#042 Universal Basic Credit
Basic Income on a Budget?
There are two surprisingly easy ways to adapt the current system of universal credit, an existing monthly payment benefit from the state that exists to help anyone currently on a low (or none existent) income with their living costs, to something much closer to the more ambitious, if not all out utopian, (ultra) progressive policy Universal Basic Income.
For the first change we could decrease the “Universal Credit earnings taper rate”, which sets the amount of Universal Credit deducted from a claimant’s Universal Credit payment as a direct result of each pound they earn from work (above any work allowance that may apply if individual has a disability, health condition or is responsible for children), from the 55p per £1 earned it is now, to 40p per £1 earned.
Reducing the taper rate has actually happened before, in December 2021 the taper was reduced from 63p per £1 to 55p per £1 proving the rate is far from set in stone. Setting the taper rate at 40p for each £1 earned means a worker would effectively keep the majority (meaning over 50%) of all income earned whilst receiving Universal Credit, 60% to be precise in this model. This means keeping more of the workers earned income than is currently the case which in turn has the effect of increasing the incentive to work more hours when an individual is receiving Universal Credit. This is a similar argument to the one people often use for keeping (often higher) income tax rates below 50%, maintaining financial aspiration and so on.
Conversely if the taper rate was reduced even more, to say 0p per £1 earned, Universal Credit would then in essence become universal basic income because a person earnings would not affect their entitlement at all therefore everyone would be equally entitled to it without conditions, even if the amount received varied for each person due to housing cost differences and so on. However this would be extremely expensive for the public purse in practice, as explored previously in this article - https://progressiveprimers.medium.com/037-money-for-nothing-6a3e6b73538e.
If we instead set the taper rate at a more appropriate point we can extend the policy to target those with no income upwards to low and middle earners, rather than just low and no paid earners, who are exactly the people who need financial support at this time
For the second change we could modestly increase the standard allowance part of Universal Credit, from its current level to something like £500 a month.
So for instance, a single person, 25 years old or older (this could be lowered) with no disabilities, no savings , no children to support and able to work, would be entitled to a standard allowance of £500 a month plus housing costs (eg, monthly rent payment), dependent on their housing situation and prices in the area in which they live, less 40p for each £1 they have earned from work (after income tax, national insurance, student loan and pension contributions).
These two simple changes would essentially extend Universal Credit to those labelled the “Just About Managing (JAMs)” or the“Squeezed Middle” by politicians in times gone by, who are often the very people that get no support and work many hours but still struggle financially.
Whilst Universal Credit is open to everyone, the system would still mean higher earners get nothing because 40% of their earnings is still likely to be more than their entire Universal Credit entitlement (eg, housing + standard allowance).
