The Covid-19 pandemic has rapidly hastened a trend already well underway across the world, and more so in developed Western economies. The disruptive effects of information technology, automation and robotics, coupled with the inevitable consequences of globalisation, have lowered the demand for labour in once heavily industrialised countries and led to rising unemployment and underemployment, with many jobs having been lost for ever. These job losses have been particularly noticeable in the agricultural, manufacturing, and transportation sectors, as well in such areas as food preparation and office administration. The proliferating gig economy, of self-employment in low-paid and part-time jobs, including on-demand and zero-hour contracts, has left much of the newly unemployed workforce without any viable alternatives, in the absence of opportunities for retraining and redeployment in alternative and suitable forms of work.
The search for solutions aimed at rebuilding the post-Covid economy has led to many proposals, including a plea for considering the introduction of a universal basic income. An open letter, dated 30 October 2020, was accordingly sent to Rishi Sunak, Chancellor of the Exchequer, by the UBI Lab network. The initial signatories consisted of 520 opposition MPs, peers, mayors, councillors and members of devolved assemblies. In their letter, they made the case for conducting trials of universal basic income (UBI) in the UK, with a view to making the economy more resilient in the future by preventing people from falling through gaps in the government’s social security safety nets through the creation of a baseline “income floor”.
The UBI is a guaranteed, regular, unconditional, fixed payment made by the government to every adult citizen of a country or territory, irrespective of individual circumstances. You can still continue to work or seek out employment while receiving a UBI. The UBI is simpler to administer when compared with complex and punitive means-tested social security systems, being much less reliant on the workings of government bureaucracy. UBI may also remove any disincentives to work, thereby avoiding a situation which makes it more profitable for the “working poor” to stay on benefits than to actively seek out low-paying and yet worthwhile jobs. .
The concept of a universal guaranteed income for all citizens is by no means new. Important socially-minded historical figures, including Sir Thomas More in his Utopia (1516), the Marquis de Condorcet, Thomas Paine and, more recently, Dr Martin Luther King, Jr, have all supported the idea, which has been tried out in the past. An early example of UBI in action is to be found in the Speenhamland system of the 1790s, in the English county of Berkshire, when poor rural families were given means-tested sums of money on a sliding scale, funded from parish rates, to help alleviate rural poverty
A variation on the theme of UBI, referred to as “negative income tax”, was proposed by Milton Friedman in Capitalism and Freedom (1962), whereby lower income families would receive supplemental benefits in place of paying taxes. In 1969, US President Richard Nixon proposed a negative income tax as part of his Family Assistance Plan for welfare reform, but his proposals were rejected by the Democrat-led House of Representatives. Inconclusive pilot trials of negative income tax in the US and Canada in the 1970s then put an end to further initiatives based on this line of thinking.
Interest in UBI has, however, continued to the present day. Most recently, a two-year trial of UBI has been undertaken in Finland, from January 2017 to January 2019. A randomly selected group of two thousand recipients of unemployment benefits, aged between 25 and 58, participated in a nationwide experiment, each receiving 560 euros per month. The control group, against which they were compared, consisted of 173,000 Finnish citizens receiving unemployment assistance. UBI did not appear to encourage work-seeking behaviour among its recipients, but did improve their sense of financial well-being and their mental health. Needless to say, Finland soon abandoned the UBI experiment.
Limited forms of UBI can be found in some places. For example, the US state of Alaska has, since 1982, given all its residents, regardless of age, a single yearly payment every October, which in 2020 amounted to $1, 606 per recipient. These payments, from the state’s Permanent Fund Dividend, are funded by the profits from oil exploration in Alaska’s Prudhoe Bay oilfield and can be regarded as a form of windfall bonus. Nearer home, on 15 June 2020, Spain launched a state-funded scheme, offering a guaranteed minimum income for 850,000 of the nation’s poorest households, in the most recent and largest test of UBI yet to be undertaken.
Support for UBI has been increasing in recent years. Andrew Yang, founder of Venture for America, made UBI the defining feature of his 2020 campaign for nomination as Democratic Presidential candidate in the US. His “Freedom Dividend” of $1,000 per month would be given to every American over the age of 18, without any conditions, costing the federal government around $2.8 trillion per year. To put this figure into context, the annual total federal government spending at that time was around $4 trillion.
Whenever it comes to such expensive and yet unproven proposals, the cost and benefits have to be carefully weighed up. UBI is being touted as a means to provide every citizen with financial support sufficient to meet their basic needs, while removing the stigma of being a social welfare recipient and simultaneously encouraging job-seeking behaviour. There are divided opinions about where the money is to come from. Suggestions for funding UBI generally include cutting back on, or even abolishing, existing social welfare benefits. while increasing tax revenues from such sources as a raised Value-Added Tax, taxes on high earners (increased top rates of income tax), carbon and other pollution taxes, and financial transaction taxes, among others. From what is known so far, UBI may have some potential benefit, but the overwhelming costs and lack of sufficient evidence in support mean that unless proper pilot trials are conducted, it seems unlikely that this form of social support will come to fruition in the near future.
Ashis Banerjee