The Fiscal and Distributional Implications of Alternative Universal Basic Income Schemes in the UK

Luke Martinelli

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In line with a dramatic resurgence of interest in basic income in recent years, there have been a number of studies analysing the fiscal and distributional consequences of specific basic income schemes. These ‘microsimulation’ studies use representative household surveys to examine the effects of hypothetical reforms at the national level and for specific demographics.
We make several original contributions to this burgeoning literature, modelling a number of original basic income schemes. These include a wide variety of schemes with full coverage and a number of schemes with partial coverage. We also carry out a detailed analysis of four revenue-neutral full schemes.
• Among systems with ‘full’ coverage, we have modelled four levels of generosity, and four types of compensatory tax and benefit reform for each.
• For the partial coverage schemes, we model how expansion of coverage could be sequenced in order to distribute the fiscal burden over a longer period of time.
• The revenue-neutral schemes assume that increases in expenditure must be broadly matched by increases in tax revenue. We suggest that besides the elimination of the personal income tax allowance and national insurance lower and upper thresholds, the income tax rate would have to increase by 4% (for a basic income set at the standard level of existing benefits) and 8% (for one with premiums for individuals determined as disabled) to pay for our schemes.
For each scheme, we discuss the fiscal implications and the implications for levels of poverty and inequality. For the revenue neutral schemes, we provide a more detailed breakdown of distributional effects, disaggregating changes in household income levels by income quintile, family type, number of children, and labour market status. The main argument of the paper is that we are faced with a series of trade-offs with respect to policy design, between the goals of meeting need / alleviating poverty, controlling cost, and eliminating means-testing. Our schemes aims to replace a large range of existing benefits with a basic income. The unavoidable reality is that such schemes either have unacceptable distributional consequences or they simply cost too much. The alternative – to retain the existing structure of means-tested benefits – ensures a more favourable compromise between the goals of meeting need and controlling cost, but does so at the cost of administrative complexity and adverse work incentive effects.
Original languageEnglish
PublisherInstitute for Policy Research, University of Bath
Number of pages72
Publication statusPublished - 31 Mar 2017


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