Universal Basic Income - what are the pros and cons and how does it work?

Article by ITV Wales Journalist Ryan Bounagui

The concept of a Universal Basic Income (UBI) is back on the agenda in Wales.

Earlier this week it was announced that around 500 care leavers are to get a fixed sum of money - £1,600 - every month for two years, in what the Welsh Government claims is a "radical experiment". Something, they say, will help a particular cohort of society that may need a helping hand in life.

That move has helped reignite the debate around Universal Basic Income: the idea of giving everyone in society - regardless of income or circumstance - a fixed sum of money with no need to pay it back or any strings attached.

The passionate arguments that follow the subject - wherever in the world the idea has been discussed - have not gone away.

The concept's critics argue that it's simply giving out money for nothing, that it will remove the incentive for people to work, it is unaffordable and that productivity will plummet.

That's an argument cited by the UK Government which says it is opposed to the idea because ministers believe it would not truly help those who may need the help most.

A Department for Work and Pensions (DWP) spokesperson said: "We have no plans to introduce a universal basic income."It would not incentivise work, target those most in need in society, or work for those who need more support, such as disabled people and those with caring responsibilities."Meanwhile our approach to welfare recognises the value of supporting people into well paid work, whilst protecting the most vulnerable in society."

An opportunity in the midst of crisis?

Those who believe in the system say it would offer a vital safety net and actually provide the launchpad for people to live happier, healthier and more prosperous lives.

The concept and the surrounding arguments are nothing new but, as many communities across Wales continue struggling through the cost of living crisis, has the case for a Universal Basic Income (UBI) been strengthened?

"I think it was Albert Einstein who once said that in the midst of every crisis there's great opportunity and I think this is one of those times now."

Quoting the legendary physicist is Jonathan Williams. He is the co-founder of UBI Lab Cymru, a not-for-profit enterprise that is committed to the idea of a Universal Basic Income in Wales and which lobbies policymakers to entertain the idea.

Jonathan has a passion for the concept and is firmly of the belief that the current cost of living crisis has added another dimension to the case for a UBI in Wales.

He says he accepts it would not be a panacea but argues it would have a significant impact on people's lives in these challenging times.

"We're in the midst of yet another crisis, we had the pandemic and now we have the cost of living crisis and I think a UBI might not be a silver bullet, but it's twenty first century solutions to twenty first century problems," he explains.

"People have more precarious work now, they're in and out of different jobs, you have the gig economy as well. So people don't have that security anymore. I think by having that security it [a UBI] is a solution."

'Our generation's NHS'

Jonathan continued: "After the Second World War we had the NHS and that was a universal service that looked after people from cradle to grave.

"I think this really is our generation's NHS, a Universal Basic Income, it could really be that.

"I think it's not a silver bullet but it would go a heck of a long way in providing people that stability and an income so that they can afford the basics in life."

But what about the exact sum? Just how much money would people need to receive in an ideal UBI world and would it replace or supplement state benefits?

Precise figures, he says, are still openly debated amongst the idea's proponents but there have been some suggestions.

"It was the Future Generations Commissioner's report that showed, and this was pre-inflation so these figures won't be spot on any more, but if you give people just £60 a week then that would reduce poverty in Wales by half," Jonathan explains.

"That's a dramatic amount of people that are not suffering as much. Giving people £60 a week for example, that would help them with the increase in their electricity bills... £60 for people on the lowest incomes in this country goes a heck of a long way.

"It [a UBI] would replace a significant amount of benefits but what you would also have, and people such as myself and on the left of the argument on this believe, is that you would still have benefits for people who have extra housing needs, who are disabled, who are caring for people at home.

"You would have those additional ones but you would do away with the subsistence benefits."

The findings from Finland

When the Welsh Conservatives - who strongly oppose the Welsh Government's basic income pilot - aired their criticisms they pointed towards Finland as an example of why they feel such a scheme would not work.

"Look at Finland, who ditched their scheme after two years in favour of a new scheme that encouraged people to actually take up employment or training," Joel James MS, shadow minister for social partnership said.

Finland's project was distinctly different to the one beginning in Wales and focused on the effects on employment from a basic income.

Over two years - 2017 and 2018 - 2000 unemployed people aged between 28 and 58 received €560 a month. The payments were not means-tested and, if the participants got a job, they continued to receive their monthly basic income alongside any earnings.

