If the uproar created by the rollout of the Government’s new Universal Credit benefits system has shown us anything, it’s how fiendishly complex our current welfare system is.
The shake-up was meant to make things simpler by rolling six current benefits and tax credits into a single payment. But opponents have been sounding the alarm in recent weeks over major flaws in the system: from an initial six-week delay to payments, to alleged penalties from taking on extra work and the so-called ‘taper’, which a Conservative MP labelled a “63% tax rate”.
This debate goes to the heart of current thinking around the whole concept of ‘welfare’. As currently construed, this is largely about redistribution. Cash is given to recipients, who must then use this to cover their costs by purchasing essential goods and services – from housing and heating to phones and bus fares – from market providers, however large a chunk this takes out of their disposable funds. The system has obvious problems: spend an extra £5 on an unexpected journey and, on a tight budget, you might have to go without a decent meal.
What this underscores is that however much money a welfare system gives to people in need (and, contrary to the belief you might find in some tabloids, the UK’s benefits payments are among the lowest in Europe), they’re still forced to spend the majority of this on just getting by. And with real wages having fallen by 5% since 2007, those in work are often little better off. Working households now constitute the majority of those in poverty.
Our welfare system is, however, only one side of the equation. Looking at the bigger picture allows us to plot a trajectory for poverty and inequality – and the signs are not good. What no-one could have predicted when our welfare state was devised was the pace of technological change and the effect this would have on the labour market.
Digital technologies, robotics, AI and automation are changing the context in which we all live and work before our very eyes. From factory production lines to stockbroking, so much of what used to require millions of hours of human work is now done by machines, microchips and algorithms. One recent report estimated that almost half (49%) of the activities people are paid almost $16 trillion in wages to do in the global economy have the potential to be automated by adapting currently demonstrated technology.
This is, of course, already happening. The advent of reliable GPS and smartphones, for example, has made the likes of Uber and Lyft become serious challengers to taxi firms whose specialist knowledge no longer gives a competitive advantage. Unfortunately, in too many cases this technological ‘disruption’ has been accompanied by insecure working conditions. Britain has had to become familiar with the concepts of zero-hours contracts and the gig economy, as researchby the GMB union suggests 10m people are in insecure jobs.
One response that’s been gaining traction of late is the idea of paying all citizens a ‘universal basic income’ (UBI). This would see everyone, regardless of their employment status, paid a flat sum per month to spend how they wished. Any work they did would then top this up, but they’d be freed from the fear of being unable to afford the basics, or so the argument goes. Progressives have increasingly latched onto the idea: in Britain, both Labour and the SNP are considering trials, following one pioneered in Finland.
But new research published by UCL’s Institute for Global Prosperity, based on analysis by Professor Jonathan Portes of King’s College London and the economist Howard Reed, shows not only that UBI may be impractical, but that an alternative solution could be put in place at an affordable cost to the public purse. We call this idea Universal Basic Services.
The recommendations are based on an extension of the ethos that saw us establish the NHS and public education, out of the belief that services essential in a modern society should be provided free at the point of need. It would include a massive expansion of social housing, free bus travel, meal provision for those most at risk of food insecurity and basic phone and internet access. Those in the lowest income decile would benefit the most – saving the equivalent of £126 per week in costs if they accessed all the Basic Services.
The total cost of £42bn – representing just 2.3% of UK GDP – could be fully funded through changes to the Personal Allowance, making the proposal fiscally neutral. The services themselves might be provided publicly, by private companies, or by the voluntary sector and would need to be democratically accountable locally to prevent state monopolies.
Critically, the report demonstrates clearly that UBS would be a far more affordable response to the changing nature of the labour market than a universal basic income. A UBI paid to all UK citizens at the current modest Jobseekers Allowance level of £73.10 per week would cost just under £250bn per year – around 13% of total GDP, or 31% of all current UK public spending. By contrast, the transformative effects of UBS are accessible with relatively minor changes to the fiscal structure of the UK economy: additional UBS spending represents only 5% of existing budgets.
This is the start of a discussion. UBS could, for instance, be extended in different ways – to cover childcare or higher education. But the principle behind it is straightforward: in uncertain and rapidly changing times, we need a better safety net to minimise the harmful effects of inequality and provide a platform from which all members of society can live a ‘larger life’.
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