Will a Basic Income turn us all into entrepreneurs?

Posted on Jan 11th, 2016 | News and opinion

The Universal Basic Income: it’s an idea which can be traced back at least 500 years, but has its time finally come?

In essence the idea is that all citizens receive a regular income from Government to replace the complex set of tax credits, benefits and allowances which are currently in place. Also sometimes known as a Citizens Income, the idea is that the amount received would be sufficient for a basic quality of life. Proponents of a Basic Income argue that it would reduce poverty, increase the incentives to work and cut administrative costs. It would mean that the bulk of benefits would no longer be means tested nor linked to any previous contributions.

The idea came up in our recent discussions with Green Party MP Caroline Lucas.

A wide array of different approaches to a Basic Income have been proposed over the years. But perhaps one of the most credible and immediately possible proposals has recently emerged in a new report by the RSA.

In their report they show a fully costed way in which every UK citizen would receive several thousand pounds a year. The Basic Income would be paid as follows (on the basis of 2012-13 prices):

  • Basic Income of £3,692 for all qualifying citizens between 25 and 65
  • Pension of £7,420 for all qualifying citizens over 65
  • A Basic Income for children aged 0-4 of £4,290 for the first child, and £3,387 for other children aged 0-4. This is comparable to the benefits available to low-income households before the child begins school
  • There would be a reduction in the Basic Income for a third child or more, potentially to zero
  • A Basic Income of £2,925 for those aged 5-24 years-old

How would this be paid for? The report offers the following savings to meet the financial burden of paying everyone a Basic Income:

  • Ending Child Benefit and Child Tax Credits
  • Ending Working age benefits (Income Support, Jobseekers Allowance etc)
  • Ending Working Tax Credits
  • Administrative savings and Tax credits written off
  • Student grants and loans written off
  • Abolishing personal income tax allowances
  • Changing primary threshold & self-employed national insurance reliefs
  • State Retirement Pension, SERPS, S2P, Pension Credit, and MIG
  • Ending higher rate tax relief on pension contributions

The report very clearly says the amounts of Universal Basic Income offered excludes housing support, some elements of support for children and for disabilities. In other words the Basic Income wouldn’t be intended to cover your rent. Even so, there are a number of interesting thoughts which arise from the Basic Income approach.

Firstly it eliminates the perverse consequences of ‘tapers’ – which is when means-tested benefits are ‘tapered out’ as someone starts to earn more from work. While in theory well-intentioned, tapers in practice can leave someone losing 80% of what they earnt as benefit reductions and tax far outweigh new earned income. Particularly for a freelancer or sole trader with unpredictable earnings the Basic Income approach is far simpler and fairer. What you earn wouldn’t affect the Basic Income so you would have some firm financial support to depend on, no matter what your business is doing.

Another possible benefit of the Basic Income is that it might encourage more people to make the leap to running their own business. With the safety net of a Basic Income always there could more people decide to give their ideas a go?

Some trials done elsewhere, as cited by the RSA, such as in India and the USA show interesting hints of greater entrepreneurial activity but also slightly more time being spent at home with families by working parents. A trial in Canada showed improved health outcomes for trial participants.

All these trials had their flaws and are quite dated now. The only way to know for sure is to run an extensive trial of the Basic Income in a region for a period of several years. Several other countries plan trials in cities or regions over the coming years. The RSA’s detailed contribution to the debate makes such a trial in the UK far more likely in the near future.

A change towards the Basic Income would stand many of our current practices and political assumptions of the welfare state on their head. But given the huge changes in the world of work, with record number of self-employed and micro-businesses, perhaps the Universal Basic Income is an idea whose time has come.

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Written by Jason Kitcat

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