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Artillery Row

Money for nothing?

A universal basic income is not as costly as it sounds – and Scotland should be encouraged to try it

What do Pope Francis, Nicola Sturgeon and the Socialist Workers’ Party prime minister of Spain, Pedro Sanchez, have in common? They have all proposed a Universal Basic Income (UBI), where everyone receives a minimum subsistence income from the state. If that doesn’t make you suspicious enough, the scheme’s cost in the UK would be roughly double that of the NHS.

Despite that, it’s a great idea.

In fact it’s something of a mystery why it has never been tried properly, despite being suggested by everyone from Thomas More to Milton Friedman. For while the headline cost is astronomical, the net cost is zero. That’s because those who are out of work at the moment are already receiving benefits, and those in work would, on aggregate, get back the extra that they paid in tax. If I’m paying £5,000 more in tax I’m not going to mind if I’m getting £5,000 back in UBI (perhaps even on the same payslip).

So in the age of the welfare state, where state support for the poorest is a given, the main attraction of UBI should be for the right, not the left. A universal payment eradicates the poverty traps created when people move off benefits and into work. If benefits are ‘targeted’ at the unemployed, as they are now, you sometimes barely gain when you get a job, so a lot of people prefer to stay on benefits. Paying everyone a minimum, whether in work or not, provides a powerful incentive to work.

All things considered, then, UBI should actually cost less than the current welfare state because you’d get more people in employment, allowing lower rates of tax/benefits.

It’s not quite as simple as that, of course. If you have flat rate benefits paid for by taxes that are set at a percentage, then the effect is skewed massively in favour of low earners at the expense of those on higher incomes. That may be just about sustainable now (many benefits, such as healthcare and education, are already both flat-rate and universal) but adding UBI on top of the current system would tax higher earners into oblivion.

Luckily there’s a simple enough solution. Scrapping (or severely curtailing) the higher tax band would correct this imbalance and keep the system as a whole about as “progressive” as it is now.

Nonetheless, despite its theoretical appeal, opinion is sharply divided on whether UBI would work in practice. UK politicians of all hues have long recognised the problems inherent in our current welfare system and the solution that UBI offers. But serious objections remain.  One senior opposition figure told me he was morally uncomfortable about paying people unconditionally to do nothing. And the required enormous leap of faith to a high-tax-high-benefit world (whatever its modest net outcomes) seems too much to ask.

That is why, so far, government has tried much more limited schemes to smooth the edges of poverty traps. Gordon Brown’s tax credits were an attempt at a ‘tapered’ UBI, with benefit payments carrying on well into employment, but slowly reducing

It foundered on the complexity of the system, but today’s Universal Credit shares its objectives. It seeks to simplify benefits (thus erasing poverty traps within the system) and encourage work by a combination of stick and carrot. So far it has worked well, or at least has combined well with a period of record employment. That happy period has now come to an end with dramatic virus-induced finality.

Gordon Brown’s tax credits were an attempt at a ‘tapered’ UBI

Which brings us back to Nicola Sturgeon. It’s hard to avoid a certain cynicism in her conversion to the cause. UBI has been discussed in Scotland for years, but Sturgeon has never shown much interest until now. Her pretext is the coronavirus, but she only wants “conversations” with the UK government “hopefully reasonably quickly” after the pandemic is over. This doesn’t make much sense. Why wait?

The truth is that the SNP never seriously considers radical reforms unless they are sure they won’t have a chance to deliver them. A key plank of nationalist strategy is to do nothing to offend the many vested interests they are trying to gather in their big tent of support for the only issue that really concerns them – independence. So they talk big on issues they can blame the UK for getting wrong (immigration, Brexit, defence) but ignore ones they could and should act on (education, planning, transport, the NHS).

UBI fits neatly with this approach, but that doesn’t mean it’s a bad idea. Given its potential, it should be tried properly somewhere. Why not Scotland?

The SNP say that they don’t have the powers to introduce the scheme but I am not so sure. Income tax rates and bands have been devolved, along with several other taxes, so that’s one half of the ledger. And while the Scottish Government cannot scrap benefits, it can create new ones and top up existing ones. So a carefully designed scheme could “fill in the gaps” to create a workable UBI. It may be a little clunky, but would surely be a sound basis for constructive conversations with the UK government to help iron out any wrinkles.

I would like to see one of the Scottish opposition parties – from left or right – come up with a serious plan for UBI.  Apart from being a worthy experiment in its own right, it would call Sturgeon’s bluff. One way to expose the deceits of nationalism is to demonstrate what can be achieved within the UK, as well as what would be lost outside it.

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