Basic Income Could Virtually Eliminate Poverty in the United Kingdom at the Cost of £67 Billion Per Year or 3.4% of GDP
A new Georgetown University study has found that the cost of a universal basic income (UBI) large enough to virtually eliminate poverty in the United Kingdom would amount to just £67 billion per year or 3.4% of gross domestic product (GDP).
The study, coauthored by Karl Widerquist (of Georgetown University) in Qatar and Georg Arendt (independent researcher) is entitled “The Cost of Basic Income in the United Kingdom: A Microsimulation Analysis.” It uses data from the 2014/15 UK Family Resource Survey and microsimulation analysis using the European Union’s EUROMOD Tax-Benefit Model to examine roughly poverty-level UBI of £7,706 per adult and £3,853 per child.
Key findings of the study include:
- The cost of a poverty-level UBI for the United Kingdom is £67 billion per year or about 3.4% of Gross Domestic Product (GDP).
- This figure (£67 billion, 3.4% of GDP) is the net cost—the real cost—of a UBI scheme of £7,706 for adults and £3,853 for children, with a 50% marginal tax rate for net beneficiaries, integrated into the UK tax-and-benefit system in a way to ensure that the majority of UK citizens benefit from the transition and no one in the bottom 20% of distribution of income is financially harmed by the loss of programs replaced by the UBI.
- This UBI scheme adds only 39% to the cost of the UK’s existing benefits system (not including the spending on the National Health Service), and an 8.7% increase in the UK’s total government spending (£67/£771 billion).
- This UBI scheme is a net financial benefit to most households in the lower 70% of UK income distribution, making it an effective wage subsidy (or tax cut) for millions of workers and their families.
- The average-sized UK family (1.88 adults, 0.51 children) with incomes up to a total of £32,906 per year would benefit financially from the introduction of this UBI scheme.
- An average-sized UK family making no private income would receive UBIs totalling £16,453, slightly above the poverty line (£16,375) for a family that size.
- The average benefit over the existing system for each net-beneficiary family is £4,056.
- Under this scheme, the percent of UK families with incomes below the current official poverty line would drop from 16% to 4% and poverty among children and the elderly would all but disappear.[1]
- The net cost of this UBI scheme subtracting only the amount people pay to themselves (£155 billion) but ignoring the costs and benefits of integrating the UBI into the existing tax and benefit system is about one-third (35.4%) of its often-mentioned but not-very-meaningful gross cost (£438 billion).
- Also subtracting the cost of existing programs that can be replaced by UBI without financially harming anyone in the bottom 20% of the income distribution makes the net cost only about 15% the program’s gross cost.
- This UBI system eliminates absolute poverty (e.g. as it is measured in the United States) from the UK.
- According to a 2015 piece in the Guardian, the UK currently spends at least £93 billion per year on corporate subsidies and tax breaks. If so, the UK could entirely fund a UBI by eliminating corporate subsidies and tax loopholes—no increase in individual taxes would be necessary—and the government would still have £26 billion available for corporate subsidies.
- Countries with similar per capita income and similar tax-and-benefit system should expect the cost of UBI to be a similar percentage of their GDP.
“The cost of basic income has been exaggerated because some authors focus on the total (gross) cost, which is simply the size of the UBI times the population,” explained Widerquist. “This ignores the fact that, for most people, the additional taxes they pay cancel out the basic income they receive. So, the net cost for the net contributors is actually much lower—nearly one-third lower.”
Widerquist and Arndt’s research found that 70 percent of Britons would financially benefit from this program. Therefore, Arndt explains, “This scheme would be an effective wage subsidy (or tax cut) for tens of millions of working class families.”
For the modest cost of 3.4% of GDP, the number of people living below the current official poverty line would drop from 16% to 4%. Poverty among children and the elderly would all but disappear.
Those remaining in poverty under the scheme, Widerquist and Arndt find, would be much closer to the poverty line than they are now. Thus, Widerquist says that this scheme would “virtually eliminate poverty in the United Kingdom.”
Widerquist is a professor of political philosophy at Georgetown University in Qatar. He holds a doctorate in political theory from Oxford University and a doctorate in economics from the City University of New York. He has researched UBI for more than 20 years. He is the author, coauthor, or editor of nine books including Basic Income Experiments: The Devil’s in the Caveats and Independence, Propertylessness, and Basic Income: A theory of freedom as the power to say no.
Arndt is an independent researcher with a background in economics and operations management. His research interests include the financial viability of universal basic income and the dynamics of social coordination.
The full report is available at this link.
Karl Widerquist’s contact information:
Phone: +1-504-261-0891
Email: Karl@widerquist.com
Twitter: @KarlWiderquist
Georg Arndt’s contact information:
Email: g.arndt@posteo.net
[1] The official poverty line in the UK (which measures relative poverty) will increase with the increase in median income caused by the introduction of this UBI scheme. Our model suggests that the relative poverty line would increase by roughly 21% after introducing our UBI scheme, while overall risk of relative poverty more than halves. However, the new relative poverty line has strongly diminished information value. We therefore concentrate on a comparison holding the pre-UBI poverty line constant. See also section 5.2 for more detail.
