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Universal Basic Income
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Universal basic income enters the mainstream

The Financial Times recently started a discussion of the impact of robots and AI on the future of the economy, reflecting concerns about hyper-unemployment in the near future as AI threatens to take over the jobs currently performed by humans.

On the one side of the discussion are those who argue that we have seen this all before.  While we do experience periods of unemployment, redundant workers can be retrained.  At the same time, entrepreneurial thinkers will be quick to spot and develop entirely new businesses that will ultimately take up the slack.

On the other side of the debate are those who argue that this time it is different.  In fact, each technological revolution has shed more old jobs than it has created new ones.  While at each turn the businesses that emerge are leaner and more efficient, the state is left to pick up the cost of redundancy.  For half a century, governments have massaged the unemployment figures in order to make them appear better than is actually the case.  The number of people economically inactive or in work but wanting more hours is higher today than at any time in the last 40 years.

So what is to be done?  One of the FTs contributors puts forward two policy proposals:

  • A tax on robots and AI
  • A universal basic income.

The tax proposal is unlikely to be welcomed across the political spectrum, since it sounds like a modern form of Luddism:

“If the option of skilling up is removed for most by AI advances, and new as well as existing jobs taken by machines, then widespread unemployment must result. In order to slow such extreme labour market dislocations, give time for society to adapt and make it cheaper for the private and public sectors to hire human beings, these machine taxes should be hypothecated and National Insurance Contributions be commensurately reduced.”

Nevertheless, it does highlight the social and economic upheaval that may occur extremely rapidly by comparison with previous technological revolutions.  For this reason, the second proposal may well begin to gain traction – not least because it appeals to people on the left and right of the political spectrum:

“The prospect of a lot more leisure time ‘to enjoy’ — the glib response of technophiles — will not reassure those for whom work is a rewarding self-validation. A citizen’s income, as being trialled in Finland, Ontario and Utrecht, can enable the jobless to play an active, respected role in our market economy, while simplifying the complex mess that is the UK’s already overstretched welfare budget.”

Labour Shadow Chancellor John McDonnell is looking at the viability of a universal basic income as an alternative to the current government’s hugely wasteful and overly-bureaucratic Universal Credit.  As Jonathan Reynolds in the New Statesman recently observed:

“Thanks to George Osborne, universal credit will not now offer the kind of work incentives it was hoped it would, but the real problem is that it still cannot cope with the real nature of people’s working lives. There is not, as much as some Tory MPs would claim there is, a big group of people who never work and then a larger group who pay their taxes to support these people. Instead, many people move frequently into and out of work, because the work they can get is short-term, or insecure, or because the other responsibilities in their lives cause complications. The benefits system simply cannot cope with these people, and nothing I have seen suggests universal credit will be a solution to that.”

The current UK welfare system was designed to operate in a full-employment economy in which what little unemployment did occur was “frictional” – workers needing a few week’s income while they moved from one job to another.  From the 1970s onward, successive recessions, the process of globalisation and the introduction of new technologies and new working practices have led successive governments to bolt-on ever more bureaucratic and costly patches to a system that was not designed to cope with the circumstances and needs of the contemporary economy.

A universal basic income has the potential to solve successive governments’ desire to “make work pay” since it is given to everyone (in the same way as pensioners get the basic state pension) and is taxable rather than means tested.  That is, it counts toward the tax allowance that each of us has before we start paying income tax.  So no benefit is lost when someone begins earning, even if they only work part time to begin with.

Universal basic income resonates with those on the political right who favour “rolling back the state.”  Unlike the current system in which close to £3bn is spent annually on administration – including hiring ridiculously expensive private companies like Maximus and Atos to provide a quasi-medical cover for cutting the benefits of disabled people – a universal basic income can be cheaply administered by HMRC as a kind of negative income tax.

Simplicity and affordability are likely to make a universal basic income increasingly popular as the UK economy slows, and fails to generate the high-paid, high-skilled jobs that are essential to our continuing prosperity.  Not only is government losing tax revenue as these jobs are lost, but it cannot maintain the social security system as it is currently configured.  However, there are difficulties once we look beyond the issue of unemployment.

Most universal basic income schemes that have been tried to date have provided solely for the cost of day-to-day living; covering items like food, fuel, clothing and transport.  While this is sufficient for a system intended to make (any) work pay, it does pose problems in two areas.  First and largest is the crisis in housing.  While a universal basic income would be the same throughout the country, housing costs are not.  In some parts of the UK under the current system, families with two partners in work still qualify for housing benefit because the rents where they live are prohibitively high.  Some form of means testing will be required if local authorities are to continue providing housing support.  Second is the additional cost of living faced by people with disabilities who might, for example, have additional transport needs or higher household costs.

These issues (which the current system also has to address) aside, support for a universal basic income is likely to grow as it becomes increasingly obvious that the current system is simply too expensive and too bureaucratic to address the unemployment/under-employment/low-pay issues of the contemporary economy.

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