Arguments for a UBI – The Realist
This post is part of the sequence Arguments for a Universal Basic Income.
Demonstration of Viability for the UK
It is a complaint often made about a Universal Basic Income, that it would be impossible to finance. Using the UK as an example, I will demonstrate that this is not the case, by estimating the likely actual cost of such a programme, showing that it is in fact no more unrealistic than the system of state benefits in place now. I have used the UK government’s statistics for the financial demographics of the UK.
The key figures forecast for the 2018-19 financial year are set out in the table below:
| Range of total income (lower limit) | All taxpayers | Total income of taxpayers | Tax liability |
|---|---|---|---|
| £ | Number | £million | £million |
| 11,850 | 4,090,000 | 54,800 | 1,130 |
| 15,000 | 6,170,000 | 107,000 | 6,130 |
| 20,000 | 8,520,000 | 209,000 | 20,000 |
| 30,000 | 8,010,000 | 305,000 | 37,800 |
| 50,000 | 3,220,000 | 214,000 | 42,800 |
| 100,000 | 558,000 | 66,800 | 19,600 |
| 150,000 | 181,000 | 31,000 | 10,400 |
| 200,000 | 191,000 | 55,200 | 20,500 |
| 500,000 | 37,000 | 24,900 | 9,860 |
| 1,000,000 | 13,000 | 16,900 | 6,740 |
| 2,000,000+ | 6,000 | 26,200 | 10,400 |
| Total | 30,996,000 | 1,110,800 | 185,360 |
This shows that there were 30,996,000 tax payers in the UK in 2018, who in total contributed £185 billion of income tax. This table does not include Employee’s National Insurance, which makes a significant contribution to the government’s tax revenues, but this can be calculated using the thresholds mentioned in the previous post.
The following table does this, however these calculations are only an estimate, as they ignore the fact that some of these people’s income may be from pensions, on which no National Insurance is paid, they ignore people earning between £8,400 and £11,850 that pay National Insurance but no Income tax, and they ignore the slightly different National Insurance payments made by the self-employed, but none of these should cause the numbers to be out by enough to make a meaningful difference.
| Range of total income (lower limit) | All taxpayers | Average Income | Estimated Average NI Payable | Total National Insurance |
|---|---|---|---|---|
| £ | Number | £ | £ | £million |
| 11,850 | 4,090,000 | 13,399 | 600 | 2,453 |
| 15,000 | 6,170,000 | 17,342 | 1,073 | 6,621 |
| 20,000 | 8,520,000 | 24,531 | 1,936 | 16,492 |
| 30,000 | 8,010,000 | 38,077 | 3,561 | 28,526 |
| 50,000 | 3,220,000 | 66,460 | 4,956 | 15,959 |
| 100,000 | 558,000 | 119,713 | 6,021 | 3,360 |
| 150,000 | 181,000 | 171,271 | 7,052 | 1,276 |
| 200,000 | 191,000 | 289,005 | 9,407 | 1,797 |
| 500,000 | 37,000 | 672,973 | 17,086 | 632 |
| 1,000,000 | 13,000 | 1,300,000 | 29,627 | 385 |
| 2,000,000+ | 6,000 | 4,366,667 | 90,960 | 546 |
| Total | 30,996,000 | 78,047 |
When added to the first table’s £185 billion, this gives us a total government revenue of £263 billion across Income Tax and Employee’s National Insurance, which is summarised below:
| Range of total income (lower limit) | All taxpayers | Total income of taxpayers | Tax liability | Total National Insurance | Net Tax Contribution |
| £ | Number | £million | £million | £million | £million |
| 11,850 | 4,090,000 | 54,800 | 1,130 | 2,453 | 3,583 |
| 15,000 | 6,170,000 | 107,000 | 6,130 | 6,621 | 12,751 |
| 20,000 | 8,520,000 | 209,000 | 20,000 | 16,492 | 36,492 |
| 30,000 | 8,010,000 | 305,000 | 37,800 | 28,526 | 66,326 |
| 50,000 | 3,220,000 | 214,000 | 42,800 | 15,959 | 58,759 |
| 100,000 | 558,000 | 66,800 | 19,600 | 3,360 | 22,960 |
| 150,000 | 181,000 | 31,000 | 10,400 | 1,276 | 11,676 |
| 200,000 | 191,000 | 55,200 | 20,500 | 1,797 | 22,297 |
| 500,000 | 37,000 | 24,900 | 9,860 | 632 | 10,492 |
| 1,000,000 | 13,000 | 16,900 | 6,740 | 385 | 7,125 |
| 2,000,000+ | 6,000 | 26,200 | 10,400 | 546 | 10,946 |
| Total | 30,996,000 | 1,110,800 | 185,360 | 78,047 | 263,407 |
From this we can see that despite earning less than the minimum wage full time, the people in the first row still contribute over £3.5 billion in taxes on their income (£7.83 per hour, 8 hours a day for 240 days per year is £15,034 per annum).
