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What would you do with £10,000?
A new report suggests the government should give £10,000 per year to every citizen under 55.
The Royal Society for the encouragement of the Arts, Manufactures and Commerce (RSA) says it could pave the way to everyone getting a basic state wage.
The Labour party has also said it is looking into similar arguments for a Universal Basic Income (UBI).
And Scotland is already piloting UBI schemes in Glasgow, Edinburgh, Fife and North Ayrshire.
The RSA report says the payments would come from a British sovereign wealth fund in the form of two annual £5,000 dividends.
The payments would not be means tested, and applicants would only have to demonstrate how they intended to use the money.
Most state benefits would be cut under the scheme.
The RSA said the dividends would help steer people through the challenges of the 2020s.
Anthony Painter, Director of the RSA’s Action and Research Centre, said: “The simple fact is that too many households are highly vulnerable to a shock in a decade of disruption, with storm clouds on the horizon if automation, Brexit and an ageing population are mismanaged.
“Without a real change in our thinking, neither tweaks to the welfare state nor getting people into work alone, when the link between hard work and fair pay has broken, will help working people meet the challenges ahead.”
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“The fund could provide the impetus to turn an entrepreneurial idea into a reality” says RSA
Attaining skills
The report explains how the fund could help people: “A low-skilled worker might reduce their working hours to attain skills enabling career progression.
“The fund could provide the impetus to turn an entrepreneurial idea into a reality. It could be the support that enables a carer to be there for a loved one.”
The fund would be built from public debt, levies on untaxed corporate assets and investments in long term infrastructure projects, and be similar to Norway’s $1trn sovereign wealth fund.
Because the dividends would replace payments such as Child Benefit, Tax Credits, and the Jobseeker’s Allowance, the savings for the government could also be ploughed into the fund.
The right questions
Anyone receiving the “dividends” would not be able to claim any tax allowances, which the RSA says would act as a disincentive to wealthier earners wanting to apply for the handout.
In all the RSA puts the cost of the scheme at £14.5bn a year if it is fully subscribed to, and a total of £462bn over 13 years, more than half of which would be paid for by government savings.
Jonathan Reynolds MP, Labour’s Shadow Treasury Minister, said “Labour is looking into proposals for Universal Basic Income and Universal Basic Services, to help create a 21st century economy that works for the many, not the few.”
“This new report from the RSA raises the right questions about the future of work and the long-term challenges we face, including making sure automation and the changing nature of work deliver a fairer, more prosperous society.”
Universal Basic Income - a work in progress
The history of UBI can be dated back to Thomas Paine’s essay, Agrarian Justice, where he proposes the idea as part of a social security system.
More recently the idea has been put into practice in limited ways. For instance, in Alaska all residents have been entitled since 1982 to a yearly cash dividend from the Alaska Permanent Fund.
Finland is half way through a two year nationwide pilot scheme, giving 2,000 unemployed Finns a monthly income of €560 (£497) which continues even if they find work.
Scotland is piloting similar schemes in four local authorities.
In the US one Democrat presidential nominee hopeful, David Yang is proposing his version of UBI, a $1,000 a month “Freedom Dividend”.
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Would UBI claimants still be able to claim disability allowance?
Even so, some economists believe full UBI can’t work.
Brexit campaigner Patrick Minford from Cardiff University’s Business School said UBI is “not a workable scheme because it’s far too expensive.
“It creates a tremendous tax, a disincentive for the average person further up the income scale who’s paying for it all.”
There are questions over how much of a social security system UBI would replace.
Would citizens still be able to claim disability allowance or help with housing?
The RSA believes that properly done UBI would help people get into work, give them an opportunity to rethink their lives and contribute to better health and wellbeing.
Others claim it would be a disincentive.
However, a report by the National Bureau of Economic Research into the Alaska Permanent Fund concluded that “it does not significantly decrease aggregate employment”.
A report by the OECD into UBI said that its effect would be hugely different depending on the circumstances of each individual and the existing tax and benefits systems.
UBI could also be ruinously expensive for governments and provide limited benefit for the poor, it said.
According to the OECD report, if the UK were to fund UBI only with money saved by abolishing the existing benefits system it would lead to higher levels of poverty.
It adds: “However, even in the case where taxes are raised significantly to pay for [UBI] it does not significantly reduce poverty.”
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