Posted by on June 8, 2021 2:45 pm
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Categories: Tax & Finance

by Tom Ryan

 

In May the first minister of Wales, Mark Drakeford announced that he is trialling a ‘Universal Basic Income’ (UBI) in Wales, a policy of direct and unconditional cash transfers. This fashionable policy has been tried around the world by governments and private organisations, but hasn’t much to show for it so far. Wales needs effective policy making that doesn’t waste taxpayers’ money, and Drakeford should reconsider before funneling money into a UBI idea that threatens to do more harm than good.

 

We don’t know exactly what shape the Welsh UBI will take yet, but existing proposals involve mind-boggling debt. A letter from 100 MPs to the Financial Times organised by Compass in 2020 recommended a payment of £50 per household per week, at a cost of £75 billion, which would grow to an eye-watering £172.6 billion if the payment was extended to every individual.

 

The Welsh public are not likely to benefit from this huge expenditure. In 2018, Chris Goulden, ex-Head of Poverty at the Joseph Rowntree Foundation, pointed out that replacing means-tested benefits with a universal cash transfer would not help the poorest in society. In fact, it would be a redistribution of money to those who are already living comfortably, and could therefore undermine funding for benefits that are targeted to those living in poverty. Modelling performed by the Compass group actually found that all of their proposed UBI schemes would increase poverty for working-age adults, pensioners and children compared to the current tax-benefit system. Wales is one of the poorest parts of the UK, and therefore a redistributive policy which ignores the level of need is likely to hit it hardest. 

 

UBI’s record abroad is also pretty uninspiring. If Drakeford’s promises were guided by evidence of its effectiveness from other countries, there’s no reason he would choose this policy. In Finland from 2017 to 2018, the government gave 2,000 unemployed individuals unconditional monthly payments. Advocates celebrate improvements in self-reported measures like life satisfaction, but even they admit that its impact on more concrete metrics like employment was weak. 

 

Perhaps Drakeford knows that UBI isn’t the most effective option and he has a more lofty goal. What if the Welsh government is filled with the spirit of inquiry, and wants to prove that UBI works? 

 

If that’s the case, the job is already being done by philanthropists, private companies, and crowdfunders everywhere. Groups ranging from the charity GiveDirectly, to the start-up ‘seed accelerator’ Y Combinator, to oil-rich governments abroad are funnelling countless millions into direct cash transfers. In 2020, a single Japanese billionaire dedicated $9 million to what he called a “serious social experiment” into UBI. It’s a wonder, then, that anybody can justify spending taxpayers’ money on this project at a time of huge national debt. In the last year alone, the UK government lost £8.4 billion to benefits fraud, so we need to be more careful with every pound of public money that’s being spent. 

 

Most importantly, it could be an experiment with no meaningful result. UBI has already been trialled around the world, but attempts to show the value of the policy have proved inconclusive. Finland’s government experiment failed on a number of accounts, such as not including enough people in the trial, and forcing recipients to give up other benefits. The Welsh trial is aimed specifically at care leavers, and therefore risks similar problems.

 

If Drakeford’s UBI does survive the trial stage, another danger looms. Compass, the Labour pressure group which organised the Financial Times letter, acknowledged in their own report that replacing all existing benefits with a UBI is an unrealistic goal. The policy is theoretically meant to replace large parts of our bynzantine benefits bureaucracy, but in practice we could end up with another set of sclerotic institutions stacked on top. That’s exactly why even those who would usually be sympathetic to a ‘negative income tax’ should be sceptical.

 

It is difficult to see why the Welsh government thinks now is a good time for this trial. We are already throwing money down the drain on ineffective universal policies like the Winter Fuel Payment and the pensions triple lock, which unfairly redistribute cash from the young to the old. Piling another indiscriminate payment on top is not going to help. The financial year ending March 2021 is the highest borrowing year since records began in 1946, so the UK and devolved governments should strive more than ever to spend wisely and effectively. Flattening housing benefit rates and simplifying child benefit would be a start, reducing the complexity of the system and ensuring that payments are realistic and proportionate – everything a Universal Basic Income is not.

 


Tom Ryan is a researcher at the TaxPayers’ Alliance, London.