The Viability of Universal Basic Income (UBI) in the UK

The UK is facing a perfect storm of economic challenges. With rising public debt, mounting pressure on local government services, and an aging population, the country’s fiscal situation is becoming increasingly strained. Local authorities, already grappling with funding cuts and growing demand for social care, housing, and other vital services, are struggling to meet the needs of their communities. The long-term effects of austerity, coupled with the economic uncertainty brought by Brexit and the COVID-19 pandemic, have placed even greater pressure on public services, widening the gap between what councils can provide and what citizens require.

At the same time, rapid advances in technology, particularly in artificial intelligence (AI) and automation, are reshaping the employment landscape. Estimates suggest that millions of jobs could be displaced in the coming decade, exacerbating economic inequalities and further stretching the social safety net.

Against this backdrop, policymakers are searching for solutions that can relieve fiscal pressures while supporting communities in a time of profound economic and technological change. One such solution gaining traction is the idea of Universal Basic Income (UBI) - a radical rethinking of the welfare state that promises to provide financial security to all, while simplifying the welfare system and reducing long-term demands on public services.

Here I explore the viability of UBI in the UK, examining its potential costs, savings, and impact on the economy. I also considers the implications of introducing UBI in the context of the UK's growing fiscal challenges, the lessons from international pilot projects, and how a phased implementation could bring the most benefit to regions most in need. The case for UBI has never been stronger and this write up lays out why the time to seriously consider it is now.

1) What is Universal Basic Income (UBI)?

Universal Basic Income (UBI) is a proposed social welfare model where every citizen receives a regular, unconditional payment from the government. In the UK, this would replace existing benefits like Universal Credit, and aim to reduce poverty, inequality, and financial insecurity, particularly as technological change disrupts traditional forms of employment.

2) Why Now? The Role of AI in Job Displacement

AI and automation could render millions of jobs obsolete by 2030. In the UK, sectors like retail, logistics, and manufacturing will be particularly vulnerable. UBI could provide a financial safety net for displaced workers and help smooth the transition to an AI-driven economy, mitigating the effects of widespread job loss.

3) De-Growth of the Global Economy

UBI aligns with the concept of economic de-growth, which focuses on sustainability and well-being over continuous GDP growth. As AI reduces the need for human labour, UBI can stabilize the economy by ensuring people maintain purchasing power, contributing to a shift toward a more sustainable, balanced economy.

4) Pilot Projects in Other Countries

UBI pilot projects, such as those in Finland, Canada, and parts of the US, have demonstrated improved well-being and financial security for recipients, even when employment levels were unaffected. The lessons from these pilots can inform how UBI could be tailored for the UK.

• Finland: Finland’s UBI trial ran from 2017 to 2018, targeting 2,000 unemployed individuals. Although the recipients didn’t see significant changes in employment rates, their mental well-being improved, as did their perceived financial security and social inclusion.
• Canada: Ontario launched a pilot in 2017, providing UBI payments to 4,000 people, but it was cancelled prematurely. Nevertheless, early results indicated reduced poverty and improved health outcomes.
• United States: Some U.S. cities like Stockton, California, have tested UBI, showing benefits like increased financial stability and employment retention.

These pilot programs suggest that while UBI may not directly increase employment, it can improve individual well-being, reduce stress, and lower poverty rates. Lessons from these trials can help shape the potential introduction of UBI in the UK.

5) Cost and Savings: UK Fiscal Pressures and UBI

The financial viability of UBI in the UK hinges on both its cost and potential savings.

Cost Estimates: Assuming a UBI of ￡1,000 per month for every adult in the UK, the annual gross cost would be approximately ￡650 billion, based on an adult population of around 54 million. This figure is daunting, but it's important to consider that this cost could be offset by savings in other areas:

• Elimination of current welfare programs: The UK spent around ￡245 billion on welfare in 2022-23, including pensions and means-tested benefits. UBI could replace a large portion of these, particularly programs like Universal Credit, Jobseeker’s Allowance, and child benefits.
• Administrative savings: The UK’s welfare system is complex, with extensive administrative costs associated with means-testing. A UBI would simplify the system, reducing bureaucracy and associated costs. For example, Universal Credit alone costs around ￡2.2 billion annually in administrative overhead. A flat, unconditional payment would streamline this process and reduce government spending on benefit management.
• Health and social care savings: Poverty and financial stress are linked to poor health outcomes, increasing pressure on the NHS and social services. UBI could improve mental and physical health across the population, reducing demand for services. Some studies suggest that for every ￡1 spent on poverty alleviation, around 50p is saved in healthcare costs. With healthcare spending in the UK exceeding ￡180 billion annually, even modest improvements in health could lead to significant savings.
• Local authority savings: Local councils could benefit from UBI by reducing homelessness, debt-related services, and social care demands, which often strain council budgets. For example, homelessness services cost UK councils over ￡1 billion annually. UBI could significantly reduce the need for emergency accommodation and support services.

