beginning of lockdown in March 2020. Most of which are from the younger population with 9.2% between the ages of 16-19, 20.5% between the ages of 20-24 . Sadly, economists predict that by March 2021 more than 23% of the U.K. population will be plunged into first-world poverty, and hunger . As a result of tahis terrifying reality, a letter has been written to the chancellor, Rishi Sunak, and has been signed by more than 500 MPs, stating that UBI trials are ‘urgently needed as the pandemic unleashes widespread economic disruption’ . The letter illustrates the main issues concerned with the benefit system and ‘the end of the furlough scheme mean Britain is ill-equipped to support people through the financial insecurity of the COVID recession’. The letter addressed to Sunak says that ‘we must trial innovative approaches which create an income floor for everyone, allowing our families and communities to thrive. The pandemic has shown that we urgently need to strengthen our social security system. The creation of a universal basic income (UBI) could be the solution.’ A recent survey found that 71 percent of Europeans now support a UBI’ , and over the last few decades, since the end of the ‘golden age of welfare’, trials of UBI have revealed interesting results. The concept of Universal Basic Income has never been more relevant, and many politicians and citizens alike are discussing the concept’s potential possibilities. What then, is UBI and how is it defined?

UBI’s origins begin with Anglo-Austrian economist Friedrich Hayek (1899-1992), who argued for a ‘certain minimum income for everyone... a floor below which nobody need fall even when he is unable to provide for himself.’ Although, attempting to define UBI is not a simple task and many scholars struggle to agree on what exactly UBI means in terms of a welfare policy. While some scholars see UBI as alternative, others view the concept as additional to existing welfare policies. Luke Martinelli, a research associate at the University of Bath has defined UBI as a ‘basic income that could replace other existing social security benefits.’ Jamie Cooke, head of RSA Scotland, who offers a more specific definition says that ‘basic income is regular and secure payments directly to every individual within a country, which comes from the state - it is universal, it is unconditional, and it is regular, secure and direct.’ Overall the concept of UBI seeks to replace existing anti-poverty schemes and provide a stable income floor for every individual regardless of socio-economic status, aiming too ‘replace other need-based social programs that potentially require greater bureaucratic involvement’ . The concept of UBI is a socially radical and liberally ambitious idea and requires a lot more research and conduction of trials. To understand the concept of UBI and its effects, we must examine the consequences and benefits of UBI by analysing trials conducted by nations who have attempted this social experiment such as Finland, Germany, Scotland, and Canada, and address the puzzle that is: our new economic climate has placed citizens across the globe into financial insecurity, how could we potentially apply UBI as a response to the COVID-19 recession in the United Kingdom?

Consequences and Criticisms of UBI

Criticisms of the provisions of UBI it is argued, will discourage and penalise people from earning more money and returning to work. The most recent trial of UBI conducted in Finland from January 2017 until December 2018, by the Social Insurance Institution, Kela, randomly-selected two thousand unemployed citizens, and were given a month flat payment of €560 (£490), who were then compared against 173,000 people on Finland’s standard unemployment benefits. A research at Kela stated ‘nothing really happened during the first year of the experiment’ and did not see recipients actively looking for work. Critics are concerned that UBI will ‘desensitize work, cheating economies out of productivity and cheating individuals out of the sense of meaning that work can bring.’ , Martinelli support this, saying if you give people income which is ‘unconditional, you’re not actively helping them to integrate in society – you’re basically encouraging them to drop out.’

Current welfare systems in Western Europe such as UC, often trap poor people in a never-ending cycle of financial worry. Obligations to attend courses, applying for a certain number of jobs a week all promote passive behaviour and are only designed to maintain the impression that unemployment statistics are not as bad as they initially appear. Meaning that, claimants of the welfare system will not find jobs suited to their skill set, and will settle for a position that may not pay well, nor are they enjoy actively doing, this, to an extent, the current welfare system in the U.K. is designed to keep the working class, the working class, even though these same individuals appear to be bettering themselves by obtaining work. How states would approach UBI would be dependent on the state, if the ultimate goal of UBI is to create a financial foundation for everyone, there will still be a need for government agencies and programmes to ensure people are supported, as opposed to trapped. Further criticisms have argued that UBI would give a huge amount of power to those funding it, whether it is NGO’s or the government, Cooke says ‘it’s in the hands of a single lever, where with services, […] they are democratic and more diffused – far more difficult to turn of in a single switch.’ Although, UBI entails that government agencies will not have to exist, and as such will save money, but it would give governments power over vulnerable people, which then could provide populists another strategy to gain power. Therefore, agencies of sorts must be available to people, to ensure the people retain some power, and populists do not attempt to gain power through dividing the people against one another or the establishment. Moreover, by keeping government agencies this would regain an element of trust towards the establishment and therefore uphold democratic values.

