What Basic Income advocates could learn from Universal Credit (yes, really)

The two systems share few cheerleaders. But look beyond ideology, and they have more in common than you might think

January 30, 2018
The best way to implement Universal Basic Income would be through Universal Credit.
The best way to implement Universal Basic Income would be through Universal Credit.

At Davos last week John McDonnell, Labour’s Shadow Chancellor, declared his “deep interest” in the concept of a universal basic income. A week earlier the free market Adam Smith Institute gave UBI a similarly strong endorsement.

Stardust support from Elon Musk and Mark Zuckerberg, plus a flowering of pilots and feasibility studies, has turned this age-old, slightly nerdy idea into the zeitgeist policy of an insecure, unequal age.

At the same time—if in another world—the implementation of Universal Credit grinds on. Long delayed, this once shiny reform staggers, punch-drunk over the start line. Its once precious broad-church appeal largely lost amid a series of funding raids that have badly tarnished its original appeal.

Politically, the government still judges that pressing on is preferable to turning back, but the early, breezy enthusiasm for this monumental reform now looks quaint, even naïve.

More alike than we think

Debates about UBI and UC either take place in parallel universes or else they are posed as polar opposites, even enemies.

For instance, interest in UBI has partly been turbo-charged by its potential—so it’s claimed—to clear away the confusion, intrusion and bureaucratic inhumanity of UC.

Meanwhile, government Ministers defending UC rush to paint UBI as either utopian nonsense, or a dangerous threat to our labour market and public finances.

However—beyond the rhetoric—these two policies have more in common than advocates of either would like to admit.

This is worth recognising given that the only plausible route to a UBI, in this country at least, will have to run through UC. Tax and benefit systems are not built from scratch or on paper, but imperfectly chiseled from a complex and messy inheritance.

Similarities worth reflecting on

From this perspective at least, UBI proponents would be well served reflecting on the similarities with UC—and the heavy lifting currently, if inadvertently, being done to smooth their future path.

At a high-level, UBI and UC both seek to replace a range of benefits with a single payment. Both are paid in and out of work to ease labour market transitions. And both (theoretically) aim to improve work incentives by allowing people to keep more of their income as their earnings rise.

At a deeper level, UBI and UC—to their defenders at least—are both responses to concerns about complexity in the social security system, rising inequality and changes in the world of work.

In practice, the trauma of UC has made implementing a UBI anytime soon much harder, by draining both spare cash to compensate potential losers and good will to stomach another round of ‘radical reform.’

However, in policy terms, UC provides a far more favourable starting point for a UBI than the benefits and tax credit regime Labour left behind in 2010.

So, what kind of changes would a government elected on a pro-UBI platform in the early 2020s need to consider—assuming UC is, by then, finally in place?

This depends a lot on the precise design features of the UBI, but some key themes stand out.

The scope of the project

First, scope. Would a UBI cover the same range of payments as UC, or would the desire to reduce complexity lead to others—like Child Benefit or Personal Independence Payment – being incorporated? What about pensioner benefits?

Then the biggie: would the personal tax allowance be wrapped in to help finance a UBI? And could this be done without a huge administrative upheaval and the political challenge for appearing to be a large tax rise affecting the lowest earners?

This opens up the second issue: whether a UBI is paid on a household basis, like UC, or structured around individuals, as per the income tax system?

The latter is the pure and simple answer: no complex household assessment and no penalty for second earners.

But it would also be much more expensive by giving couples twice the entitlement of single people, irrespective of the way income, expenditure, employment (and time) are shared within families (or, of course, much less generous, if this were done within the current budget).

This, in turn, brings the third, and most significant, pair of issues into focus: mandation and means testing.

In principle, UC could be turned into a recognisable UBI overnight if it were paid unconditionally and universally. The former design feature poses a dilemma of principle (is there a moral case for expecting people to seek work in return for state support?) and pragmatism (what impact would removing those work requirements have on levels of unemployment and public spending?)

The latter question—means testing, and the related issue of the UBI rate—comes down to the unavoidable trade-off facing all social security policies between cost, generosity and incentives.

In short, they can excel on two counts, but not three. If a UBI is going to be paid at a flat rate to all irrespective of circumstance and tackle poverty more effectively than UC it is going to need a far bigger budget. Even with a budget of a few billions more, it wouldn’t be able to beat UC on generosity and incentives decisively: it’ll have to be one or the other.

How UBI could build on UC

Given this, discussion about UBI should give space to options for improving UC in ways that move in its direction.

For example, we could consider a dramatic expansion of the work allowances in UC, to allow people to earn far more before support is withdrawn, combined with separate allowances for each partner in a couple to support two-earner households (the best poverty protector).

A further sub-plot worthy of greater exploration is what role UBI reformers envisage for National Insurance—an enduringly popular institution that could play a vital role at a time when we desperately need a collective route to funding the health and social care costs of an ageing society.

An appetite to tackle the bigger questions

Growing interest in UBI reflects an appetite for policy answers that speak to a bigger vision of the future and are capable of matching up to the challenges of our troubled times. This is the right instinct: our social security system doesn’t do what it says on the tin.

Paradoxically, the era of UC has both spurred the case for UBI and established its potential foundations. Now, after decades ploughing away in the wilderness, UBI advocates face a big choice: do they maintain their pride in occupying a different policy universe, but risk irrelevance when reality bites, or do they engage in the unglamorous work of shifting the world progressively closer to their utopia?

Supporters of UBI should learn from the UC experience: the best revolutions are in fact evolutions, and the prose of welfare reform is far more important—and far harder—than the poetry.