Universal basic income – Pros and cons

universal-basic-income-pros-and-cons

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 …

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Should welfare benefits be increased to reduce inequality?

Readers Question: Should the government provide more welfare support programs such as child tax benefit and unemployment insurance in order to decrease economic inequality?

This is a classic dilemma that governments face. To simplify the argument.

  • Higher welfare benefits help to reduce inequality and reduce relative poverty. Higher benefits will give those on low income a better living standard and help contribute to a more cohesive society.

However, opponents argue that:

  • Increasing welfare benefits creates a disincentive to work. If welfare benefits are too generous, people may have a strong incentive to avoid work or work fewer hours. Furthermore, higher welfare payments increase the burden on the government requiring higher taxes and/or higher borrowing. Both taxes and borrowing place economic costs on society.

Both arguments have merits and setting the optimal level of benefits is not easy. It will partly depend on which you feel is more important – reducing inequality in society or limiting the role of government and creating incentives to maximise individual incentives to work.

Between each polarised view, most economists would probably agree on certain principles which will be helpful in setting the level of welfare benefits.

  • Guaranteeing a minimum income to avoid absolute poverty is desirable.
  • It is important children are not too adversely affected by the choices of their parents.
  • Welfare benefits should be designed so there is always some incentive to work rather than stay on benefits. Ideally, benefits would be temporary to help families through difficult times – not a permanent handout.
  • Welfare benefits should be deemed to be fair, easily accessible and available to all legitimate claimants.

Read moreShould welfare benefits be increased to reduce inequality?

Benefits and benefits in kind by income decile

The average UK household receives on average £6,045 a year in government benefits (2013/14) (ONS, average incomes table 14, June 2015) The main benefits are: State pension Tax credits Housing benefit Unemployment benefit Disability allowance / incapacity benefits Student support Child benefit See benefit spending UK The biggest benefit is the state pension, with the …

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The Growth of Welfare Spending in the UK

Welfare spending in the UK is a controversial topic. There is significant political and public concern at the growth of welfare spending in the past few decades. In particular, there is a fear that the growth of the welfare state is encouraging a ‘dependency culture’. But, how much has welfare spending actually increased by? Are we really a nation of scroungers or is the extent of welfare payments exaggerated? One important point to bear in mind is that in a recession, we expect welfare spending to increase. That is really the whole point of the welfare state – to provide a minimum income during a period of temporary unemployment.

Welfare spending includes benefits the government pay to those out of work or on low incomes. It includes:

  • Job seekers allowance – unemployment benefit
  • Income support
  • Housing benefit
  • Child Benefit
  • Winter fuel allowance (1)

Growth in Nominal Welfare Spending

welfare-spending-nominal

Since 2001, welfare spending has increased from £57bn t0 £115bn. However, the government are planning to stabilise welfare spending at £115bn through limiting entitlement and the increase in the amount paid. The government may argue without firm action now, the trend would see continued unaffordable increases in welfare.

Welfare Payments in Real Terms

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If we look at welfare payments in real terms (adjusted for inflation), we see the growth is less spectacular. Nevertheless, even adjusted for inflation, the welfare bill has increased by £34bn since 2001.

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Did Generous Welfare Payments Cause the Recession and Unemployment?

Casey B. Mulligan, from the University of Chicago suggests a theory for a major cause of the great recession and the rise in US unemployment post 2008. – Higher welfare payments.

..Redistribution, or subsidies and regulations intended to help the poor, unemployed, and financially distressed, have changed in many ways since the onset of the recent financial crisis. The unemployed, for instance, can collect benefits longer and can receive bonuses, health subsidies, and tax deductions, and millions more people have became eligible for food stamps.

Economist Casey B. Mulligan argues that while many of these changes were intended to help people endure economic events and boost the economy, they had the unintended consequence of deepening-if not causing-the recession.

The Redistribution Recession
– Oxford University Press

us unemployment
US Unemployment – was it caused by generous benefits?

There is also an article here at the NY Times (paywall): A Keynesian Blind Spot.

The decline of home construction is not the primary reason that our labor market remains depressed: Keynesian policies are

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