I’m receiving plenty of messages about the thorn in every UBI advocate’s side: funding a UBI.
The scheme is expensive and requires more spending to be done right. Where government spending increases, there is often vehement opposition. The arguments surrounding the risks of government expenditure are rolled out: high borrowing, tax rises, government intervention into markets. But even with these arguments, I want to highlight that yes, there will be increased spending, but no, it is not the end of the world, and it will not cause the UK economy to crash.
I estimated in the last volume that a UBI would cost the UK government £460 billion, a rough sum, but one that works to demonstrate the huge bill that the UK government would be tasked with, close to combined spending on social protection and health in the 2019 / 20 year.
This bill is not as daunting as it may initially seem. Before discussing the funding of UBI, I intend to show how the close to half a trillion bill is not the real cost.
- Social security spending is currently close to £300bn, and it is likely that UBI replaces most of these schemes. Thus, spending currently goes into social security would be diverted into UBI.
- As mentioned in last week’s Volume 3, UBI would likely save much of the £8.6bn spent on overpayment of benefits.
- From the conclusion of Volume 3, being that UBI effectively decreases poverty, we can expect a decrease in the financial damage done by poverty - £69bn according to a JRF calculation.
- The scheme can help fight crime and reduce health burdens, saving money that we currently spend on the police and NHS. Although both systems are underfunded in areas, it is probably best not to rely on income through here.
- A UBI will give the opportunity for a more competitive market, incentivising business and thus growing the economy, and so, growing tax receipts for the government.
The redirecting of social security alone would likely half the bill, with the other benefits likely bringing the cost to a more manageable £100bn.
Again, these values help paint a picture. Maybe my claims will encourage proponents and opponents alike to conduct vast quantitative analyses in their search for a UBI's true value and cost.
Now to discuss how to actually fund these multi-billions. Governments can privatise businesses, increase tax, borrow, and many other techniques which can balance their budgets:
- Privatisation would not save enough money to fund 100s of billions of pounds. For instance, the privatisation of Royal Mail in 2013 saved the government from a £320m deficit (2009/10), and made the government £3.3bn, as it ran consecutive offloading of its shares… The one-off £3.3bn and sub-£1bn savings do not translate to funding £100bn for a UBI.
- Borrowing creates risk and must also be repaid, generally by outgrowing your debt or taxation. The amount to be repaid will be higher than if you had originally raised taxes.
- Taxation seems to be the only financially safe way to finance this growth in spending, and the one I will choose as my preferred funding method. That being said, tax rises are often criticised as damaging to the economy.
I won’t go through a long explanation of where taxation should come from (VAT, Business Taxes, Land Value Tax) - it’s a debate that has kept parties sparring for aeons and is likely not something I’ll solve here.
One thing is clear: wherever the source - tax must increase. While some argue higher taxes will lead to less growth, let's not forget that higher-tax countries exist and function fine. France, for instance, has higher taxes and is predicted to grow more than the UK in the next year. So it’s not unthinkable that we move towards higher taxes, which will bring the many benefits I’ve laid out in #UBIwithUlysse, including those described in the next volume, where I’ll describe how a UBI can effectively reduce crime.