An impactful and affordable universal basic income scheme is within reach

As the cost-of-living crisis bites, Labour needs long-term structural answers to growing inequality. Basic income provides such an answer, and new figures published this week show it is both affordable and impactful. Furthermore, Labour politicians around the country, such as Manchester’s Andy Burnham and Mark Drakeford in Wales, have become strong advocates for basic income. There are moments in Labour’s history when taking bold decisions, like establishing the NHS and the welfare state, speak to the urgency of the nation’s needs. Basic income could be Labour’s big idea.

Britain is suffering a deep-seated crisis of poverty. The child poverty rate has more than doubled in the last four decades.  Nearly a third of children are being brought up in families unable to afford a minimum acceptable living standard. The spread of impoverishment is the direct outcome of a 40-year long, largely state-imposed experiment in inequality. Britain now stands at second place in the inequality league table among rich nations. Far from the economic pay-off promised by its pro-small-state, free-market architects, the widening of income, wealth and opportunity gaps has left a trail of economic turbulence and sinking community resilience. The result: a reversal of the social gains of the post-war period, with falling rates of life expectancy among the most deprived communities and a rising gap between the electoral turnout of the richest and poorest groups.

The state’s strategy of inequality has been driven by a process of levelling up at the top (with an explosion in personal wealth among a small super-rich class) and by levelling down at the bottom (via the upward extraction of existing wealth and a weakening of the welfare and benefit system). Tackling poverty and inequality requires new pro-equality instruments that raise the income floor and lower the ceiling. This is not just a social imperative – it is also necessary to strengthen the economy. The evidence is overwhelming that excessive levels of inequality bring greater turbulence and slower growth.

2022 is the 80th anniversary of the Beveridge Report on the future of social security, yet Britain is living through a sustained crisis of living standards at the bottom. So what is the best way to tackle this crisis? One increasingly debated idea – a universal basic income (UBI) – remains controversial but has the power to deliver a significant reduction in poverty and inequality while boosting social resilience.

A new report, Tackling Poverty: The power of universal basic income, published by the think-tank Compass, shows that even a modest scheme would cut child poverty by nearly 60% and pensioner poverty by 7.7%, taking both to historic lows – below the low points achieved in the decade of peak equality, the late 1970s. The scheme would bring a sharp fall in the level of income inequality and lift the living standards and life choices of millions of people.

Such a model answers the central practical criticism of a universal basic income – that the payment levels would be either too small to make much difference or too generous to be affordable. The proposed UBI would provide a guaranteed, no questions asked, weekly payment of £41 per child and £63 per adult of working age – an income of nearly £11,000 a year for a family of four. It would be paid for by a series of tax adjustments also geared to making the tax system more progressive. These include converting part of the personal tax allowance into a flat rate payment and a rise in existing tax rates of 3p in the pound. These changes would ensure fiscal neutrality, involving no net increase in taxation; the cost of the extra payments would be exactly offset by the extra revenue from internal tax changes. It therefore comes with no net cost to the Treasury.

This model would restore the redistributive power of the overall tax and benefit system, one that has been greatly weakened in recent decades. It would also bring a number of additional, medium-term social gains. By providing an income guarantee, these weekly payments would tackle one of the most intractable problems of recent times – the growth of insecurity. By tackling one of the root causes of the rise in ill health, especially mental health, the scheme would have a significantly beneficial social impact.

A carefully constructed UBI scheme would be a powerful anti-poverty and pro-equality instrument, creating the foundations for a more equal and secure society. If such a scheme had been in place at the time, it could have been used to protect society from a number of recent crises such as the 2008 financial crash and the Covid pandemic. It would more than halve current poverty rates, beating the peak equality levels of the 1970s.

To date, the political response to widespread impoverishment has been one of inertia. Tackling the problem, it is claimed, would be too complex and too expensive. This report shows that a basic income is within reach, would be affordable and feasible and would be a clear route to building a better post-Covid society. By delivering record low levels of poverty at no extra burden on the nation’s finances, this UBI model makes transformative change a political decision not an economic one. It is a decision Labour must now consider.