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6 September 2016

Does the basic income work?

John McDonnell has become the latest political heavyweight to back the scheme. Can it work?

By Stephen Bush

One of the most frequent questions I get when we’re collecting questions for our podcast is “What do I think about the basic income?”

The policy is back in the headlines as John McDonnell has said he believes he can “win the argument” for a universal basic income, effectively signalling that it will become party policy should, as looks near-certain, Jeremy Corbyn be re-elected. The policy commands support not just on the Labour left, but among a variety of figures from across the party, one of whom, Jonathan Reynolds, the MP for Stalybridge and Hyde, explains his reasoning here.  

The difficulty with the “what do you think about basic income?” question is that it’s a little bit like being asked “what do I think about tax relief?” There is a great deal of ambiguity around what a basic income actually means, just as tax relief for, say, wind farms, is a very different political issue to tax relief for, say, Hinkley Point. And that’s just energy policy!

The idea of a universal basic income – a guaranteed sum paid by the state to everyone, regardless of their wealth or work status – is an old one, beloved of a variety of figures ranging from Milton Friedman on the right to Natalie Bennett on the left. Throughout the years, a variety of figures, including David Steel’s Liberal party, have flirted with the idea.

But the devil is in the detail – even the word “everyone” becomes fraught fairly quickly. (Would a basic income extend only to British citizens, to newly-arrived immigrants, etc? Some models, like Anthony Painter’s at the Royal Society of Arts, suggest only paying it to people on the electoral roll to “encourage active citizenship, for instance.) Would it replace existing welfare or supplement it?

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But for ease of reading I’m going to talk about what are effectively three schools of thought re: the basic income and three models, and the strengths and weaknesses thereof. (I’ll save the version-of-sorts proposed by the Fabian Society, and endorsed by McDonnell for last.)

The first school of thought  – and probably the biggest reason for its growing popularity online – is that the so-called “Second Machine Age”, new industrial revolution, technological revolution or whatever you want to call it is permanently changing the economy and the pattern of work, that technological innovation will reduce the number of jobs while accruing ever-growing benefits to the the richest one per cent. A basic income is becoming and will become the only tool sufficient to redistribute funds from the winners of the tech revolution to the rest.

Are they right? Well, it’s certainly possible that this is how the future will play out. If it does, then the case for a basic income will become significantly stronger.

It feels equally likely that the growing pressures of climate change will bring the technological revolution to a premature end and that we may look back on the era in which we debated the new economy, driverless cars, and so on as a somewhat strange diversion before we moved to the raft cities.

At present, however, rather than jobs vanishing into the ether and being left unreplaced, is the development of a plethora of low-skill, low-wage, and low-security work. The West’s big cities, generally a good guide to the future, highlight what might happen next: the biggest boom industries being finance, IT and retail.

If that remains the case in the future, a flat payment to everyone doesn’t look, to me, to be a particularly leftwing solution to that problem. It has the “moral hazard” problem of tax credits – the state topping up poverty pay – while being less redistributive, giving a wodge of cash not just to the losers of the new economic order, but the winners. Why should the CEO, of, say, Deliveroo, receive the same basic income as a Deliveroo driver? You can see why such a policy is attractive to tech billionaires and venture capitalists. It has less to recommend it to social democrats.   

Ultimately, there are better ways – not least tax credits themselves, as well as higher wage floors – to share the proceeds of growth better than that.

Many in the second school of thought would agree – they just don’t think those arguments are politically deliverable. For some basic income enthusiasts, the reason for the Conservative defeat over tax credits was not Jeremy Corbyn, not the opposition of Labour and Liberal Democrat peers, not the grumbles of Conservative backbenchers in marginal seats, but because, as Gordon Brown hoped when he introduced tax credits in their modern form, the beneficiaries of the scheme are widespread enough and politically influential enough to futureproof the policy against government cuts.

Looking at the heavy cuts borne by disabled people, lone parents and other marginalised groups – most of which never made up a significant chunk of the Conservative coalition anyway – this is a much stronger argument. Of course, the problem is that the biggest losers of any revenue-neutral universal basic income schemes are disabled people, lone parents and other marginalised groups. (If you go from paying £200bn out based on need and simply divide that among the population, the winners will be people not currently in receipt of any form of welfare)

So for that approach to work, a universal basic income either has to be a top-up to existing benefits, or, in order not to further impoverish existing recipients of social security, represent a hefty increase to the overall welfare bill.

Which if you can fight and win an election on that prospectus is great – however, assuming you can persuade voters to double the amount of spend out of the DWP, it feels a waste of the additional spending, though of course the possibility that this is the only way you can get electoral permission to do so shouldn’t be ruled out.

So those are two good reasons to back a “traditional” basic income: if you think that the number of jobs will greatly recede or if you believe that it is the only way to get electoral consent for an increase in the welfare bill.

McDonnell’s support for the Fabian Society’s basic income model is slightly different. In some ways, the Fabian Society is very far from a true basic income, in that it falls far short of what you’d need to get by in the longterm. Effectively, their proposal is that you’d reverse the threshold raise and use the additional revenue to finance a universal benefit. Perhaps it’s more accurate to think of it as the “second and a half” school of thought as far as basic income is concerned – the argument is that the only way you can get popular support to reverse the threshold raise is by handing a hefty wodge back to the voters.

As I’ve written before, the threshold raise is a nightmare for the modern Labour party. It benefits the upper 50 per cent of earners significantly more than the bottom, and the biggest winners are the key swing voters that buttressed David Cameron’s coalition in 2015: dual-earner couples and affluent boomers. (See also: Help to Buy.) Further threshold raises will reduce the state’s spending power and make it harder and harder to finance public services on the scale of 1997 to 2007. The Fabian proposal might not be the most effective way to get permission to do that, but McDonnell and the Society deserve credit for engaging with the problem at least.

This is part of the “You Ask Us” series, in which we tackle some of the questions our podcast listeners ask in greater depth than the format allows. If you have any, please do contact me via email (stephen.bush[at], Twitter or Facebook

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