What happened to UBI?
It limps on... but only just
Universal Basic Income (UBI) has long been championed as a revolutionary tool to eradicate poverty. The allure is undeniable: a fixed, unconditional sum granted to every citizen, simplifying bureaucracy and ensuring a safety net for all. A natural economic infrastructure to complement the AI revolution some say.
So why have we stopped hearing about it? It turns out that the ‘universal’ bit of UBI may not be the progressive panacea originally envisioned. That’s sad, mainly because it’s an implementation problem.
By design, UBI provides identical payments to all citizens, irrespective of their financial standing. While the intention is to eliminate the complexities of means-testing, the outcome is a substantial allocation of public funds to those who least require assistance.
This isn’t a quirk - it’s a fundamental unwinding of the socially progressive, highly redistributive, welfare system most of the OECD has shifted towards over the past 30 years.
UBI's flat-rate model disrupts a progressive welfare system by granting equal amounts to everyone. Assuming a fixed budget envelope, UBI reduces the relative assistance provided to the impoverished while extending unnecessary benefits to the wealthy.
On first glance it’s easy to think ‘ahh well UBI may not be specifically targeted but that won’t matter because it’s highly efficient to implement’. Turns out that assumption doesn’t hold either.
When UBI is introduced it interacts with every existing welfare programs tailored specifically for vulnerable populations. Think housing assistance, disability care, food subsidies, and healthcare benefits. Is the UBI on top of these benefits? Or is it partly substitutable for these existing schemes?
The UK is having a real reckoning over this right now. A UBI trial underway is set to run until September 2025… but the tax rules haven’t been sorted. The Guardian reports:
One of the biggest obstacles they face is that HMRC refuses to exempt participants from income tax, significantly increasing the gross amount that scheme providers must pay to provide each individual with a small but adequate net income. Participants also need to be financially compensated if other benefits are affected as a result of the pilot. That makes pilots in the UK more expensive than in other countries.
UBI is failing not on its merits, but on its implementation. There’s many solutions, none of which are particularly elegant. For example:
Follow HMRC’s practice and top up the gross amount of UBI at the participant level as to not affect other welfare benefits received. This is an administrative nightmare, and would need to be recalculated on an intra-year basis.
Don’t do (1), and instead make UBI payments tax free. This makes the system even less progressive, benefiting the highest income earners to the highest (marginal) degree.
Despite this uncertain future, Dr Neil Howard from the University of Bath summarises the potential for UBI well:
"We have lots of evidence – and people make it very clear – that the universality, the unconditionality, the automaticity of payments give people a sense of dignity. It manifests that they matter and that their experiences as human beings matter enough to be given this solid cash floor”
Alas in 2025 UBI limps on… but only just.
