Some thoughts on a universal basic income for Wales

Calls for a Universal Basic Income (UBI) in Wales are mounting. But it raises crucial questions of how much it would be and whether it is affordable. Victoria Winckler, Director of the Bevan Foundation, reflects on the issues.

The idea of a Universal Basic Income in Wales has gained significant currency during the Coronavirus outbreak.  There has been a groundswell of support by everyone from the Future Generations Commissioner to leading politicians to ordinary people.UBI has a great deal of appeal. It recognises that people should have some means of providing themselves with the basics of food, warmth and shelter.  It also recognises that this should apply to everyone, irrespective of age, work status, relationship status or anything else. And because it meets basic needs, it gives people more choice and control over lives such as how much paid work to undertake. What’s not to like?

But as support for UBI gathers pace there are some important questions to be asked about whether it is the right mechanism to ensure people’s basic needs are met.  After some lively social media exchanges, we therefore decided to organise a webinar on Wednesday 10^th June to explore some of those issues, which you can see here.

The discussion raised some important issues: how much should it be and how would it be paid for.

How much?

The question of ‘how much’ is absolutely crucial, and there are a wide range of options being put forward.  At the low end, some have suggested a UBI of as little as £25 a week rising to £60 (with existing means-tested benefits continuing) while at the top end a UBI of £213 a week (this being the Minimum Income Standard for a single person) has been floated. There are also proposals that vary the rate by age, with 16-24 year-olds, for example, receiving less than people aged 25-64, while others argue that there should be a flat rate for all adults including pensioners.

A UBI at the bottom or even middle of this range is simply not enough to live on.

A single person aged 25 and over eligible for Universal Credit currently receives £409 a month, barely above the amount calculated by the Joseph Rowntree Foundation needed to avoid destitution.  The amount needed to avoid poverty is even higher – £156 a week for a single person household, excluding housing costs.

And then there’s the question of additional costs such as housing, the costs of living with a disability, and children. These have long required additional state help, and even the most passionate advocates of UBI recognise that there will need to be top-ups (with accompanying eligibility tests and administration).

That said, the Fraser of Allander Institute estimate that a UBI at the Minimum Income Standard of £213 a week would achieve some impressive results, reducing child poverty in Scotland by 25 percentage points and total poverty by more than 17 percentage points. Even so, a residual level of poverty would remain.

Lower levels of UBI have much less impact on poverty. Another study found that UBI of £73.10 a week without any additional help with living costs would increase poverty in the UK by between 8 and 10 percentage points for children and 2 to 3 percentage points for working-age adults.  The Fraser of Allander modelling found that the same rate of UBI,  but with additional, means-tested help with housing, childcare and disability costs, would reduce child poverty in Scotland by 9 percentage points and poverty amongst the whole population by 5.4 percentage points. This is welcome, but a substantial proportion of the population would continue to live in poverty and some conditionality would remain.

So it is only at a high rate that a UBI both scraps means-testing and significantly reduces poverty.

How would it be paid for?

The second vexed question is how would a UBI be paid for?  As a rough estimate, a UBI of £213 a week for working age adults would cost around £21 billion. That’s big – more than the Welsh Government’s current budget. There would of course be some savings, both as a result of scrapping most existing social security benefits (saving around £5 billion) and raised revenues if the personal tax allowance was scrapped.

A UBI of £73.10 a week would cost a lot less – around £7 billion for all working age adults in Wales. However unless it was planned to increase poverty, there would be additional costs from help with housing, childcare and disability costs.

Could Wales afford a UBI?

Well, anything is possible and the cost alone should not be a deterrent.  A basic income that is truly enough to live on and which abolishes means testing would be a severe strain within the current tax system. Modelling in Scotland found that the standard rate of income tax would need to be around 70% to cover the cost of a UBI of £213 a week, rising to 85%.  A lower UBI would require a tax rate of 27%, rising to 45%.  And because the UBI involves scrapping the personal tax allowance, tax would be paid from the first pound earned.

There are of course other taxes which could be increased: tax avoidance loopholes could be closed, corporation taxes and VAT raised, and new taxes e.g. on land, wealth or carbon emissions introduced. There would need to be a great deal more research and development before new taxes could be designed and introduced on this scale.

What can we draw from this?

Underlying the debate about UBI is the problem that some people do not have enough money to afford basic necessities. It is absolutely right to try to find solutions to poverty and inequality.

Replacing the social security system with a UBI that would be adequate for all comes with a very high price tag indeed. It would require a radical, new tax system as well as significant public support for the change. A lower UBI is more affordable, but neither eliminates poverty nor gets rid of means testing.

And both are simply undeliverable as an immediate response to the coronavirus pandemic. The Welsh Parliament does not have the powers to change the social security system nor to raise taxes in the way required and control the movement of people and businesses over the border. This is not to say it shouldn’t have these powers at some point – it just doesn’t now.

More practical, but much less headline-grabbing, are reforms to the current welfare system.

There are immediate and deliverable actions that could be taken now to help people meet their basic needs. Universal Credit could be increased further, more help provided with housing and childcare costs, and the benefit cap raised or scrapped altogether. Conditionality could be greatly eased, reducing pressure to find jobs that don’t exist or work when it is physically or mentally difficult.  Raising the minimum wage and increasing the personal tax allowance would also help.

And the Welsh Government could also help, such as increasing the Educational Maintenance Allowance and Learning Grant to match current benefit levels, providing free school meals for all children, reforming help with council tax and cutting rent.

Right now there are people without food, in arrears with their rent and mortgages, and likely to lose their jobs. It is these immediate and practical steps that we should be calling for.

Victoria Winckler is Director of the Bevan Foundation. She tweets on @vwinckler.