Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
An account already exists for this email address, please log in.
Finland’s basic-income experiment
Free money for all might sound a crackpot idea, but it is taken seriously by many. Now Finland is going to give it a try, says Simon Wilson.
Free money for all it might sound a crackpot idea, but it is taken seriously by many on the left and right of the political spectrum. Now Finland is going to give it a try, says Simon Wilson.
What's happened with basic income?
Finland is considering becoming the first country to sweep away its entire welfare system of benefits and credits, replacing it with a universal "basic income" ie, a single regular payment, given to every citizen regardless of need. It's early days, and (contrary to a rash of media coverage this week) the change won't happen anytime soon. But the idea has the backing of the prime minister, Juha Sipil, who was elected in May, as well as most Finns, according to polls. Sipil has given Finland's Social Insurance Institution (Kela) a year to study previous basic income experiments around the world and come up with proposals, which will be trialled nationwide, beginning in 2017.
What's their thinking?
Proponents of a universal basic income (sometimes called the "citizen's income") believe the system could tackle poverty and promote equality, while also creating a simpler, more efficient system. A universal basic income might mean a few people who are happy to live very thriftily indeed decide not to work. But in reality people work for many reasons beyond money alone (including things such as self-respect, socialisation and identity). And in any event, a basic income provides massive incentives to work.
Start your trial of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Because it makes all work pay by abolishing the classic trap of all means-tested benefits. Under a universal income, there are no perverse disincentives that give people an excuse to stay at home in the face of an effective marginal tax rate of 80%. Given that one of the main challenges of the age appears to be in-work poverty, rather than mass unemployment, a basic income system could play a significant role especially in an age of disruptive technologies that make working lives less and less secure. Nor is there any disincentive to prudent long-term saving no one has their benefits stopped for having too much in the bank.
Well, yes in fact, the notion of a basic income can first be spotted in Thomas More's Utopia (1516) and resurfaces again in the French Revolutionary era in the form of Thomas Paine's 1797 demand for a universal permanent grant. The idea, in Paine's case, is that such a grant would compensate the bulk of humanity for the rise of private land ownership, which deprives all others of their "natural inheritance".
His idea was to pay citizens the equivalent of around $2,000 in today's money (at the time, around half the annual income of a labourer) on their 21st birthday, to help avoid creating "invidious distinctions" between rich and poor. More recent proponents include John Stuart Mill and Martin Luther King. But one really interesting thing about the basic income is that it doesn't just appeal to those who might broadly be characterised as left-liberals, but also to rightwingers and libertarians.
Such as?
Such as the economists Friedrich Hayek and Milton Friedman (in the form of a negative income tax) and the New Right/libertarian US political scientist Charles Murray, who favoured a payment of $10,000 a year to all Americans over the age of 21. Hayek, famously Margaret Thatcher's favourite economist, liked the idea on grounds of preserving social solidarity in complex modern societies writing (in 1973's Law, Legislation and Liberty) that the guaranteed minimum income was a "wholly legitimate", indeed "necessary part of the Great Society in which the individual no longer has specific claims on the members of the particular small group into which he was born".
In general, though, conservatives and libertarians argue for a basic income on the grounds of efficiency, simplicity and individual liberties. Sure, it means giving hand-outs to the wealthy as well as the poor but it merely gives them back a fraction of what they have paid in.
How would the sums stack up?
Clearly, it depends on the size of the payment. In the case of the Finns, their working assumption of €800 a month looks far too generous: when multiplied by five million Finnish adults it comes to €48bn a year. Total government revenues in 2016 are forecast to be just €49.1bn, leaving only a billion for all other spending. Most proposals for basic incomes are more modest.
In the UK, the Citizen's Income Trust has calculated that if we gave £56 a week to people aged under 24, £71 a week to those aged between 25 and 65, and £142 to the over-65s, it would cost £276bn. Means-tested benefits could be abolished to the value of £272bn. Add in savings on administration costs and benefit fraud (a universal flat rate payment makes it almost impossible to cheat the system) and you are firmly in the black in theory. In practice? The Finns might just help us find out.
Has it been tried elsewhere?
Small-scale basic income experiments in countries includingCanada and Uganda suggest the Finns might be on tosomething, says David Charter in The Times. Closer to home,a bold experiment is due to start in January in the Dutch cityof Utrecht. A group of people currently receiving benefitswill get around €900 each, or €1,300 for a family, per month.At
least 50 will continue to receive the unconditional basicincome even if they get jobs. Switzerland is another countrywhere the idea is part of the policy debate; the Swiss aredue to hold a referendum on a basic income next autumn,having rejected the idea previously. And in Ireland, the mainopposition party, Fianna Fil, is planning to include a versionof the basic income in its manifesto for next year's election.
Sign up for MoneyWeek's newsletters
Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