The final piece of information that we need is the cost of the existing state benefits that are provided. This is also published by the UK government.
The forecast figures for the 2018-19 financial year, published in the autumn of 2018, consist of a total of £182 billion administered by the Department for Work and Pensions (DWP), and a further £37 billion that is administered elsewhere.
As will be mentioned in the next post, “The Conservative” – any benefits for disabilities or health purposes should be administered by relevant healthcare professionals, which would mean that in the UK’s case, they would be transferred to the National Health Service. These disability-related benefits are the following:
| Personal Independence Payment |
| Disability Living Allowance |
| Attendance Allowance |
| Industrial injuries benefits |
| Severe Disablement Allowance |
| Mesothelioma |
| Pneumoconiosis 1979 |
| Armed Forces Independence Payment |
| Specialised Vehicles Fund |
After removing these from our review, we are left with a list of the state benefits that a Universal Basic Income would be aimed at replacing. Some of these are rather small, so have been combined together into “Other Benefits” in the list below, however the largest of these (coming in at around 50% of the total) is the State Pension. Importantly, this does not include pension schemes payable to government employees, as these do not fall into the category of welfare – these are effectively private pensions, where the pension fund happens to be run by the government.
| State Benefit | £million |
|---|---|
| State Pension | 96,620 |
| Child Tax Credit and Working Tax Credit (non-DWP) | 25,073 |
| Housing Benefit | 23,955 |
| Employment and Support Allowance | 15,881 |
| Child Benefit & One Parent Benefit and Guardian’s Allowance (non-DWP) | 11,161 |
| Pension Credit | 5,042 |
| Carer’s Allowance | 3,228 |
| Jobseeker’s Allowance | 2,526 |
| Statutory Maternity Pay | 2,520 |
| Income Support | 2,184 |
| Winter Fuel Payments | 1,979 |
| Bereavement related benefits | 496 |
| Over 75 TV Licences | 468 |
| Maternity Allowance | 448 |
| Tax Free Childcare (non-DWP) | 239 |
| Financial Assistance Scheme | 229 |
| Other Benefits | 644 |
| Total | 192,693 |
This tells us that the system that we are trying to replace generates £263 billion in tax revenues, and spends £193 billion of this on state benefits, giving a net contribution to the government’s revenues of £70 billion. As a side note, this £193 billion figure does not include the costs of administering these benefits, which could result in additional cost savings.
With this information, we can now calculate the equivalent figures under a system with a Universal Basic Income. I shall base this on the same system outlined in the last post – “The Accountant” – a flat tax of 47% on all earned income, and a Universal Basic Income of £8,000 to every adult in the country. It is worth noting at this point that £8,000 per annum is very similar to the UK state pension it is looking to replace, of £164.35 per week (2018 figure, coming to £8,546.20 for the year), meaning that people shouldn’t lose out too much under this change of approach.