All other unemployed people formed a control group, in order to allow Finnish researchers to draw comparisons between those who received a basic income and those who did not.

So how did the project go in Finland? Were those selected to take part noticeably happier and healthier compared to the control group? Or did the unconditional monthly income remove the desire to work and try to improve their circumstances?

Signe Jauhiainen is a senior researcher at the Social Insurance Institution of Finland, also known as Kela, a Finnish government agency that helps manage the country's economy.

The scheme had its successes, she says, but they were marginal.

"We learned that the participants worked slightly more than those in the control group, who received normal unemployment benefit at the beginning," Signe says.

"So we focused on employment and the employment effect of the basic income was positive, but it was small. There was only a small difference between the basic income recipients and the control group.

"But we also learned that they did not work less.

"They did not become passive, which was one of the worries at the beginning of the experiment, that if they got this unconditional money the recipients would not find work.

"We found out that the basic income recipients evaluated that their health and wellbeing was better than those in the control group and they had less worries about their financial matters."

Signe also insisted that the project was not "ditched" and that running the scheme for two years had been the plan all along.

Although despite the apparent positives from the study, Signe cautioned that it had its limits and so did not provide completely definitive findings.

Inflationary pressures

As inflation soars and the calls for pay rises grow ever louder, Prime Minister Boris Johnson recently warned that widespread pay rises could risk fuelling inflation further still, saying at a press conference that such a move might "fan the flames of further price increases."

Although that has not prevented mass walkouts in various parts of the public sector as workers campaign for improved terms, with future strike action remaining a serious possibility.

So might a UBI - in the principle of giving a lot of people more money - pose a similar threat and risk triggering an inflationary spiral?

It wouldn't, Jonathan argues, as it would primarily involve changing the tax system and not involve huge amounts of new money: more a case of economic rebalancing as opposed to a big cash injection.

"The reason for inflationary pressures are because profits and earnings at the very top have never been so high," he says.

"What you need to do is you tax that wealth and those profits better, and in turn you give it back to people who really need it at the bottom of the income scale.

"It's just a redistribution of wealth essentially, from one to another, and if you do that then you're not pumping extra money in, it's just a rebalancing. So you wouldn't create those inflationary pressures."

Greater devolution

Despite his notable optimism there is one challenge to the implementation of a UBI in Wales where Jonathan seems less sanguine: greater devolution.

In its purest form, UBI Lab Cymru's vision would require Wales to have more control over its taxation system.

The current political weather, he acknowledges, poses a fairly high hurdle to the overall ambition.

"You really need to have powers over taxation because you ultimately need to raise the funds to do this," he explains.

"Having the ability to write our own tax laws is something that would be really important.

"There's a lot of exciting things Wales could do if we devolve things a little further, whether or not that could ever happen under a Tory government is another question of course.

"It seems we're going backwards in terms of devolution. Asking them for more powers seems a million miles away at the moment."

Signe, having studied the UBI project at close range in Finland, believes it does have its merits and serious potential for happier and healthier societies.

However it is not, she believes, the answer to helping people through the cost of living crisis.

"I think a basic income is not a short term solution," she says.

"I think it's more like a really long-term solution. In the current situation with the inflation and the cost of living crisis, we need short-term solutions.

"We need them now, today or next month and it's not possible to introduce basic income in that timetable.

"But I believe that basic income does have some promising factors to meet the challenges of the future."

The Welsh Government has said it does not have the means to roll out a truly Universal Basic Income, instead insisting that targeting unconditional payments - a basic income - at a particular cohort of society will help enable them to assess its benefits once the care leavers trial ends.

Meanwhile the Welsh Conservatives have accused the Welsh Labour Government of simply giving out free money.

Commenting on the care leavers pilot and idea of UBI more broadly, Joel James MS said: "It's been proven time and again that so-called Universal Basic Income doesn't work.

"We recognise that this is a vulnerable group, and they need extra support - but this is completely the wrong way to go about it and could well create more problems than it solves.

"It's typical Labour – but it's obvious that giving out free money won’t be a quick fix.”

Observers on all sides of the debate here at home, in Finland and further beyond will be watching Wales' "radical experiment" with interest.