Monthly Archives: July 2015

Universal Basic Income: How the Labour Party Could Stand Up for Workers, Help the Poor AND be Pro-Business

The vote on 20th July on the government’s proposed £12 billion cuts to benefits exposed the mess that the Labour Party is in over welfare. Acting leader Harriet Harman’s urge for her party’s MPs to abstain from the vote and the subsequent rebellion by the 48 Labour MPs who voted against it revealed a widening rift within the party. Notably, of the four candidates for the leadership of the party, only Jeremy Corbyn voted against the bill, stating that he was “not willing to vote for policies that would push more children into poverty”.

Social security is a complicated issue for Labour. Seen by many as the party of benefits, it has been claimed that Labour lost the last election partly because the electorate considered it to be “a party of punitive taxation for the very richest, used to pay welfare for the poorest – with little to offer the majority of voters in between”.

In contrast to Labour’s supposedly “soft” touch on welfare, the Conservative’s response has been to cut welfare and impose a stricter regime of means-testing and sanctions.

However, the consequences of this anxiety-inducing system were highlighted by SNP MP Mhairi Black in her maiden speech at Westminster. In the speech she recounted the experiences of one member of her constituency who broke down in tears after having his benefits sanctioned:

“That grown man standing in front of a 20-year-old crying his eyes out, because what had happened to him was the money that he would normally use to pay for his travel to come to the charity to get his food he decided that in order to afford to get to the Job Centre he would save that money. Because of this, he didn’t eat for five days, he didn’t drink. When he was on the bus on the way to the Job Centre he fainted due to exhaustion and dehydration. He was 15 minutes later for the Job Centre and he was sanctioned for 13 weeks”.

I’m sure most people don’t want to live in a society whose poorest members are left to starve and recognise that there is a need to provide for those who find themselves unemployed or unable to work. But it is also not surprising that there is a growing sense of injustice around welfare, fuelled by newspapers like the Daily Mail and the Daily Express. With the notion of “scrounging families” being perpetuated, it is unsurprising that people feel angry and wonder “why should I work hard for my money when others are receiving a handout for doing nothing?”

At the heart of this is the issue of fairness. As a recent article on the Labour leadership election in the Observer points out “voters have an intuitively British notion of fairness – of reciprocity and reward for contribution”.

So the question is how can we create a social security system that is both fair and capable of ensuring that the poorest people in society are not left with nothing?

Clive Lord, the longest serving member of the Green Party, believes that the problem lies with means-tested benefits. “Means testing is wrong in principle, and should be abolished” he writes in his blog. “There are two ways of removing means tested benefits, either just remove them, as this government is doing – or give them to everybody and pay for it by various forms of taxation”.

Clive Lord believes in the latter approach and thinks that the way forward is to provide a universal basic income, initially set at the current level of job seekers allowance, to everybody. It would boost the incomes of ALL citizens, whether they are in paid employment or not.

The idea was included in the Green Party’s manifesto for the 2015 general election and has also been put forward by several political parties around Europe. In the past it has been supported by figures from across the political spectrum in the United States, including Martin Luther King Jr., free-market economist Milton Friedman, and even Republican president Richard Nixon tried to introduce a basic income in the form of a “negative income tax”.

The main advantage of a universal basic income is that it removes the “poverty trap”, whereby benefits are removed as someone starts to work more. The problem is that the withdrawal of benefits creates a disincentive to work. For instance, why would somebody want to take on a low-paying job if it means that they will lose the benefits they receive and maybe have to pay additional costs for transportation to and from their job every day? With a basic income, they would always be better off taking the job than not. In this case work really would pay.

A universal basic income is also a response to the changing nature of the modern economy. With the decline of manufacturing and the rise in the service industry, workers are less likely to gain long-term secure employment than they may have been in previous generations. A basic income would make sure people still have an income while they are looking for work, with no need for the bureaucracy involved in signing on for potentially short periods of time, and it would give workers greater flexibility in moving from job to job.

The rise in self-employment is another factor. According to a report published by the Office for National Statistics in 2014, self-employment is at its highest level since records began 40 years ago. The report also states that the “rise in total employment since 2008” is “predominantly among the self-employed”. Anyone in self-employment is greatly exposed to the risk of irregular work and potential cash-flow issues so a regular, unconditional basic income would be of great benefit to them.

Some Labour MPs have already started waking up to this. Shabana Mahmood, Liam Byrne, Heidi Alexander and Nic Dakin have formed a new group called Red Shift. They believe that Labour will fail to get re-elected unless it “reaches out to the self-employed and white van man”. A universal basic income could be just the policy they need to win these people over.

Furthermore, there are a large number of people being forced onto zero-contracts. Between October and December 2014, there were 697,000 workers whose main job was on a zero-hours contract. All of this means that there are an increasing number of people who do not have regular working hours, and therefore lack the financial stability that a regular income provides.

There is also a huge amount of work being done that goes unpaid, in particular care work. According to Emily Holzhausen, Director of Policy at Carers UK, 1.4 million people in the UK each provide over 50 hours of unpaid care per week. With an ageing population this number is only likely to increase. Surely this valuable contribution to society should also be remunerated in some way. The simplest method to do so could be a basic income for all.

Another key advantage of a universal basic income is that it gives workers far greater bargaining power. They would be free to take longer to find a job that is most suitable for them and the onus would be on the employer to offer favourable conditions. With less pressure on people to take the first low-paying job that comes their way, employers may be forced to offer better pay for the more unpleasant jobs. Workers could also take a break from employment in order to recharge their batteries. In addition to this, the anxiety produced by income insecurity would be reduced, which could lead to improved mental and physical health and potentially result in savings for the NHS in the long-term.

