My last article discussed the explanations offered by Kate Raworth and Kate Pickett for the profound unhappiness of our society. Its root is inequality. We have the resources to enable everyone to have a decent standard of living in a stable and sustainable economy.
Our ‘trickle-down’ economic model assumes that constant growth will drag everyone into a decent standard of living without changing the share held by the richest. But as Raworth points out, trickle down has visibly failed to achieve that. Some of us are now consuming resources well beyond the limits of sustainability, while others have seen their lives stagnate. The result is historically high levels of inequality, unmanageable budgets, declining public health, widespread anger and dangerous political instability.
So, at the end of her book The good society and how we make it, Pickett proposes two policies which could radically reduce inequality, and its costs to individuals and society: universal basic income (UBI), and wealth taxation. Here I consider the first.
The benefits
For many years, some radical economists have proposed a universal basic income (UBI) as a way of reducing inequality. They believe that if the state were to pay a modest, guaranteed and unconditional income to all living residents, it would, at a stroke, alleviate the most extreme poverty and guarantee a level of basic security that many lack at present.
By reducing stress, especially for the poorest, it would eliminate much ill health, crime and violence. It would provide some relief to those who currently struggle to balance paid work with unpaid caring responsibilities for children, elderly or disabled people. It would free up the economy by reducing the risk of changing jobs, starting a new business or embarking on training. It would enable people to refuse (and thus eliminate) unproductive and poor quality work.
Because poorer people spend more of their money locally on food and housing, it would stimulate those economies, generating local employment opportunities and more visibly healthy communities in some of the poorest places.
And UBI is popular as an idea across society. Researchers have found 69% of people supporting the idea, with support from more than half of Conservative voters and 75% of Labour ones.
Some people fear that UBI would discourage people from working. But there is no evidence of this from existing schemes. For working-age people, the UBI rate would not guarantee a comfortable lifestyle and almost everyone would want the extra income and the dignity of being seen as a contributing member of society.
A possible model
Pickett proposes a model developed by Landman Economics with academics from three universities. All adults under 65 would receive £75 a week, with £50 for every child, and £205 for all those over 65. Although this is hardly generous, the modelling suggests that this could halve child and pensioner poverty, and cut working age poverty by 75%. We would have the lowest level of income inequality in the world.
Economic modelling by the Landman team shows that by reorganising taxation and abolishing some current state funding streams, this can be achieved with minimal impact on most people. That is because we currently have a series of measures which primarily benefit the better off. If these are abolished, the money can be distributed more fairly across the whole population. For example, the income tax allowance is effectively a government subsidy to the 60% of people who earn above the threshold, and it costs the Exchequer around £91b a year. If that sum was distributed equally to everyone, it would alone make a major difference to the poorest – low earners, and people with no earnings.
So, their scheme would redistribute the money currently spent on personal allowances for Income Tax and National Insurance, the state pension and child benefit. National Insurance would be equalised for the employed and self-employed. And 3p would be added to all income tax bands.
The chart shows how incomes would change for people across each income decile (a decile is a tenth of the population, with decile 1 the poorest 10%). There would be a dramatic improvement for the poorest. The richest 30% would see some loss, but even the richest 10% would lose only 7% of very large incomes.
And, over time, there would be additional savings in public expenditure, not included in the calculations. A separate study of the health benefits suggests that it might prevent 124,000 cases of depression and 118,000 physical health problems, which would save the NHS over £3bn a year.
This is not entirely new
We already have something like this. The basic state pension is an unconditional guaranteed payment to everyone over the age limit regardless of circumstances. Child Benefit is another example. And during Covid-19 we accepted the idea that the state could underwrite the incomes of nearly 12m people.
Around the world there are some established UBI schemes, and there have been small scale experiments in many more places. In the UK there is currently one for young care leavers in Wales to help them to manage the stresses of early adult life.
A different future
Pickett has shown the scale of damage caused to individuals and to the wider community by our present levels of inequality. By reconfiguring existing benefits and taxes it would be possible to pay a very modest Universal Basic Income to everyone and, on its own, this would have a major impact on inequality. In time there would also be major additional savings for the NHS, the justice system and social care.
And Kate Pickett also proposes a wealth tax on the extremely rich, as I discuss in my next article. That might enable us to provide a level of UBI to reach a more generous minimum living income level. That would really be a radical transformation of society.
This still sounds like a pipe dream to many people. But remember, people once said that about a national health service free at the point of use. Sometimes, what we need is the imagination and the will.
In a deeply anxious and divided society, people want security and hope, and UBI would be one way to provide both to the poorest, without a major shift in the circumstances of the rest. Perhaps it is time for radical ideas?
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