Should we have Universal Basic Income?

Should we adopt Universal Basic Income? I'll weigh the evidence from recent pilots and economic studies for and against.

Should we have Universal Basic Income (UBI)? There is no consensus, and the answer depends on what you want the policy to achieve, how it would be designed, and how it would be funded.

What is UBI?

Universal Basic Income is typically defined as an unconditional, regular payment made to every citizen of a country or territory, with some differences in amounts by demographic factors like age.

More specifically, it is a program for providing all citizens with a given sum of money, regardless of their income, resources, or employment status. It is described as a social welfare policy in which every citizen receives a regular, unconditional sum of money from the government to cover their basic needs.

Arguments In Favor

Proponents cite several potential benefits:

1. Poverty reduction and financial security: By providing a regular, unconditional income, UBI can ensure that everyone has access to basic necessities like food, shelter, and healthcare, which can be particularly beneficial where job displacement can lead to significant financial instability. This includes dignity and the right not to be destitute.

2. Simplicity and reduced bureaucracy: UBI can simplify welfare systems by consolidating multiple benefits into a single, unconditional payment, reducing bureaucracy and administrative costs. Advocates contrast its simplicity as a right for everyone versus complex benefit safety nets. It is also said to avoid bad features of means-testing such as stigma, work disincentives and barriers to worker flexibility.

3. Entrepreneurship and adaptability: UBI can encourage entrepreneurship and creativity by providing a financial safety net that allows people to take risks and pursue new ideas. It is also framed as future-proofed as an antidote to automation, which inevitably leads to fewer people engaged directly in the labour market.

4. Liberty: It can free people from state involvement in their lives.

Arguments Against

1. Cost and feasibility: One of the primary challenges facing UBI is its feasibility and cost. Implementing UBI would require significant funding, which could be difficult to finance, particularly in countries with already-strained social welfare systems.

2. Impact on work and productivity: Another concern is the potential impact on work incentives and productivity. Some critics argue that providing a basic income without conditions could reduce the incentive to work, and economic models note a positive income effect that further deters labor force participation.

3. Does not account for differing needs: For UBI to achieve its goal of removing complexity, it would also need to replace support for housing costs. But with market-based rents, it would not be easy to include a simple rent element without creating shortfalls for some or large surpluses for others. The same applies to means-tested childcare and disability support. If you sweep away targeted payments for specific circumstances (e.g. caring, disability, high housing costs, high childcare costs), you either have to level up at huge cost, or you create a fall in income for those with them.

4. Poverty effect: Modelling by Compass found UBI schemes also INCREASE poverty for children, working-age adults and pensioners compared to the current tax-benefit system, with child poverty rising by over 60%, because the redistributive effect is concentrated not on the poorest households, but on those with modest earnings. Those wholly dependent on state support would be neither better nor worse off if introduced at the level of the current safety net.

5. Funding trade-offs: Funding would require a significant overhaul of the existing tax system and welfare state, requiring that the basic marginal tax rate should be much higher than it is now. Options discussed include wealth/carbon taxes or bigger cuts to state spending elsewhere, none easy options. Other concerns include potential inflation and fiscal strain.

What Does the Evidence Show?

There have been many small experiments, none of which have been a true universal rollout, but several pilots are informative:

Finland (2017-2018): From January 2017 to December 2018, 2,000 unemployed people received an unconditional monthly payment of €560 ($634) instead of their usual unemployment benefit.

Stockton, California - SEED (2019-2021): Provided 125 low-income residents with $500 monthly for 18 months. Recipients reported better mental health, increased job stability, and advanced economic resilience, with early results showing improvements in employment, financial stability, and mental health. Full-time employment among recipients rose from 28% to 40% in the first year in one analysis.

Other pilots:

Limitations: Most pilots were temporary, targeted (unemployed or low-income), and not funded by broad-based taxation, so they do not show how a permanent, population-wide program funded by higher taxes would affect behavior and the economy.

Alternatives to UBI

Because UBI is expensive and politically controversial, some policymakers propose alternatives:

Questions to Consider

Whether UBI is desirable often comes down to values and design choices:

Many economists suggest that incremental steps - such as strengthening existing safety nets, piloting targeted guaranteed income, expanding earned income tax credits, or testing UBS - may achieve many of UBI's goals at lower cost while generating more evidence before a universal, unconditional national program is adopted.

If you are deciding your own position, it may help to consider which trade-offs you find most acceptable: greater universality and simplicity versus greater targeting and fiscal efficiency.