It’s a radical idea with supporters on the Left and Right: Pay every citizen a basic income regardless of their earnings. As the SNP rolls out a pilot scheme, could this be the way to defeat the poverty trap – or just a ruinously expensive utopian fantasy?
Why has Finland taken £6,000 away from Emilia Aarnio? The 32-year-old is not a faithless debtor whose earnings have been attached, nor is she a criminal levied a fine by the courts.
In fact, she’s a respectable member of the community in Oulu, where she is a professional singer and runs her own business giving guitar lessons to children.
The northern Finnish city once teemed with jobs thanks to the local Nokia factory, but declined along with the mobile giant’s market share and now boasts an unemployment rate twice the national average.
Two years ago, Aarnio was out of work when she received some surprising news. She was one of 2,000 jobless Finns selected to take part in a new experiment, which would see the government transfer £475 into her bank account every month, tax-free.
The payments were a pilot study for a universal basic income (UBI), which proponents say could transform the welfare state, defang the poverty trap and ensure a minimum standard of living for all.
Aarnio told the Sunday Times: ‘My mother-in-law opened the letter and read it over the phone. I thought, “What a nice surprise!” To get money for two years without doing anything.’
If it all sounds too good to be true, it turns out it was. The Finnish government says it will not renew funding for the project. The news has come as a blow for champions of UBI who have often pointed to Finland’s experiment as proof that its socio-economic game-changer was on the march.
One country inspired by the Finns’ example was Scotland, where the SNP government has given four local authorities £250,000 to explore the feasibility of recreating a similar scheme here. The Citizens’ Basic Income, as the Scottish trial is billed, is hoped to be an answer to low wages and the increased joblessness expected to come with the rise of automation.
Announcing the pilot last September, Nicola Sturgeon told MSPs: ‘Contemplating such a scheme inevitably raises a number of practical issues and questions, not least around the parliament’s current powers, and undoubtedly there are arguments for and against. However, as we look ahead to the next decade and beyond, it is an idea that merits deeper consideration.’
There has yet to be a precise figure given for a Scotland-wide UBI but the Scottish Greens, who have advocated such a policy for a number of years and on whose votes the SNP relies to pass legislation, want to see working adults given £100 a week, pensioners £150, and under-16s £50.
When the Scottish Conservatives questioned the sustainability of a UBI, were it to be rolled out to the wider population, the Scottish Government called them ‘hysterical’.
However, the SNP’s own calculations merit at least a cheep of concern. According to modelling released under freedom of information laws, the cost of a nationwide UBI could be upwards of £12billion. With a single stroke of the Finance Secretary’s pen, Scotland’s deficit would be doubled.
Funding such a scheme would require significantly large revenue reserves. St Andrew’s House warned that the tax-free personal allowance would have to go and a 50p rate of income tax introduced – not only for top earners, but for everyone.
A 50 per cent flat tax would be bold, to say the least, so it is little wonder that civil servants described a Scottish UBI as ‘a very costly policy that is unlikely to gain public acceptability and ultimately may not have the desired transformative effect’.
UBI commands a motley gang of proponents, from the egalitarian Left to the libertarian right. Bernie Sanders, a socialist US senator who lost the Democrat presidential nomination to Hillary Clinton in 2016, professes himself ‘absolutely sympathetic’ to UBI, rationalising that ‘in the wealthiest nation in the history of the world, the top one-tenth of 1 per cent should not own almost as much wealth as the bottom 90 per cent. everybody in this country should in fact have at least a minimum and dignified standard of living’.
On the other side of the political spectrum sits the Adam Smith Institute, a free-market think-tank which sees cash transfers as a partial replacement for the welfare state.
Researcher Otto Lehto concludes: ‘A modest UBI, while it may generate moral resentment and ideological resistance, would increase the welfare and liberty of the citizenry without imposing unreasonable costs on taxpayers.
