A citizen’s income, basic wage or Universal basic Income (UBI) is a concept of paying everyone in society a universal benefit – regardless of income and circumstances.
The main advantage is that ensures a minimum standard of income for everyone – without any costs and bureaucracy of means-tested benefits. Also, it avoids the disincentive to work that can occur with means-tested benefits.
The disadvantage is that is an expensive undertaking to pay everyone in society a universal benefit and there is a concern it may encourage some to live on benefits without contributing anything useful to society.
A ‘citizen’s income’ or universal basic income would primarily be paid for out of general taxation, though in some models it could involve redistributing profits from publicly owned industries.
Advantages of citizen’s income
- Means-tested benefits are becoming increasingly complex and cumbersome. There are costs – both financial and time – for people to apply and receive benefits. Efficiency savings from abolishing the bureaucracy behind means-tested benefits would enable more to be spent on actual benefits.
- Increasingly flexible labour markets make conventional benefits more limited. Modern labour markets have seen a rise in self-employment, flexible hours and zero-hour contracts. This means that people can end up receiving very low income in certain months, but not be eligible for any work-related or unemployment benefits because they are not classed as unemployed or normal employment.
- Incentives to work. A problem with conventional means-tested benefits is that it can create a disincentive to work longer hours or get a better-paid job because the marginal gain in income is relatively low (high marginal tax rate). This is a form of the poverty trap. A citizen’s income ensures any extra income from work is kept and not lost through withdrawn means-tested benefits.
- Prevents people from slipping through gaps. The increasingly complex benefits system requires people to know what benefits they are entitled to and how to apply. There may be time delays in receiving benefits. Some people may become homeless because of delays in receiving benefits. A universal citizens’ income will prevent these gaps and help to reduce temporary cash flow crisis which could have adverse long-term effects.
- Supports people who fulfil socially beneficial tasks. A universal citizens income would offer support to mothers bring up children or people acting as care assistants.
- Health benefits. A universal basic income could have a positive impact on reducing medical costs associated with types of poverty and homelessness, e.g. high blood pressure, type II diabetes.
- Supports entrepreneurship. Somebody who wishes to work on new business ideas could use a citizen’s income to support their initiative. Conventional benefits would not be given to people working on self-employment startups. Alternatively, it may give people more time to find the most suitable long-term job – rather than rushing into the first job which comes along. This could increase the long-term efficiency of the labour market.
- Reduces need for the governments controversial current tests and sanctions related to evidence of work-search activity.
Arguments against Universal income
- Money for nothing. The concern about a citizens income is that people will get money without doing anything. It may encourage people to be lazy and live off benefits.
- Disincentive to work. Some fear that if universal income is given, some will work less. Studies are mixed, but one study from Canada found that as universal credit is relatively low, the main groups who worked less were young mothers and teenagers in education.
- Less flexible labour markets. The universal credit may mean part-time workers, such as working mothers and students don’t need to supplement income by working part-time, reducing the flow of temporary part-time workers. Others argue this is not a problem as we should try to avoid a part-time, zero-hour contract labour market.
- Cost. The cost of a universal basic income will have to be met through higher taxes. A universal income will mean some benefits can be cut (e.g. unemployment and income support) But, now everyone will gain basic income – regardless of whether they are poor. This will lead to higher taxes to be able to pay for the benefits. The problem with higher income taxes is that it could lead to disincentives to work.
Example – Citizen’s Income Trust
Under the proposals of Citizen’s Trust income, benefits should be distributed according to age.
0-24 year olds would receive £56.25 per week, 25-64 year olds would receive £71 per week and those 65 and over would receive £142.70 per week.
The citizen’s income would replace all benefits except disability and housing benefit. The total cost for 2012/13 would be £276n – close to the existing annual welfare budget.
It would replace child benefit, income support, JSA, NI and state pensions. It also estimates savings of £10bn from administration of pensions and tax credits.
- Finland. Finland’s government is planning to give every one of its citizens a basic income of 800 Euros (£576) tax free and abolish benefits altogether.
- Netherlands – Utrecht and 19 other cities in the Netherlands are trialling a basic income.
- Brazil – Bolsa Familia
The interesting thing about a citizen’s income is that it gains support from both the left and right. The left supports its aim to create a more egalitarian society. There is support from the right who dislike the disincentives and bureaucracy of means tested benefits.
From a personal view, I like it because my lodger is on a zero-hour contract – he often doesn’t have money to pay rent, but he is not eligible for any benefits. A citizen’s income would be good to provide a minimum income guarantee.
- Universal credit – how it works
- The growing size of the welfare state in the UK
- Policies to reduce relative poverty