Why a basic income won’t work

Man dressed as a pizza box © Rex Features
Where’s his incentive with a universal income?

The Universal Basic Income is the latest radical idea to gain some currency among political campaigners, including within the Labour Party. Last weekend, there was a referendum on the issue in Switzerland (it lost). John McDonnell, the shadow chancellor, has given credence to the idea. So what is it? A fairly simple one. Every citizen would get a basic cash payment from the government every week or month. It wouldn’t be means-tested, and there wouldn’t be any requirement to do anything in return. It would be a fundamental right of citizenship.

It’s not hard to see the appeal. Welfare systems are often a mess, with a baffling maze of different benefits. A basic income, much like child benefit, strips all that away and replaces it with a single payment.

More pressingly, the advance of robotics means that we might be facing a new wave of joblessness as machines take over many more jobs. If there is no work, you might as well pay people anyway, and let the robots do everything. Likewise, People’s QE and helicopter money aim to stimulate an economy when interest rates are already close to zero – and might be better than doing nothing.

These ideas, however, are dangerous. They sever the connection between income and work. Indeed, it would hardly be surprising if the two ideas merged at some point – the easiest way of distributing helicopter money fairly would be through a basic income, since chucking notes out of choppers was only ever intended as a metaphor, and doesn’t sound either very practical or very fair.

In reality, there are two big problems. The first, and probably most important, is that it destroys incentives. Sure, if you are a well-paid lawyer or banker (or a columnist who loves his work, come to think of it), you might well carry on working even if you didn’t really need to. But the Tesco delivery driver? The office cleaner?

At the bottom end of the labour market, it will be a lot harder to persuade people to clock in every morning if they can simply collect a cheque every week for doing nothing. Likewise, if politicians have to raise some money from their voters in taxes every time they make a spending pledge then they will be a lot more careful with their promises.

In both cases, the need to pay for things, and to find the money to do so, is a necessary discipline. Take that away, and the incentives will be lost – and restoring them will prove hard. Next, it will destroy the price mechanism. If everyone gets an income for doing nothing, then how will we know where we want people to work, or in what industries? How will we know when people should switch from one business to another?

If money is distributed for free, or used to fund government spending, how will we know who should get it, or what the state should be lavishing resources on? Price is a good way of deciding those questions – without it, there will be a mess.

There are other objections. A universal income will be horrendously expensive, and implies a massive increase in taxes, even if it replaces other welfare benefits. Helicopter money is not in practice much different from government borrowing, and creates tricky questions of distribution – what happens to people without bank accounts, for example, who probably need it more than anyone?

Most importantly, there is a strand of fashionable economic thinking that seems to have forgotten the value of work – and likes to believe that money can simply be conjured out of nowhere. But that is just not true. All cash represents some work done by someone somewhere. It is fundamental to the economy.

The harder, and more efficiently people work, the better off we will all be. Whatever the challenges facing our economy, it is very hard to believe that destroying the incentives to work, or for the government to spend sensibly, will ever be the answer to any of them.