Basic Income as an Answer to Poverty

Economist Stewart Lansley is the co-author (with Howard Reed) of the Compass reports, Basic Income for All: From Desirability to Feasibility, and Universal Basic Income, An Idea Whose Time Has Come? These reports have been cited as evidence that basic income is not a solution to poverty, in this blog Stewart examines this claim.

A key claim for a basic income (BI) — a universal payment to all citizens, no questions asked — is that it would be a powerful way of radically reducing poverty in the UK. This notion however has remained a controversial subject for some. Chris Goulden, Policy Director at the Joseph Rowntree Foundation, for example, has argued that, far from tackling poverty, a BI would increase it. It would be better, he claims, to improve the existing system. The Conservative government has sometimes cited Goulden’s blog to support its defence of Universal Credit, so it’s worth directly addressing this question in more detail.

So would a BI cut poverty or raise it? To find out, Compass has tested the feasibility and impact of two distinct models of BI. First, a full scheme, which would largely tear up the existing system and replace it with a generous system of payments. This ‘big-bang’ approach is promoted most fully by advocates of a utopian ‘post-capitalist’, ‘post-work’ world. Secondly, a partial scheme, with a more modest level of payment, at least initially, and grafted onto the existing system.

Conservative critics point to the fact that our report found that a full scheme would be either too expensive or would create too many losers, and is not feasible in current circumstances. This is because the current system, partly because of its reliance on means-testing, is able to deliver large sums to some targeted groups. But this is not what most BI advocates are calling for and critics are ignoring the benefits of a so-called partial scheme.

Instead, a partial scheme (with rates of £60 for adults (under 65), £40 for children and £175 for adults over 65) that retained most of the current system would be feasible and affordable. These rates would pay £10,400 a year for a family of four. This scheme would:

• be highly progressive.
• by boosting the incomes of the poorest families, cut child poverty by more than a third and working-age poverty by over a fifth.
• reduce inequality, strengthen universalism and cut means-testing.

Other studies have shown similar outcomes and the ‘partial’ approach is now favoured by models done by the RSA, Reform Scotland and Citizens Basic Income Trust. Moreover, BI is also not just a way of tackling poverty. It would boost incomes for the majority of households, with the gains concentrated amongst the poorest. While a BI is not a silver bullet, it would also promote greater personal choice over work, education, caring and volunteering. It would provide a protective cushion, lower the risk of poverty, and strengthen family security. Goulden dismisses the ‘partial scheme` as ‘not a real BI’. This is simply wrong. It would deliver a guaranteed, no-strings-attached — if initially modest — income for all.

The net cost could be met by the abolition of the personal tax allowance, and by small rises in tax and national insurance rates. Though other forms of funding could be used, these tax changes would ensure that the benefit of the BI payments would be clawed back from higher income households.

There is a strong case for reframing this debate around the idea of a firm and guaranteed income floor. Sitting below the existing benefit system, this floor would constitute a significant new anti-poverty instrument and safety net and it’s an approach that’s backed by the likes of NEF and Fabians. The idea of a ‘guaranteed national minimum’ has a long history in the UK, but while it was highly influential in the making of the post-war social security system, it has never come close to realisation. Creating such a floor would finally upgrade the existing benefit system, built and modified in twentieth century conditions, for a 21st century world.

The scheme could be introduced at one go or phased in incrementally, with the starting-level income floor raised over time, through for example, the returns from a targeted, citizen’s wealth fund, owned on an equal basis by all citizens. Giving everyone an equal stake in economic success, the fund would automatically capture and distribute economic gains equally to all and across generations.

The history of progressive change shows that originally controversial ideas — from the NHS to the national minimum wage — take long periods of debate and campaigning to come to fruition, but then become so popular that they are embraced by former critics. Like these radical predecessors, a BI scheme has huge potential strengths. It would lock a new anti-poverty bias into our social structures, while providing a new springboard for more stable and fulfilling lives.