The Universal Credit is in Crisis. Labour Should Commit to a Universal Basic Income Now

When the Coalition government came to power, Iain Duncan Smith unveiled the Universal Credit (UC), a new benefits system meant to combine unemployment, low-income and housing benefits into a monthly payment, as the government’s big idea to restore fairness to the welfare state.

But as UC has rolled out across the country, its impact has proved disastrous. Housing authorities describe its inefficiency as only worsening hardship for claimants, with delayed payments leaving them with rent arrears and at risk of homelessness.

The system UC is replacing no less appalling: the horror stories about benefits being docked by the DWP for various ridiculous reasons are the stuff of nightmares, driving the demand for emergency aid from food banks.

Although Labour would scrap UC, its substitute is to increase pre-existing benefits. Jeremy Corbyn won his Labour leadership landslide in 2015 by promising to build a fairer and more caring society. No doubt this contributed to Labour’s general election performance. Yet it has no alternative big idea to rival UC: even if it rolls back harsh Tory policies, Labour cannot assume that tinkering around the edges will pave over the gaps in the monolithic bureaucracy.

There has to be a better way and the solution might lie within an extremely simple but groundbreaking idea: that every adult, regardless of their financial or employment status, should be automatically entitled to a guaranteed minimum income from the state - Universal Basic Income (UBI).

UBI would fund itself by stimulating growth and tax revenues

As UBI is such an unorthodox proposal, it has unsurprisingly been met with scepticism. Switzerland held a referendum in 2016 on introducing UBI that saw a large majority vote against it.

However, trials have shown promising results. A government-run basic income scheme in Finland has seen claimants being motivated to work and start their own small businesses.

As an egalitarian policy, UBI is easily associated with the left, but it has its supporters elsewhere on the political spectrum.

Libertarian economist Milton Friedman called for a negative income tax that would distribute a basic income to the poorest households. He theorised it would end the “welfare trap” of benefits outstripping wages and slash administration costs.

According to polling by YouGov, nearly fifty percent of voters are open to the UK adopting some sort of UBI, so it has serious prospects. Shadow Chancellor John McDonnell suggests his party should consider it.

Inevitably, there will be questions about the cost of UBI, a dilemma for Labour accused of crashing the economy by the Tories.  

A useful model is the Green Party’s proposed UBI, based on a scheme designed by LSE professor Malcolm Torry and chartered accountant Mark Wadsworth. It would pay £80 per week while retaining child benefit and disability support, saving the government money by streamlining the welfare state.

The respected Roosevelt Institute has suggested UBI would fund itself by stimulating growth and tax revenues. Far from discouraging work, UBI’s security could help to narrow Britain’s growing productivity gap and improve living standards diminishing under Brexit.

A more relevant question is not whether UBI is affordable, but whether the current welfare state is even sustainable in a digital age Britain that faces huge economic challenges.

The rise of self-employment and the “gig economy” reflects rising job insecurity. Unemployment is at a forty year low yet wage growth is sluggish. Benefits paid via means-testing exceed those funded by in-work National Insurance contributions.

Such an imbalance is a consequence not just of inequality or cruel policy choices, but automation as technology rapidly advances. Where will the taxes for social support come from as these trends continue?

freedom from want is fundamental human right

Though budget cuts play a role in the NHS and social care crisis, our increasing lifespans are the bigger long-term issue. UBI would not only reward voluntary work but make it easier for the elderly to be cared for at home.

Labour would raise the top rate of Carer’s Allowance to £73 per week, but this is still a paltry compensation for dedicated carers. UBI, in addition to Carer’s Allowance would properly support them, encouraging more people to become carers and reducing pressure on hospitals and care homes.

UBI would also help to manage the national mental health crisis. It doesn’t take a psychiatrist to figure out that financial deprivation leads to anxiety and depression. For young people it causes lasting trauma.

To tackle inequality Labour has called for a real living wage, a ban on zero-hour contracts, a cap on rents and building of decent social housing. But it can be much bolder.

As President Franklin Roosevelt said in 1941, freedom from want is fundamental human right, and guided by this principle Labour founded the post-war welfare state. An embrace of UBI would embody the same spirit.

In the US, both Hillary Clinton and Bernie Sanders have spoken favourably of UBI. The Democrats could also rally behind it.

Assuming UBI would encourage idleness is a cynical presumption. Instead, it would liberate people from economic restrictions and allow them to find their social purpose, a desire innate to us all. UBI would not just be of economic benefit but also transformative in the cultural, educational and scientific spheres.

Opponents of UBI will call it utopian idealism. But the economic factors in its favour signal that there may be no responsible alternative.

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