Per UN estimates, the UK population was approximately 66,700,000 in 2018, and 18.8% were under-16. The adult population was therefore approximately 54,200,000. This can be incorporated into the taxpayer figures used above, to calculate how many adults paid no tax. The results of these calculations are in the table below – the tax liability column is the total income multiplied by 47%, while the Universal Basic Income column is the number of taxpayers multiplied by £8,000:
| Range of total income (lower limit) | All taxpayers | Total income of taxpayers | Tax liability | Universal Basic Income | Net Tax Contribution |
|---|---|---|---|---|---|
| £ | Number | £million | £million | £million | £million |
| 0 | 23,204,000 | 0 | 0 | 185,632 | -185,632 |
| 11,850 | 4,090,000 | 54,800 | 25,756 | 32,720 | -6,964 |
| 15,000 | 6,170,000 | 107,000 | 50,290 | 49,360 | 930 |
| 20,000 | 8,520,000 | 209,000 | 98,230 | 68,160 | 30,070 |
| 30,000 | 8,010,000 | 305,000 | 143,350 | 64,080 | 79,270 |
| 50,000 | 3,220,000 | 214,000 | 100,580 | 25,760 | 74,820 |
| 100,000 | 558,000 | 66,800 | 31,396 | 4,464 | 26,932 |
| 150,000 | 181,000 | 31,000 | 14,570 | 1,448 | 13,122 |
| 200,000 | 191,000 | 55,200 | 25,944 | 1,528 | 24,416 |
| 500,000 | 37,000 | 24,900 | 11,703 | 296 | 11,407 |
| 1,000,000 | 13,000 | 16,900 | 7,943 | 104 | 7,839 |
| 2,000,000+ | 6,000 | 26,200 | 12,314 | 48 | 12,266 |
| Total | 54,200,000 | 1,110,800 | 522,076 | 433,600 | 88,476 |
Again, this is an estimate, as some of the 23 million people in the zero-income bracket will have part time jobs, meaning that their total income is not zero. It is currently difficult to find out what this income is however, so it is prudent to treat it as zero, to avoid overstating the tax that will be received.
As you can see, the total net tax contribution is £88 billion, after the Universal Basic Income has been subtracted from the government’s tax revenue. This is very similar to, and in fact slightly higher than the £70 billion that we calculated was contributed by the current system of taxes and benefits.
Looked at a different way, summing the positive and the negative figures in the Net Tax Contribution column separately gives us £281 billion in net tax revenue from people that earn over £17,000, and £193 billion in net payments to people earning less than this amount. These figures are readily comparable to the £263 billion in tax revenue and the £193 billion in state benefits that are paid under the current system.
This shows that the “impossible to finance” argument is not accurate – far from needing to “print money” to pay for it, the system of Universal Basic Income demonstrated above is remarkably similar to the existing system in terms of net contribution to the country’s finances, whilst having many other positives, which will be detailed in subsequent posts. With that argument out of the way, the rest should be just tweaking around the edges – from the UK having a population of 54,200,000 over-16s, 12,500,000 under-16s and a combined countrywide gross personal income of £1,110.8 billion, we can calculate that:
| Every £500 of UBI given per person over-16 | will cost £27.1 billion |
| Every £500 of UBI given per person under-16 | will cost £6.3 billion |
| Every 1% of tax applied to personal incomes | will raise £11.1 billion |
Armed with this knowledge, we can go on to investigate alternative policies quickly and easily. Should the Universal Basic Income and tax rate both be higher? £9,000 and 50% would reduce the net contribution to £68 billion. Should children under-16, or families caring for them be eligible for some additional Universal Basic Income? £3,000 per annum for each of the 12,500,000 under-16s in the UK would cost an additional £38 billion. Neither of these render the system fundamentally unaffordable, but more importantly, visualising and discussing these concepts has become far more intuitive, due to the simplicity of the system.
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