Debate Magazine

"Universal Income Would Make Inequality Worse, Say People Who Don't Do Numbers Or Logic"

Posted on the 22 March 2017 by Markwadsworth @Mark_Wadsworth

Emailed in by MBK, from The Times:
A Labour proposal to replace benefits with a universal basic income would increase inequality and lead to billions of pounds in extra taxes, an independent review has concluded.
Let's just bathe in the warm glow of that self-righteous non-logic for a minute...
Would a fiscally neutral UBI paid equally to all mean that some small segments of the population receive less in benefits? Yes, of course (mainly unemployed single mothers). You can consider that A Good Thing or A Bad Thing, and say that it would "increase inequality" if you wish, but by definition, treating everybody the same reduces inequality.
In the next breath, the author is wailing about "billions of pounds of extra taxes", implying that people would be worse off all the way up the income scale, which in turn would reduce inequality.
Put the two together, and he is saying that everybody would be worse off, which is mathematically impossible.
If you read the full report by Bath University's Institute for Policy Research, you notice that they have played fast and loose with the numbers and ignored their own logic.
Let's go with their Model 2.4, page 20, "UBI set at the level of existing benefits" which they consider to be £67/week per child; £73/week per working age adult; and £156/week for pensioners. They say the gross cost of this would be £288 billion.
This would be part funded by eliminating the personal allowance for income tax, the basic state pension, Pensions Credits, Child Tax Credits and Child Benefit, Working Tax Credits and the various categories of unemployment benefit (Carer's Allowance, Employment Support Allowance, Income Support, Jobseeker's Allowance etc). The shortfall would be £76 billion to be made up with higher taxes.
Let's iron out the easy mistakes first, if you divide total Child Benefit and Child Tax Credits by the number of children in the UK, it works out at about £50 a week, so let's stick with that. No need to worry about funding it.
The same goes for a Citizen's Pension replacing state pensions (basic and earnings-related) and Pensions Credit. Add up current cost, divide by number of pensioners, job done, no need to worry about funding that.
Next, paying all UK resident working age adults who hold a British passport would cost £141 billion. The bulk of working age adults have a job and earn more than £11,000 a year, the intention is not to make them better or worse off, which can be achieved quite simply by scrapping personal allowance for income tax and the lower limit for NICs and halving the lower limit for Employer's NICs. No need to worry about the cost there.
This leaves maybe ten million adults who are unemployed, students or low-wage/part timers earning less than £11,000 or so. Nearly all these people currently get something or other - unemployment benefit, Working Tax Credits, Statutory Maternity Pay, Statutory Sick Pay, student loans and grants. These people largely break even if they get a flat £73 a week, or shave off a few billion by sticking with current rules and pay people under 25 a lower weekly amount. The report ignores the current cost of SMP, SSP and student loans/grants or the under-25 savings.
For sure, a couple of million low- and non-earning adults in the UK get zilch in benefits (mainly spouses of people with a full-time job), paying them £73/week is an extra cost of maybe £10 - £15 billion. But it costs about £10 billion to run the DWP, running a Citizen's Income scheme costs next to nothing, so that extra cost covers itself.
So overall nobody knows what the additional cost or saving would be, it's all within the margin of error. Their headline figures of £76 billion and at least 4% on income tax are clearly miles out.


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