Finland is about to embark on a fascinating economic experiment that could change everything about the way we see welfare, benefits, and cash transfers to the poor. In 2017,
In 2017, Finland will introduce a type of universal basic income scheme, in which most of the country’s welfare state will be abolished and replaced with a single €800 (£579, $879) per month stipend, payable to all Finns, regardless of their income, tax-free.
Citizens of Finland will be allowed to spend it in any way they want. No longer will state benefits be doled out based on the status, personal circumstances, or the qualifications of the applicant. Everyone gets €800 a month.
So we decided to do some back-of-the-envelope maths to calculate what a similar scheme might look like in the UK. We wanted to know: How much would each Brit get if the current welfare budget was axed completely and the total pot was divided equally among everyone in the country? (Spoiler alert: Scroll to the bottom of this post right now if you don’t care why this is economically important.)
Basic income is one of the most-discussed, least implemented macro-economic ideas. For decades it has existed largely as an economists’ pipe dream. In the UK, only the Green Party supports basic income.
That’s a shame because basic or universal income enjoys support on both the Left and the Right. Both Marxists and libertarians have proposed basic income schemes. Milton Friedman was an early proponent:
- Left-wingers like it because it dramatically allows the collective wealth of a nation to be shared in way that provides support for all. It does away with the punitive, humiliating nature of collecting welfare benefits. No more food stamps, credits, or housing benefit, where the state decides for you what its largesse can be spent on.
- Conservatives like it because it kills off the massive administrative bureaucracy required to handle hundreds of micro-benefits and all the application paperwork they generate. It makes the state smaller. And because it leaves the money directly in the hands of individuals — rather than as credits or forced payments for certain services like energy or food — it lets the market decide what the cash gets spent on. The poor can now pay the rent or play the casino, with no further moral requirement for the state to step in.
In Finland, €800 a month will cost the government €52.2 billion a year. The government’s revenue for 2016 is €49.1 billion. In theory, the shortfall should not be a problem because not every Finn is an adult (only those of working age will receive it) and richer Finns’ payments will be taxed. In addition, the end of other social programmes should produce savings.
This is the other part of the huge appeal of basic income: it’s technically neutral on the government’s income statement, but everyone will instantly be able to see how much tax they’re paying and how much welfare they’re receiving in return.
So how might this work out in the UK?
UK WELFARE BUDGET FOR 2013-14
- Total welfare spending: £251 billion
- Population: 64.5 billion
- Of which, children: 15 million
If that budget was recast as a universal basic income, this is what you would get:
UK BASIC INCOME BUDGET FOR 2013-14
- Basic income per head for all residents, annually: £3,891
- Basic income per head for all residents, monthly: £324
- Basic income per head for adults only, annually: £5,081
- Basic income per head for adults only, monthly: £423
One of the criticisms of basic income is that it would kill off the desire to work. Few studies have been done of this, but those that have indicate that people only reduce their work hours by a small amount on average.
The fact that a fiscally neutral basic income scheme would pay out only £423 per month (€585 or $644) means almost everyone receiving it would still need a job. £423 a month is simply not enough to survive — or even pay rent — in most areas of Britain.
It might disincentivize some work, however. Young people living for free with their parents might suddenly feel rather rich. And that would mean employers currently offering unpleasant jobs with low pay might need to increase their pay rates or go out of business.
That might not be a bad thing: A basic income pre-supposes that most people want to work anyway, because productive activity is how we create meaning and identity. Basic income would give workers the freedom to not be forced into the jobs that no one wants — think about rubbish collectors — or to let people grow richer by taking on those onerous tasks. It might force society to revalue unpleasant but necessary tasks, and reward them more justly.
It would alter the labour market in favour of labour, in other words.