June 28, 2016    4 minute read

Why The Universal Basic Income Is A Utopia

Income Distribution    June 28, 2016    4 minute read

Why The Universal Basic Income Is A Utopia

Karl Marx was of the opinion that capitalism incorporates inequality, exploitation of labour and, generally speaking, produces internal tensions which lead to self-destruction and replacement by socialism. He also predicted that socialism would be implemented in economically developed countries as a remedy for capitalism. Indeed, he might have been right.

John McDonell, a British Labour Party politician, announced that the Labour Party is currently considering backing the idea of a universal basic income (UBI). What does this mean exactly and what would be the consequences of such a policy?

The main idea behind the project is to tackle and prevent inequality in society and to help lower-skilled workers who may be replaced by automatisation of the workforce, which is yet to come. According to the report by the left-wing group Compass, a UBI would be extremely useful for people who were superseded by robotisation of the workforce as it would provide them with a stable income during unemployment. More interestingly, a UBI would be paid to everyone, both the employed and the unemployed. The project involves the abolition of the tax-free personal allowance, which would be replaced by a guaranteed monthly income and it would certainly cause taxes to increase. Furthermore, the introduction of a UBI would be beneficial for simplicity of the current welfare system since it would ditch a range of different means-tested benefits and become a universal and guaranteed payment for every adult. According to the research every British person could anticipate an unconditional payment of between £51 to £71 every week.

A Safety Net

The report clearly says that “central to the case for a UBI is the way it would help prepare us for a world in which the new technological revolution, driven by artificial intelligence and robotics, will, over time, transform the nature of work and the type and number of jobs. […] A UBI offers a powerful way of protecting all citizens from the great winds of change to be ushered in by the fourth industrial age, and of sharing the potentially massive productivity gains that it will bring”.

Centrist Labour backbencher Jonathan Reynolds sheds more light on a UBI: “As our economy and the jobs in it have changed, the welfare state has struggled to keep up. If we want a system that makes work pay and does something to tackle the appalling levels of poverty in the UK, then we need to think radically. This is a welcome report into what could be the cornerstone of a modern welfare state.”

The authors of the reports, economists Howard Reed and Stewart Lansley, claim that the system would be as cheap as £8bn without removing many means-tested benefits. The tax-free personal allowance, currently worth £11,000, would be abolished. Tax rates would rise, but every adult would receive a UBI.

Sounds fair enough; however the same idea appeared in Switzerland and was rejected in a recent referendum – over 73% of voters were against it. But the question is why?

“There is no such thing as public money. There is only taxpayers’ money.”

Margaret Thatcher

This quote is entirely accurate and grabs the whole concept of income distribution. A UBI for everyone means that tax rates rise, consumption decreases and GBP falls in the short-term. Moreover, some fraction of funds gained from taxes would be eaten by the administration and thus would not return to taxpayers. It is worth mentioning that an increase in taxes does not necessarily mean an increase in budget inflows as many people and corporations would try to hide their revenues and increase costs by manipulating financial reports. Moreover, many people would quit their jobs as they would have a stable source of money and in the case of deficiency, they would turn to the grey economy giving no contribution to the budget. Another argument against it is a moral one. Ask yourself: Why would you as a taxpayer give somebody an unconditional income if they are unemployed and do not work at all? That is not only unfair but also demoralising, because what can a worker think if they are paid for no work?

Lastly, a wise man once said (and he was the Nobel Prize laureate):

“If you pay people not to work and tax them when they do, don’t be surprised if you get unemployment.”

Milton Friedman

Although a UBI is described to be such a fantastic idea, it would cause more harm than good. People must understand that wealth comes from work.

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