‘Replacing in-kind benefits with unconditional (or minimally conditional) cash transfers is likely to increase the efficiency of the benefit system for all parties concerned in rich and poor countries alike.’
Unsurprisingly, most Left-wing UBI advocates will not countenance any commensurate reduction in welfare provision, while Right-wing advocates, such as US sociologist Charles Murray, hinge a cash transfer scheme on eliminating the welfare state lest over-generous stipends act as a disincentive to work.
Where they agree is on the social and political advantages of UBI. With automation set to gobble up more and more jobs, including those currently held by middle-class professionals, concerns are growing for the fall-out. The rise of the robots is likely to be swift and once-stable, well-salaried posts rendered obsolete in a short space of time.
Automation could do for middle-income graduates what deindustrialisation did for working-class communities in the 1970s and 1980s. UBI, it is argued, would keep families above the poverty line and provide a breathing space for those whose jobs disappear to gain a fresh degree, learn a new trade, or set up a business.
In these volatile times, UBI appeals to politicians alert to the dangers of social exclusion, economic despair and resentment towards the governing elite. This toxic brew has swirled since the global financial crisis and we can trace the ascendancy of populist movements such as Trumpism, Scottish independence and Jeremy Corbyn to the credit crunch and its ripple effects.
UBI would potentially have an empowering effect, allowing individuals to feel in control of their lives and circumstances rather than battered by global forces outwith their direction. If UBI supplies a financial leg-up and scratches an itch that could otherwise irritate citizens towards demagogues, isn’t it worth the admittedly hefty price tag?
Here we hit the biggest roadblock of all. It is not entirely clear that UBI actually works. Perverse though it may seem, it may even increase poverty among the most deprived and vulnerable.
The Joseph Rowntree Foundation, which specialises in poverty policy, argues that UBI might help some on the lower end of the income scale but would do nothing to improve the lot of those at the very bottom.
Researcher Chris Goulden writes: ‘Those wholly dependent on state support would be neither better nor worse off if a UBI were introduced at the level of the current safety net. Those with modest earnings would benefit most from having the new non-means-tested payment.
‘This is because any additional withdrawals in taxation from their income under UBI are likely to be lower than withdrawal of safety net benefits in the current system… Little or none of the large amount of additional money that would need to be raised through taxation would go to those who remain on the lowest incomes, because they are unable to work or cannot find jobs.’
The system, that is, would be unsustainable except in one counter-intuitive way – it would ‘increase poverty for children, working-age adults and pensioners compared to the current tax-benefit system’.
Poverty among children, Goulden notes, shoots up by more than 60 per cent under UBI models examined by researchers. As UBI betters the lot of those on lower and lower-middle incomes, these groups break free from the bulk of the poor, thus entrenching new terms of inequality.
The Royal Society of Arts, however, ventures that UBI, whatever its flaws, has the potential to recast the relationship between individuals and the state as one of parity and co-operation.
The RSA contends: ‘Basic Income is a system that has strong merits in principle and sufficient evidence to suggest merits in practice. This is why a Basic Income pilot in the UK at a city or city region level should be explored. At least then we would have a better idea of how it would work in practice. Basic Income would be an important component of a new citizen-state contract. This contract is one that would underpin securely the creative capacities of each individual.’
That is all well and good as a manifesto of lofty principles but what about cold, hard cash? Goulden highlights research from Compass, another Left-of-centre policy shop, which estimates the gross annual cost of a UK-wide UBI at £176.9billion-£209.5billion.
For context, the yearly NHS budget is £150billion. Parliament would have to raise such sums through rocketing income tax rises, a tax targeted at wealth, property or carbon costs – or by severely cutting expenditure in other areas. There is unlikely to be a great appetite for any of these courses.
A measure of European public opinion can be garnered from Switzerland, where voters rejected UBI by 77 per cent to 23 per cent in a 2016 referendum. The two themes of the anti-UBI campaign were the expense of setting up and maintaining the scheme over time and the principle of ‘something for nothing’, in which everyone, including the most apathetic and unmotivated, receives the same award. In the end, the Swiss could not bring themselves to endorse equal subsidy for unequal effort.
