Martinelli, Assessing the Case for a Universal Basic Income in the UK

Luke Martinelli, Assessing the Case for a Universal Basic Income in the UK, Institute for Policy Research, 2017, pp 94, ISSN 2515 2548, free to download.

This is a third report on the Citizen’s Basic Income research project at the Institute for Policy Research. (Martinelli employs ‘Universal Basic Income’ (UBI) terminology, which we shall do in this review.)

The first, The Fiscal and Distributional Implications of Alternative Universal Basic Income Schemes in the UK, studied a wide variety of illustrative UBI schemes, with different levels of Basic Income and accompanied by different rearrangements of the existing tax and benefits systems.

The second, Exploring the Distributional and Work Incentive Effects of Plausible Illustrative Basic Income Schemes, studied three types of UBI scheme, filled a gap left by the previous paper by evaluating the numbers of households experiencing gains and losses of various levels, and suggested that although the schemes worsened marginal deduction rates for some households, for low-earning households marginal deduction rates would be lower with a UBI, so employment incentives would be higher.

This new report is an extended discussion that takes into account the research results contained in the previous reports. It begins with a definition of Universal Basic Income that leaves open the possibility of premiums for disability: a possibility that Martinelli exploits in one of his illustrative schemes. This is unfortunate, as only an unconditional regular payment for each individual (with the only conditionality permitted being someone’s age) would deliver the simple administration and the freedom from bureaucratic interference that constitute two of the main virtues of Universal Basic Income. The first chapter then continues with a useful discussion of ‘a family of schemes: varieties and cognates of UBI’ – a section that might have been clearer if a clearer distinction had been made between ‘UBI’ – an unconditional income – and ‘UBI schemes’ – which specify the levels of UBI for particular age groups and specify the ways in which existing tax and benefits systems would be rearranged. The important deficiencies of Negative Income Tax, Earned Income Tax Credits, and Participation Income in relation to UBI are well described. The final section of the first chapter offers an outline of the contemporary debate, studies a number of Negative Income Tax and UBI experiments, and shows why microsimulation is an important method for filling a gap in the evidence for the desirability and feasibility of UBI.

Chapter 2 asks why UBI has become such a popular subject for debate in such a short time, and suggests that important reasons are changes in the employment market and problems with current benefits systems. Very sensibly Martinelli does not employ a now commonly heard argument that we need UBI because technological change will destroy jobs: rather, he realistically suggests that UBI would be useful in the context of today’s observed trends towards polarised and insecure employment.

Chapter 3 studies a variety of taxation methods as options for funding UBIs, studies a number of microsimulated UBI schemes, and concludes that a UBI scheme can be both affordable and adequate, but that such a scheme would requires means-tested benefits to be retained – which, according to Martinelli, would sacrifice the important goals of reduction of administrative costs, reduction in bureaucratic intrusion, and improvement in work incentives through the elimination of poverty, unemployment and bureaucracy traps. The reason that Martinelli comes to this conclusion is that he has not calculated the number of households that each of the UBI schemes that he studies would take off means-tested benefits or bring within striking distance of coming off them – research that it is perfectly possible to conduct. Every household taken off means-tested benefits, or brought within striking distance of coming off them so that they could increase slightly their earned income and come off them, would represent administrative simplification, enhanced employment incentives, and a reduction in bureaucratic intrusion. The necessary research has already been done in relation to one illustrative UBI scheme. It would be useful to see it done in relation to Martinelli’s schemes. If that work was done then he might be able to conclude that an affordable and adequate scheme might have significant rather than merely limited effects.

Chapter 4 recognises that a UBI would exert opposing pressures on employment market participation: a secure unconditional income might reduce participation, but lower marginal deduction rates might increase it. As Martinelli recognises, the literature in this field is largely theoretical, although tentative conclusions might be drawn from UBI and other experiments. In relation to microsimulation results, he concludes that reductions in Participation Tax Rates (marginal deduction rates as individuals enter employment) are larger for lower income quintiles, which suggests that UBI would enhance employment incentives where they matter most. One problem with this report, as with the previous report, is that Participation Tax Rate and Marginal Effective Tax Rate (for individuals in employment) are under-defined. Take five possibilities: PTR and METR might measure 1. the loss of household disposable income relative to an increase in one adult’s increase in earned income; 2. the loss of household disposable income in relation to a household’s increase in earned income; 3. the loss of disposable income experienced by the individual in the household who receives means-tested benefit payments (whether in-work or out-of-work means-tested benefits) relative to an increase in that adult’s increase in earned income; 4. the loss of disposable income experienced by the individual in the household who receives means-tested benefit payments (whether in-work or out-of-work means-tested benefits) relative to another adult’s increase in earned income; 5. The loss of disposable income experienced by the individual in the household who receives means-tested benefit payments (whether in-work or out-of-work means-tested benefits) relative to an increase in household earned income. These five different measures can behave very differently, as recent research has shown. In the context of any particular UBI scheme, one type of PTR/METR might remain relatively unchanged, whereas another type – and perhaps a more relevant type – might be considerably reduced. It is possible to calculate changes to different kinds of PTR and METR, and in the process to generate some useful results for affordable UBI schemes that do not impose losses on low income households at the point of implementation. It would be useful to see this work done for Martinelli’s schemes.

Chapter 5 studies political feasibility and implementation, and is a useful discussion of a classic policy process agenda that includes policy trajectories, existing institutions, path dependency, coalitions of support, and constituencies that might or might not benefit from UBI. The chapter finds some feasible implementation trajectories that might give birth to a UBI scheme. What it does not sufficiently recognise is that the policy process can be highly chaotic, and that accidents can happen. Family Allowance, which became Child Benefit, could be regarded as such an accident. A UBI accident could happen if the groundwork had been laid.

This is a most useful report, and the three IPR reports together form an important contribution to the ongoing UBI debate. This review has identified a number of areas where further work would be useful, the results of which might lead to the conclusions drawn in the reports being modified. But whether that work is done or not, all future work on UBI will need to take account of the IPR’s research project’s three published outputs.