IPR Policy Brief: Assessing the Case for a Universal Basic Income in the UK

Luke Martinelli

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In recent years, universal basic income (UBI) has moved from the fringes of academic debate to being mooted in mainstream forums as a serious policy proposal. This report addresses the idea’s remarkable rise, exploring why it has occurred; takes an objective look at the core issues relating to UBI’s desirability, surveying the existing theoretical and empirical literature on UBI’s likely effects; assesses its feasibility as a realistic proposal in the UK; and considers various options regarding policy design and implementation strategies. Our approach is to review existing literature and secondary data in combination with our own microsimulation work at the IPR (Martinelli, 2017a; 2017b).
The report is structured as follows. Chapter 1 opens by defining UBI and summarising the theoretical and normative arguments made in favour of the policy. The second section of Chapter 1 provides an introduction to UBI as a family of proposals and identifies some closely related policies to UBI. The third section provides an overview of key contemporary debates, and examines the nature of the evidence on which UBI proponents and critics draw to support their arguments. In doing so we propose that our microsimulation work makes some important contributions to policy debates around basic income, in light of the absence of direct ex ante empirical evidence.
In Chapter 2, we examine recent developments which suggest that UBI has risen up the policy agenda, and seek to understand why it has recently gained prominence. The first section of Chapter 2 provides an overview of the recent developments that suggest UBI is experiencing a groundswell of popular support. The following sections examine two core (and related) reasons for the increased policy interest: the increasingly apparent flaws and contradictions inherent in the modern welfare state (second section), and ongoing changes in labour market structures – increasing wage polarity, the growth of precarious and insecure employment, and even the spectre of technological unemployment – to which UBI appears to present a solution (third section). We conclude that support for UBI does not rest on the more extreme theses about the forthcoming ‘post-work’ future but may still be justified in relation to more prosaic arguments.
While a diverse range of groups are pressing for the change, policymakers remain rightly unconvinced that UBI is the optimal solution – or even an appropriate solution. The remainder of the report deals with the most important debates. Turning to Chapter 3, we note concerns from opponents across the political spectrum that UBI is unaffordable – an issue we survey in the first section of Chapter 3. The challenge is a complex one, going beyond a simple question of the fiscal resources or tax levels required to fund a UBI; it also relates intimately to the distributional consequences of UBI schemes paid at different levels and varying in terms of their interaction with existing welfare policies, issues we introduce in the second section. In other words, affordability and distributional effects cannot be separated; rather than claiming UBI is unaffordable per se, a more apt characterisation of opposition is that an affordable UBI would be inadequate, and an adequate UBI would be unaffordable. We assess the basis of this claim, looking at microsimulation studies on the fiscal and distributional implications of alternative UBI schemes in the UK. For schemes that aim to replace the myriad means-tested supports (‘full schemes’), we show that such schemes either lead to unacceptable household losses (including some disadvantaged groups falling deeper into poverty) or simply cost too much. We compare the implications of such schemes with alternatives which retain the existing array of means-tested benefits (‘partial schemes’). We conclude that basic income policy design is subject to a three-way trade-off between the important goals of meeting need, controlling cost, and reducing the negative effects of means-testing; partial schemes are better equipped to ensure acceptable distributional outcomes, but fail to achieve many of UBI’s broader goals – including drastic reductions in bureaucratic complexity and the minimisation of poverty and unemployment traps – as effectively as full schemes.
The reference to poverty and unemployment traps connects to another core issue in basic income policy debates (which also touches on affordability): the extent to which UBI can be expected to result in an expansion or a contraction of labour supply. Clearly, labour market exodus could render the policy unsustainable by eroding a primary source of funding (payroll taxes). But UBI’s labour market effects are highly contested – characterised by theoretical ambiguity and a relative dearth of valid empirical evidence. We examine these issues in the first section of Chapter 4. At issue is the relative strength of causal effects which may pull in different directions depending upon individual and household characteristics and the specifics of the UBI scheme in question. In the second section we consider UBI’s expected impact on pay and conditions, and its relationship with other labour market policies. Having reviewed a largely theoretical literature thus far, in the third section of Chapter 4 we examine empirical microsimulation evidence on a number of specific UBI schemes, drawing on evidence from Finland and the UK. We argue that partial schemes (in the sense described above) cannot offer the improvements in work incentives that UBI advocates promise to the same degree as full schemes, but that even for the latter, the majority of people would face reduced financial incentives to work.
Finally, Chapter 5 tackles the thorny issues of political feasibility and implementation. In its first section we expound on theories of welfare reform which suggest that any ‘real world’ UBI scheme would necessarily build on existing policies, institutions and political economy structures. The second section examines the prospects for and barriers to the coalescence of UBI’s potential beneficiaries into meaningful constituencies and coalitions of support. In this context, the feasibility of different UBI proposals needs to be considered with reference to prevailing policy trajectories and electoral trends in the UK, as we do in the third section. While we cast doubt on the likelihood of a robust coalition of interests forming around any UBI paid at a substantial level in the UK at the present time, we note a number of possible implementation trajectories which appear relatively feasible under existing conditions.
Original languageEnglish
PublisherInstitute for Policy Research, University of Bath
Number of pages94
Publication statusPublished - 2017

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