Net Costs: After factoring in potential savings from existing welfare programs, reduced administration, and indirect savings from improved health and reduced poverty, the net cost of UBI could be significantly lower than the headline figure. Some estimates suggest a UBI program could be sustained with an additional ￡200-300 billion annually in government spending, depending on the size of the payment and the degree of overlap with existing benefits.

6) Which Areas Would Benefit the Most?

Regions with high unemployment and deprivation, such as the North East, Wales, and parts of the Midlands, would see the greatest benefit from UBI. These areas, which have struggled with deindustrialization and a lack of job opportunities, would experience increased consumer spending, reduced poverty, and potentially better health outcomes.

UBI could also support rural areas, where underemployment and seasonal work are common, by providing a steady income throughout the year. Additionally, it could help mitigate the impact of AI-driven job losses in urban areas, where automation will hit sectors like retail and hospitality hard.

7) How to Introduce UBI: Phased or All at Once?

A phased introduction would be the most realistic way to implement UBI in the UK, allowing for gradual adaptation and assessment of its effects. Here’s a detailed look at the approach:

1. Pilot projects: The government could begin by launching regional UBI pilots in areas like the North East or Wales, where economic deprivation is high. These pilots would test the feasibility and impacts of UBI on local economies, employment, and well-being.
2. Targeting specific demographics: UBI could initially be targeted at vulnerable groups, such as low-income households, young people, or those near retirement age. This would allow the government to assess the impact of UBI on poverty and social mobility before scaling up to the entire population.
3. National rollout: Based on the results of pilot schemes, UBI could be gradually expanded to other regions, with the ultimate goal of universal coverage. The process could take 5-10 years, allowing for adjustments to the programme as necessary.

8) Challenges to UBI Implementation

a) Financial Constraints: The biggest challenge in introducing UBI is the cost. The UK government already faces significant fiscal pressures, including rising debt levels, inflation, and an aging population that increases the demand for pensions and healthcare. Finding the necessary funds to implement UBI will require difficult trade-offs, such as raising taxes or cutting other forms of spending.

Potential solutions include:

• Tax reform: To finance UBI, the government could introduce new taxes or increase existing ones. Wealth taxes, capital gains taxes, and higher income taxes on the top earners are often proposed as funding mechanisms.
• Redistribution of current welfare funds: Redirecting funds from existing welfare programs could contribute to the budget for UBI.
• Automation tax: A tax on industries heavily reliant on automation could be introduced, redistributing profits generated by AI and robotics back to society.

b) Social and Political Opposition: Some may argue that UBI could disincentivise work, though pilot studies have generally shown this not to be the case. Political opposition could also come from those who view UBI as too radical or fiscally irresponsible. Convincing the public and political establishment of the merits of UBI will be a key challenge.

c) Inflationary Pressures: There are concerns that providing everyone with a UBI could lead to inflation, as increased purchasing power might push up demand for goods and services. However, many economists argue that the inflationary impact of UBI could be offset by proper planning, such as raising taxes on higher-income earners and adjusting monetary policy.

9) Timelines for UBI Implementation

The timeline for UBI implementation would need to be gradual, likely spanning 5-10 years. A potential phased approach could look like this:

1. Years 1-3: Regional pilots in economically deprived areas, with a focus on collecting data on the impacts of UBI.
2. Years 3-5: Expansion to specific demographics (low-income households, youth, and elderly) across the UK.
3. Years 5-10: Nationwide rollout, with adjustments based on the results of the earlier phases.

10) Policy Changes: National and Local

National Policy Changes:

• Tax reforms: To fund UBI, new tax regimes could be introduced, focusing on wealth redistribution and addressing automation-driven inequality. The introduction of a progressive tax system or new forms of wealth taxes could provide a sustainable revenue source.
• Welfare system overhaul: Replacing the current welfare system with UBI would require significant legislative changes. The transition would involve dismantling means-tested benefits like Universal Credit and shifting to a simpler, universal payment.

Local Policy Changes:

• Local authority budgets: Local councils would need to adjust their service provision to account for the impact of UBI. For example, social care and housing services might see reduced demand, allowing councils to reallocate resources to other areas such as education, infrastructure, or community services.
• Regional implementation: Pilot programs in certain regions would require local governments to collaborate with national policymakers to tailor UBI to their specific economic needs. Regional differences in cost of living would need to be factored into payment levels, ensuring UBI is effective across the UK.

Conclusion

UBI presents a bold yet potentially transformative opportunity for the UK. While its implementation would face significant challenges, from financial constraints to political opposition, its potential to address inequality, job displacement, and regional disparities cannot be ignored. By taking a phased, regionally tailored approach, and carefully planning for fiscal sustainability, UBI could pave the way for a more equitable and secure future in an age of technological disruption.

References:

• Office for National Statistics. (2023). "The impact of AI on UK jobs."
• Institute for Public Policy Research. (2023). "The Case for Universal Basic Income."
• Centre for Economic and Business Research. (2023). "The Economic Impact of UBI in the UK."
• OECD. (2022). "Universal Basic Income: Lessons from International Pilot Projects."
• National Audit Office. (2023). "UK Welfare Spending: An Overview."