The universal basic income

The Swiss will shortly vote on whether to introduce a basic income – a sum paid by the state to every citizen. Could the idea take off, and would it work? Simon Wilson investigates.

The Swiss will shortly vote on whether to introduce a basic income a sum paid by the state to every citizen. Could the idea take off - and would it work? Simon Wilson investigates.

What's happening?

The referendum-loving Swiss have just rejected the "1:12 initiative" to cap executive pay. But they will soon get to vote on another bold idea: a universal, unconditional basic income to be paid by the state to every citizen in place of existing welfare arrangements.

The idea of a "basic income" (or "citizen's income") can be spotted in Thomas More's Utopia (1516) and it surfaces again during the French Revolutionary era, perhaps best articulated by Thomas Paine.

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"The earth in its natural uncultivated state," wrote Paine, "is the common property of the human race." Since private land ownership necessarily deprives others of their "natural inheritance", those others must be compensated in the form of a permanent grant.

(In this sense, a basic income could it might be argued best be combined with that old MoneyWeek favourite, a land-value tax.)

Who is in favour?

The idea of a basic income one flat, universal payment in place of welfare has drawn support not just from the left (the only UK party in favour are the Greens), but also from the libertarian right.One aim of a basic income is to tackle poverty and promote social equality.

Paul Krugman has argued in The New York Times that the financial crisis, along with technological change, has proved such a tipping point in capitalism handing all the power and resources to capital that the only way to rebalance in favour of labour is via a basic income.

The campaigners behind the Swiss move have set their proposed basic income at such a high level 2,500 Swiss francs a month (£1,700) that it's unlikely to be approved; most campaigners would settle for much less than that.

And on the right?

However, the basic income is also about efficiencies and individual freedoms wiping away complex welfare systems and removing perverse disincentives to work and save. Much like Iain Duncan Smith's universal flat-rate state pension, it's simpler, and cheaper for the state in the long run.

Milton Friedman was a proponent (in the form of a negative income tax); Charles Murray, the new right political scientist, advocates a basic income of $10,000; and Sam Bowman of the Adam Smith Institute this week penned a blog arguing for a basic income as "the least paternalistic welfare system possible" (he backed a non-universal basic income that uses a tapering system to avoid giving state money to the better-off).

"Ditching most of the DWP, creating a welfare system that never discourages work, and letting people live their lives as they choose? Now that's a welfare system I could get behind."

But why would people still work?

For the same reasons they do now to earn a decent living and for all kinds of incentives to do with self-respect, socialisation and identity. In today's welfare state, with its bewildering plethora of benefits, allowances, credits and supplements, the vast majority of working-age adults (except mothers of young children) still choose to seek paid employment. However, many find themselves with a huge disincentive to look for work, since they immediately lose benefits.

According to academic Guy Standing, this disincentive is equivalent to a crushing marginal tax rate of 80%. Even under Duncan Smith's "universal benefit" reforms, the theoretical rate remains at 65%. A basic income system, however, removes the "benefits" trap that creates a disincentive for finding work and entrenches dependency.

So it wouldn't foster a nation of scroungers, but the opposite a nation of strivers encouraged to take risks and work more flexibly, thanks to the guaranteed safety net.

Moreover, argue proponents, a basic income is fairer to all because the wealthy, who have contributed most, now get something back.

This is all just pie in the sky, isn't it?

A universal basic income is not going to make it onto the statute book soon. But the idea of using state money to provide systematic help for the worst-off would have seemed outlandish before the Poor Law of 1601.

And before 1799, when Pitt the Younger implemented a radical new tax on incomes (starting at 2d in the pound, or a bit less than 1%, on incomes over £60), the idea of taxing earnings would have struck many as outrageous.

The American political scientist James Overton once analysed the process by which ideas that once seemed heretical or bizarre (outside the "Overton Window") can shift towards the mainstream.

In six phases, he argued, an idea moves from being unthinkable to radical to acceptable to sensible to popular before, finally, becoming policy.

If, as The Spectator's Alex Massie argued in a blog this week, the idea of Scottish independence is currently nudging along from acceptable to sensible, then the idea of a basic income is probably still hovering around the radical mark. Does this mean it could never happen? Let's ask the Swiss.

Has the idea ever been implemented?

According to the international network BIEN, which campaigns on the issue, the only place that has ever introduced a proper basic income is Alaska, where a 1976 referendum created the Alaska Permanent Fund, which uses the state's oil wealth to pay a yearly (variable) dividend to every resident of around $1,000 in a bad year and $3,000 in a really good one.

Elsewhere, Brazil has passed a law mandating a basic income, but progress in implementing it has been poor. Iran and Namibia both have pilot projects and the idea has significant political support in South Africa. In India, two separate regions are running trials.

Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.   

Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.