Universal Basic Income (UBI) is a policy providing regular, unconditional cash payments to all citizens. In the United Kingdom, a comprehensive UBI sufficient for an individual to live on would cost approximately £67 billion annually, or 3.4% of the nation’s Gross Domestic Product (GDP).
Interest in UBI has surged in the UK, particularly as the Scottish Parliament considers a trial and policymakers debate its potential efficacy during economic crises like the Covid-19 pandemic. While pilot projects can explore some effects, detailed studies are crucial to understanding the costs involved.
A common misconception is that UBI’s costs are prohibitive, but many analyses inflate the expense by focusing on the gross cost — the total UBI distributed across the population.
This figure does not account for the offset by new taxes imposed to fund UBI, resulting in significant reductions. The actual cost, or net cost, accounts for the redistribution aspect where people pay some amount in taxes and receive UBI, leading to a net financial effect.
Using data from the 2014/15 UK Family Resource Survey and the EUROMOD Tax-Benefit Model, a recent study calculated that the net cost of a full UBI in the UK is roughly one-third of its gross cost.
This study proposed a UBI of £7,706 per adult and £3,853 per child.
Key aspects include:
- Cost: The net cost of a full UBI is £67 billion per year, approximately 3.4% of GDP.
- Benefit Levels: Adults would receive £7,706 annually, and children £3,853.
- Tax Rate: A 50% income tax rate for net beneficiaries is integrated into the existing UK tax-and-benefit system to ensure a majority of citizens benefit, with none in the lowest 20% financially disadvantaged.
- Government Spending: Implementing UBI would increase the cost of the UK’s existing benefit system by 39% and total government spending by 8.7% (£67/£771 billion).
The scheme is projected to benefit most households within the lower 70% of the income distribution, effectively acting as a wage subsidy or tax reduction for many workers and their families. For net-beneficiary families, the average gain over the current system is estimated at £4,056.
Under the UBI plan, the percentage of UK families living below the official poverty line would significantly decrease from 16% to 4%. Child and elderly poverty would be almost eradicated. The net cost of UBI — gross cost minus intra-scheme payments — stands at about 35.4% of its gross cost (£438 billion). When considering existing programmes that UBI could replace, without harming the bottom 20% income households, the net cost is about 15% of the gross figure.
The UBI model would eliminate absolute poverty in the UK, as defined by measures used in the United States.
A notable consideration is the current UK expenditure of over £93 billion annually on corporate subsidies and tax breaks. Redirecting these funds could fully finance UBI, negating the need for increased individual taxes and still leaving £26 billion for corporate subsidies.
Countries with similar economic structures and per capita incomes to the UK should expect a comparable UBI cost relative to their GDP.
Completing the picture, any remaining poverty would see individuals closer to the poverty line and with sufficient support from other government services. A UBI scheme of this scope represents a transformative potential for eradicating absolute poverty within the UK, surpassing the financial outlay currently dedicated to corporate tax benefits.