Many conservative economists are also concerned that handing out ‘free money’ would lead to an increase of poor people consuming alcohol and tobacco products and will be further derived from wanting to work. A study conducted by The World Bank in 2013 examined if poorer people did spend their finances on alcohol and tobacco and other illegal substances, and concluded that those with a higher income are more likely to consume such products, as they have the financial stability to do so. The Welsh lockdown back in October 2020 saw outrage as supermarkets placed alcohol and tobacco as an essential item above baby clothing and sanitary products. An statement from the Retail Times claimed that ‘without being able to go out or socialise with others during the peak of the pandemic, and no access to dine-in pubs or restaurants, we have seen a natural decline in alcohol consumption even as at-home drinking increased’ , evidently showing that poor people will spend their extra finances wisely, instead of appealing to the stereotypical assumption that poor people are lazy and drunk.

The main concern for most critics however, is the economic stability of such a concept, and many ask, how will governments pay for UBI? Cooke acknowledges this fear by ‘arguing that there’s not enough money plays very strongly […] they’ll just say there’s not enough money to keep doing what they are doing.’ Public finances showed in the U.K. government borrowing in the first half of the financial year, reveals that 2020 has been the highest year of government debts in the last sixty years with predictions that the government debts are set to increase before the end of the financial year. The Office for Budget Responsibility (OBR) published a chart showing that of the £262bn that the Treasury has borrowing by issuing gilts, £242bn has been bought by the Bank of England. The central bank has indirectly lent most of the extra money required by the government , ultimately the government has not had to raise funds from the private sector or abroad, therefore, Britain does have enough money to support those most vulnerable in society.

UBI risks becoming another version of a welfare system rather than alternative or additional. Finland’s trials eventually took a conservative turn to the conditional eligibility of social status rather than unconditional, and thus eliminated the core ideals of the concept. The trial automatically became a Basic Income that was limited to socio-economic background. UBI’s ideology aims to close the wealth gap, not to re-open it, and preserve the socio-economical peace by enforcing a fair distribution of wealth. By making the concept conditional, UBI suddenly becomes obsolete and effectively, no different than the welfare systems in place. A year long trial of UBI is not long enough to see affects of the concept, and if a country decides to elect a new form of government that is oppositional from the previous, the social experiment becomes faulted, and somewhat inconclusive, because of a change of values, principles, and priorities towards the welfare system. Nevertheless, the results of social experiments like Finland’s attempt of UBI can contribute to the research desperately needed in the analysis and understanding of the concept.

Benefits and Possibilities

To explain the concept of UBI, it would be wise to create a scenario to that demonstrates how this liberal concept could be the ideal economic solution to failing welfare policies. If you were to give every citizen a sum of £1000 a month for free as a minimum, recipients would receive £12,000 a year, this money wouldn’t be taxed and would be distributed to everyone regardless of education, status or social class background. Housing and disability benefits would stay the same (this is where UBI would be used as an additional rather than an alternative to welfare policies). For those poorest in society, an additional £1000 would alleviate a lot of stress and worry associated with welfare programmes. Claimants would not have to worry about housing, living costs or transportation needs, and thus, can concentrate on finding better and more fitting jobs, raising children and even returning to education. UBI trials conducted in Canada in the 1970s showed that 1% of the recipients stopped working, while 10% reduced their working hours to spend more time with family, going back to education or looking for better employment. The trials also revealed that mental health and physical well-being was better, income stability meant less hospitalisations.

In 2016 a survey was conducted to evaluate workers productivity in the U.S and found that 16% of employees were actively miserable, while 51% where physically present and not engaged, leaving 33% of employees engaged and present. UBI could give employees an opportunity to reduce working hours to retrain and develop new skills which could give them better jobs, without the added stress of finances being an issue. In 2014, Germany issued the non-profit Mein Grundeinkommen (My Basic Income). According to Fast Company, 80% of recipients said the income made them less anxious, more than half said it enabled them to continue their education, and 35% said they now feel more motivated at work.

Although UBI may risk widening the wealth gap with housing costs, with rent and living expenses being higher in cities than in the countryside, there is also a potential for the gap to be closed permanently and allow economic prosperity. The RSA found that relative household poverty would reduce by 8.5%, the latter by 33% if citizens where given a £4800 per month. With recent studies from the London Economic Forum showing that come March 2021, a further 1.1 million people will be pushed into poverty, with a total of 3.2 million struggling to make ends meet , with the current statistics showing that 20% of the U.K. population are already in dire need, the benefit of this concept shows that this could in fact reduce poverty, hunger and homelessness in a very short space of time, effectively reversing the ten years of austerity created by conservative cuts. UBI could also benefit those who have been historically marginalised, as minorities are currently the most affected by the impact of the COVID-19 recession, and are the ones facing the harsh reality of first-world poverty. Studies have also indicated, that by giving people the minimum basic income of £1000 per month, could have the potential to increase GPD up to 2.2% to almost 12% every year, because this would mean poorer people would spend more on goods and rise the overall demand.