Were UBI to be implemented across Scotland, voters’ attitudes would likely echo those in Switzerland. Concepts such as the Protestant work ethic and the deserving poor may have fallen out of fashion among intellectuals but their influence still rattles around the national psyche.
In the land of Adam Smith, even the most idealistic among us know there is no such thing as ‘free money’ and the pretence to the contrary only risks worsening the situation of those with the least.
UBI’s appeal to the SNP was no doubt its air of Scandi-cool, that frisson of being European, specifically being Not British and therefore more humane and civilised. It is also universal and thus dodges difficult questions (initially, that is) about provision and priorities.
However, after Finland’s decision to scrap its programme, in addition to the findings from researchers, there ought to be a pause for reflection in St Andrew’s House.
If it is, as it often claims to be, an ‘evidence-led’ government, it will have to contend with evidence it doesn’t like. Any honest reading of that evidence would lead them to end Scotland’s nascent UBI experiment before it devours any more taxpayers’ money.
If not a basic income, then what? There are myriad proposals for alleviating poverty and narrowing the income gap but three stand out as the most transformative.
The first and most obvious is the traditional redistribution of the welfare state, shifting resources from high earners to those at the bottom of the scale in the form of benefit payments, housing support, and tax credits.
We know these transfers can help diminish poverty and narrow the gulf in income and wealth. But, while they will likely always have a role to play, these payments come with major drawbacks too.
They require higher taxes, a costly bureaucracy to administer and can foster a hostility towards those in receipt of support and a stigma that they are ‘scroungers’.
Politicians are cautious about raising income taxes for even the most deserving causes. Large majorities of us swear blind to pollsters we would be willing to pay more to HMRC so Mrs Smith next door can get her cataracts done faster, or communities blighted by drugs and poverty can be rescued from the mire. But when election time comes, the all-important swing voters opt for lower taxes and spending restraint.
Changing lives and breaking trends in the long run requires one of the most effective anti-poverty programmes of all: a rigorous education. The body of evidence in this regard is undeniable; those who leave school with good qualifications, and particularly those who go on to complete further education, enjoy markedly better employment opportunities, income security and health.
Here the Scottish Government could bring truly radical change by closing the attainment gap, raising standards in failing schools and restoring a properly funded grant system to help more deprived youngsters through university. The SNP’s record in each of these regards leaves a lot to be desired.
Nicola Sturgeon has often claimed education is her number one priority but action has seldom followed rhetoric. This is the nature of politics and somewhat understandable. The long, hard, unsexy slog of fixing schools and widening access is hardly the stuff of front-page headlines or lead stories on the evening news.
How much simpler it would be to pay people off and hope they go and sort their own problems out. Simpler, yes, but not terribly progressive. The bottom line is that any effort towards income inequality and poverty reduction must begin by recognising the centrality of education to those goals.
Finally, we come to the least loved, most often forgotten means of lifting people out of social and economic despair. Economic growth is seen by some on the Left as a tool of wealth generation solely for those at the top.
This misunderstands the importance of increasing the pool of resources for the creation of jobs and as a source of revenue to fund the very programmes they cherish.
If you want to alleviate poverty and fight inequality, you have to create the circumstances most likely to encourage growth, such as low business rates, reduced corporation tax, and income tax rates that fund services without punishing hard work and innovation.
UBI has everything going for it. It generates debate, offers quick-fix solutions to ingrained problems and carries that hint of utopian optimism that is appealing to many of us regardless of politics.
The only thing counting against UBI is the fairly important detail that it may not actually work.
Instead of throwing good money after bad, the Nationalists should accept that UBI – however Nordic and progressive it makes them feel – is not the answer to what ails Scotland. We already know some of the answers and it is there that our energies should be focused.
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Originally published in the Scottish Daily Mail. Contact Stephen at email@example.com.