#037 Money For Nothin’
Howard Reed’s Basic Income - Designed To Make Working People Poorer
In 2019, 2022, and again in 2023, progressive economist & academic Howard Reed, and his colleagues, both at the campaigning group Compass, and at the think tank Autonomy, produced reports that modelled, analysed and championed what they saw as an affordable, bold & realistic progressive policy to fundamentally address poverty and public health across the United Kingdom, a universal basic income (UBI),
https://www.compassonline.org.uk/wp-content/uploads/2023/07/Treating-causes-not-symptoms-Jul-23.pdf.
In these reports Howard Reed & his colleagues created a model, that they named Model 1 (later edited & renamed Scheme 1), which they proudly claimed was “fiscally neutral”, and“affordable under any definition”.
The model was described in the reports as delivering a “modest basic income” to each citizen with no conditions and in the reports they claimed “No additional funding from the Exchequer and no net increase in taxation is required”.
Howard Reed and colleagues did this to directly counter the most common criticism levelled at UBI, that it is far too expensive to ever be practical in a real world economy.
But in doing so they sadly failed.
Because if their model was implemented, in the real world, working people would in fact bear most of the huge tax increase costs, central to their scheme, where everyone would receive a basic income of £75 a week (£3'900 a year) without conditions.
These tax rises would include reducing the personal allowance, for both Income Tax and National Insurance, from its current figure of £12'570/£12'584 (respectively), down to just £800 and £780 respectively, whilst at the same time, increasing basic rate income tax and basic rate national insurance. Basic rate income tax, which most working people fall into, would be increased from 20% to 23% and basic rate National Insurance, again affecting most, would increase from 12% to 13.25%.
These tax rises & changes, taken together, are so large and sweeping, that any person working any job (employed or self employed) earning roughly £12'000 a year or more, would actually be taxed more than they would gain from the basic income amount they would receive (£75 a week / £3'900 a year, in the latest report) under this scheme, making them poorer in real terms, when compared to their financial situation now.
Progressives who support and advocate for their scheme, like Will Stronge, Director of Autonomy think tank for instance, say it represents an affordable, practical way of giving everyone a modest basic income, that could later be ramped up with inflation and so on over time. But in doing so they gloss over the most significant part of the policy - the huge tax rises that would be required to effectively fund this policy.
What Reed and his colleagues really show here is that even a “modest” basic income would in fact be extremely expensive for the United Kingdom to implement. The large and sweeping income tax & national insurance tax rises proposed, and numbers given in the reports, highlight the levels of funding required for even a modest basic income scheme, representing a significant downside to the policy.
This then should give all practical progressives pause about how realistic universal basic income is financially.
Of course there are many other ways to raise revenue, as explored in this article for instance, https://progressiveprimers.medium.com/33-tax-the-fat-cats-bc246f4fb447. These ideas are not explored in Reed’s model and reports but could be used as more progressive ways of funding a modest basic income.
Unfortunately, Howard Reed’s model as it stands in 2023, if implemented today, would make most working people net poorer, in the middle of a cost of living crisis.
In Britain in 2023 we know many people are falling into poverty, and many of these are working people struggling due to low wages, high housing, energy and food costs alongside other factors, a universal basic income scheme that helps those at the very bottom but also makes working people, in particular current basic rate taxpayers, net poorer, cannot be the best way to implement such an ambitious policy like Universal Basic Income (UBI).
The authors should now acknowledge and listen to this criticism, and accept their model would in fact make most working people poorer and then rework their proposals so that basic income could realistically benefit a larger cohort of people who desperately need it in the United Kingdom.
