The IMF Fiscal Monitor’s discussion of Citizen’s Basic Income

The International Monetary Fund Fiscal Monitor for October 2017 contains a discussion of Citizen’s Basic Income (Universal Basic Income):

In countries where both coverage and progressivity are relatively high, such as France and the United Kingdom, expanding coverage by replacing the existing systems with a UBI would result in a very large reduction in progressivity and losses in the size of benefits for many poor households and could even lead to higher poverty. …

In advanced economies, where existing safety nets are often generous and progressive, a UBI is unlikely to be an effective substitute. Where existing systems have gaps in coverage or progressivity, countries should first focus on addressing these gaps, such as by reforming eligibility rules or promoting benefit take-up. Indeed, many advanced economies already have an extensive array of categorical family benefits that have universal reach (such as child benefits and social pensions). Countries with means-tested programs also need to address any disincentives for labor force participation by strengthening administrative capacity and information systems as well as through the design of reforms, including greater use of well-designed in-work benefits.

In emerging market and developing economies, a UBI could be an attractive alternative where existing systems have large coverage gaps and low progressivity, provided it can be efficiently financed. This is more likely in countries that currently rely heavily on inefficient and regressive universal price subsidies (such as those on food or energy) and that have large gaps in their consumption tax bases. However, the adoption of a UBI would need to be consistent with other fiscal priorities such as generating fiscal space to finance other spending needs while ensuring fiscal sustainability. It would also require strengthening the capacity to distribute cash transfers and developing a strong communications campaign to generate support for a broader package of reform measures.48 Administrative, political, and fiscal constraints therefore suggest that a gradual approach to reform would be desirable, possibly focusing first on universal coverage of subgroups of the population, such as children and the elderly. Recent technological developments such as biometric identification, information digitalization, and electronic finance have greatly enhanced the attractiveness of a UBI to strengthen the social safety net quickly while continuing to enhance administrative capacity to better target redistributive spending.

Where the case for a UBI is predicated on the need to strengthen social insurance mechanisms in the context of growing labor income uncertainty (such as that caused by continued technological change), its role needs to be considered as part of a broader set of income insurance instruments.

In a letter to Ronnie Cowan MP written on the 8th November 2017, the Rt. Hon. Elizabeth Truss MP, Chief Secretary to the Treasury, wrote that ‘As the International Monetary Fund’s Fiscal Monitor (October 2017) cautions, a fiscally neutral move to UBI in Britain would reduce progressivity and diminish the benefits receipts of poorer households, potentially increasing poverty’.

The Citizen’s Basic Income scheme tested by the International Monetary Fund abolished existing means-tested benefits rather than leaving them in place and recalculating them on the basis of households’ Citizen’s Basic Incomes and changes in net earnings related to changes to Income Tax and National Insurance Contributions. This alternative approach, as described and evaluated in research published by  the Institute for Social and Economic Research, delivers very different results: insignificant losses to low income households, substantial aggregate gains to low income households, reductions in all poverty indices, and a reduction in inequality.