The usual response to the idea of a universal basic income is along the lines of “well, this all sounds very nice, but there isn’t the money to pay for it”. One potential source for a basic income could be “quantitative easing for the people” – as opposed to QE for the financial sector. Jeremy Corbyn has already proposed something like this to pay for investments in infrastructure, housing and a high-tech economy.

However, creating new money isn’t the only potential source of funds for a basic income. In his vision for the economy in 2020, Corbyn states that one option for his investment plans would be to “strip out some of the huge tax reliefs and subsidies on offer to the corporate sector”.

The argument that “there isn’t any money” is far less convincing when we take into consideration the fact that £93 billion of taxpayers’ money is spent on “corporate welfare”. Rather than going to large corporations such as Disney and Amazon, this money could be channelled into a basic income instead.

Handouts like these are usually justified on the grounds that such companies are “wealth creators”. But who really are wealth creators? Why do we readily believe that rich people and giant corporations are the only ones who can create wealth rather than ordinary citizens?

One standout example of an ordinary person being a wealth creator is the story of J.K. Rowling. In an interview with Jon Stewart on the Daily Show in 2012, she described her life at the time of writing Harry Potter:

I’d been as poor as it is possible to go in the U.K. without being homeless. I mean, I had friends who helped me, but I had no friends or family who were in a position to give me a house, so we were on welfare… I received a subsistence, really, from the government… my country helped me, there are places in the world where I would have starved”.

With over 450 million copies of the Harry Potter novels having been sold and the film series having generated over $7.7 billion, it can be said with absolute certainty that J.K. Rowling is a wealth creator. What might have happened, though, if she had been subjected to the current regime of means-testing and benefits sanctions and not been given this subsistence that enabled her to focus on her writing?

Basic income pilots around the world have also demonstrated how people, when given a regular, small, unconditional amount of money, can prove themselves to be wealth creators and transform their own lives. The findings of one such pilot in India showed that cash grants lead to an increase in work and labour, with households receiving a basic income being “three times as likely to start a new business or production activity as others”. A similar experiment in Namibia lead to self-employment rising 301%. In Liberia 1 in 3 recipients of a basic income used the cash given to them to start their own business. And because of multiplier effects, a basic income experiment in Lebanon resulted in $2.13 being generated for every $1 that was given in unconditional cash transfers.

To return to the Labour Party, one of the major problems it encountered in the 2015 election was the perception that it is the “anti-business” party. One particular talking point for Ed Miliband during the 2015 general election was zero-hours contracts. Miliband was in favour of banning such “exploitative” arrangements and was subsequently criticised for his “anti-business” stance. However, as Clive Lord explains,

Against the backdrop of benefit sanctions, Zero hours contracts are an obscene form of slavery… An employer can dictate whatever terms suits her/him. If the poor sap in his power objects that they are utterly unreasonable, he is reported to the Department of Work and Pensions, and his benefits are stopped… But against a backdrop of the Basic Income, the clap trap uttered on behalf of zero hours contracts suddenly makes sense. Yes of course there are people they would suit down to the ground… With a Basic Income, zero hours contracts will need no legislation curbing them whatsoever.”

By adopting universal basic income as one of its policies, Labour could appease business’ preference for a flexible workforce, while also giving greater bargaining power to employees without coming across as “anti-business”. Surely a win-win situation for everyone involved.

Another way for Labour to counter its anti-business reputation would be to demonstrate that it is prepared to put its faith in the British public and its entrepreneurial capabilities. By providing everybody with access to capital, a basic income would make it much easier to be an entrepreneur. Also, since the risk of losing all income would be eliminated, many more people would be willing to take a chance and go it alone. From my own experience, I know of several people who would love to start their own businesses but consider it too much of a risk to walk away from the steady income that they currently have from working for others. This isn’t the way it should be in a thriving, innovative economy. It should be possible to try out new ideas without facing the risk of poverty.

The CBI (Confederation of British Industry) says that small and medium-sized businesses (SMEs) “account for 99.9% of private sector companies and provide 60% of private sector jobs”. Instead of giving money to large corporations, some of whom pay minimal amounts of tax, it should be administered to members of the public, who are likely to set up these small or medium-sized businesses that drive the UK economy.

Another reason for providing an unconditional income is that it will boost everybody’s spending power. This spending is needed for a functioning economy and it should be up to companies to then compete to attract custom. Not only would someone setting up a business have more access to capital, but, if successful, they should also be able to benefit from the increased disposable income of others.

Some of these thoughts challenge the neo-liberal vision of trickle-down economics, the idea that it best to look after the rich first and then the wealth generated will make everybody else better off. In fact, an IMF report explained that increasing the wealth of the rich can actually harm an economy, whereas making the poor richer can boost economic growth.

This was expressed beautifully by 1930s comedic actor Will Rogers, who, talking about defeated Republican presidential candidate Herbert Hoover’s approach to the Great Depression, provided a case against trickle-down that can be used as a wonderful argument for establishing a basic income:

The money was all appropriated for the top in the hopes that it would trickle down to the needy… But he didn’t know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellows hands.”

If the next leader of the Labour Party is willing to embrace the idea of universal basic income, he or she could find that it meets with the approval of a wide range of groups, such as the self-employed, low-paid workers, entrepreneurs and carers. It would help Labour to achieve its core aim of improving the lot of the working class, while also enabling the unemployed to meet their basic needs without the threat of sanctions. It would also show that the party is capable of adopting bold policies that put its faith in the public and enable the country to move towards a modern, flexible economy. Moreover, a universal basic income would make a real difference to people’s lives and also appeal to Britain’s sense of fairness.