Andrew Yang brought attention to the rise of artificial intelligence (AI) in both is possibilities as well as risks. AI threatens low skilled work, agriculture and labour, from factory workers to truck drivers, which would mean higher unemployment rates and more people depending on the welfare system. On the one hand, with social distancing and COVID-19 restrictions in place, AI has been considered a solution to the spread of the virus to reduce infection rates, this would be relatively ideal, yet, on the other hand this could be detrimental for many people, and contribute to even higher unemployment than the virus has already created. Entrepreneur Elon Musk argues that ‘UBI should be necessary as this will provide people with extra time and finances that will then enable these people to develop new skills that robots cannot learn.’ Martinelli points out that people might work for enjoyment, rather than survival, it would theoretically allow people to take risks, to go back to retrain or re-educate, to have a career break – these are positive productivity-enhancing changes.’

Moreover, AI in accordance with UBI could benefit the environment says Mark Maslin, professor of Earth System Science at UCL, ‘we are convinced UBI will cut down on consumption and poor environmental practices’. When we work more we consume more, and if employees are actively miserable or even being replaced by robots, cutting down work hours to find better employment or re-educate oneself in a new trade could benefit all aspects of work productivity from the individual to the environment.

A few companies in the Nordic nations have been experimenting with a four-day working week, and the results have shown increased productivity and overall happiness among employees. UBI would allow four-day working weeks to be standardised as it would enable individuals to be financially secure, and with the evidence discovered from the Canadian UBI trials, reducing working hours would mean less strain on healthcare providers as citizens would be happier and therefore mentally and physically better. The suicide rate has increased significantly since the Global Financial Crisis (GFC) of 2008-2009. The Guardian reports men between the ages of 35-45 are the most affected as they are struggling to provide for their families. Tragically, a single father aged 34 (December 2020) committed suicide as he could not support his children while waiting five weeks for his UC payment, he had racked up a debt of £20,000 through payday loans and was left with only £4.61 in his bank account. The National Health Service (NHS) in the U.K. is almost at breaking point, and UBI trials have shown this could alleviate a lot of pressure for doctors, GPs and nurses, mental health services, as well as finances.

Economic Solutions

UBI could be a smart economic tactic if funds are shifted correctly. Whether UBI be implemented as an alternative or additional is dependent on the state, UBI can be made possible if current welfare schemes ended and were replaced, this means inflation wouldn’t be a risk as funds will stay relatively the same, simply by providing an economic floor, while enabling GPD to increase thus creating security for the state and its citizens. Alternatively, UBI can be funded if states were to introduce a system of equity, and tax the wealthy – the more you earn the more you pay in taxes. By taxing financial transactions, and land, a redistribution of wealth is possible, and thus close the wealth gap and preserve social peace. If the top 1% have seen their income increase by 50%, while the lower and middle classes are facing financial ruin, COVID-19 has revealed the economic inequalities rife in welfare states, how can 1% live so comfortably knowing the majority, are hungry and living in poverty or are homeless? According to Daniel Wincott the welfare state is more than a set of programmes it also ‘connotes ideas and perceptions, patterns of social and political support’ , and with the current COVID-19 crisis support for UBI has dramatically increased. Governments across the globe have become overwhelmed by the increase in welfare state dependency, so much so in August 2020 Germany proposed a new trail of UBI as an direct effect of the pandemic, perhaps other nations who are suffering terribly by the rise of infections such as the U.K. and the United States could greatly benefit from UBI trials.

Conclusions

One cannot say for certain whether UBI would be an ideal solution to our current economic crisis. As a liberal and radical concept, more research and trials need to be conducted to say for certain that UBI would be a stable alternative (or additional) to current welfare policies. I have attempted to illustrate the criticisms and benefits of this concept by examining trials conducted in Finland, Scotland, Germany and Canada. I have also considered the financial capabilities of the concept, in addition to potential restraints. The U.K. is facing a time of uncertainty, both socially, culturally, and economically. COVID-19, Brexit and BLM protests have left the population of the U.K. hanging in a sense of purgatory, and the welfare programmes like UC have become a last resort for many British citizens, at the cost of families, disabled and many minorities are going hungry, and facing first-world poverty or homelessness. Therefore, I can say with certainty that the current welfare systems in place have failed to uphold their anti-poverty promises, and thus must look for another solution before citizens are thrown into more economic insecurity.

UBI could well be this solution, but as I have presented it is also a risk within itself. We cannot rely on previous welfare policies as technology such as AI and the destruction of our climate has evidently proven that we are living in a new different world, far away from the one we grew up in. Welfare stated have also failed to update their schemes since the end of the golden age of welfare, and thus are not stable enough to be relied upon. Threats to our species whether it is climate change, COVID-19 or global economic recession means that globalism is inescapable, and welfare systems will eventually have to accommodate for all regardless of the state an individual resides in. UBI brings into question many considerations, from eligibility, the economy but also one’s moral compass.

We must ensure everyone has the basic means of survival and if the welfare systems are failing to provide thus, then we must consider UBI as a concept and conduct more research. A state is nothing without its citizen’s and if most of its citizens are struggling in every aspect, then the state overall, is struggling. To avoid further economic instability, small trials of UBI should be carried out in the U.K. for at least a minimum of three years. The results over this period can be monitored closely and should reveal whether the concept is ideal or a risk. Until this happens, the current welfare systems in place will remain as they are, but to dismiss the concept of UBI entirely would be [I say] unwise.

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