What is universal basic income?
Universal basic income (UBI) is a system in which every adult receives a set amount of money on a regular basis. This payment is unconditional, meaning it does not depend on the recipient's income, employment status, or any other criterion.
In essence, UBI is a sum of money paid by the government:
Universal – to everyone
Basic – to cover everyday expenses
Income – regularly, for people to spend how they wish.
UBI has been an interesting and controversial topic of conversation over the past few years, with various trials and studies conducted to evaluate its potential impact. While we may be a long way off from this being considered in reality, let’s look at some of the pros and cons of introducing this in the UK.
Pros of universal basic income
Reduce poverty
One of the main arguments in favour of UBI is its potential to reduce poverty and economic inequality. A 2022 study by the University of York found that a UBI model could cut poverty by more than half, bringing it to its lowest level in 60 years without any net cost to public finances. This would be achieved through tax adjustments and guaranteed weekly payments, providing a stable income for everyone. This stability could lead to a more robust economy, increased consumer spending, more job opportunities, and a healthier market overall.
Increased consumer spending
With more disposable income, people would likely spend more, stimulating demand for goods and services and benefiting businesses across various sectors. This increased spending could also lead to higher tax revenues, which could be reinvested into public services and infrastructure.
Empowering workers
UBI would offer a safety net, reducing the pressure on individuals to accept low-paying or precarious jobs. This could lead to higher job satisfaction and productivity, as people would be more likely to pursue jobs that align with their interests.
Improve workplace conditions
It would also encourage businesses to enhance their working conditions by shifting the power dynamic to the employees. With a guaranteed income, workers would no longer be compelled to stay in jobs solely for financial reasons, allowing them the freedom to leave roles with poor working conditions.
This shift in bargaining power would encourage employers to enhance job quality, offer higher wages, and create more supportive work environments to attract and retain employees. Consequently, businesses might need to implement more employee-focused policies, such as flexible working, improved benefits, and a stronger emphasis on work-life balance, to stay competitive in the labour market.
Innovation and entrepreneurship
Many people hesitate to start their own businesses due to fear of failure and financial risks. However, UBI could provide the financial stability needed to encourage entrepreneurship and innovation, potentially resulting in economic growth for the country. This could lead to the creation of new industries and job opportunities, further boosting the economy.
Foster education and societal benefits
Having a steady income would encourage more individuals to pursue further education and training, culminating in a more educated and skilled population. This increase in educational attainment can have numerous positive effects on society, including:
Higher civic engagement: an educated population is more likely to participate in civic activities such as voting, volunteering, and community involvement, fostering a stronger democratic process and community cohesion.
Enhanced critical thinking and creativity: education cultivates critical thinking and creativity, which are essential for technological innovation and economic growth.
Reduction in poverty and inequality: education is a powerful tool for breaking the cycle of poverty. By providing individuals with the skills and knowledge needed to secure better-paying jobs, UBI can help reduce income inequality and improve overall economic stability.
Improved public health: educated individuals are more likely to make informed health choices, meaning lower rates of chronic diseases and improved overall public health.
Cons of universal basic income
High cost
Implementing UBI would be extremely expensive, requiring significant tax increases and reallocation of public spending. While it's challenging to estimate the exact cost, one analysis projected a gross cost of £472 billion – which includes the UBI payments themselves as well as the cost of integrating it into the existing tax and benefits system. Therefore, many critics argue that for this reason, UBI is not sustainable or even feasible.
Decreased motivation to work
Critics argue that UBI could reduce people's incentives to work, prompting higher unemployment rates. They fear that with a guaranteed income, people might choose to work fewer hours or not at all. If this were the case, higher unemployment rates could negatively impact economic growth due to less taxable income.
Those who do continue working while receiving UBI might be less motivated to perform at their best. With their basic financial needs met by UBI, the urgency to excel and advance in their careers could diminish and we could see reduced effort and productivity.
Challenges for low-wage industries
Industries relying on low-wage labour might face increased wage demands, as workers with a financial safety net might be less willing to accept low-paying jobs. This could cause higher operational costs and potentially drive businesses to automate more processes.
Inflation
Increased disposable income could generate higher spending, driving up demand and prices, resulting in inflation. This could erode the purchasing power of the UBI payments, potentially negating some of the benefits.
Potential inequality
While UBI aims to reduce poverty and inequality, some argue that providing the same payment to everyone wouldn't solve inequality but merely shift the goalposts. Critics suggest that a more targeted approach might be necessary to address the specific needs of different groups within society.
The debate around UBI is far from settled, and its implementation would require careful consideration and robust policy design. As we move forward, it's important to engage in thoughtful discussions, consider diverse perspectives, and explore pilot programmes to better understand UBI's real-world impacts.
Ultimately, the question remains: can UBI be the transformative solution we need to fix the unstable labour market, or will it prove too costly and complex?
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