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25 October
12:56
Photo: © Bank of England [2015]
October
2016

It is hard to see how this could work. UK GDP is about £1.9tr a year, or £29,000 for each of the 65m people in the country. Government spending is already £765bn a year, of which £700bn is raised in taxes and the rest borrowed.

Assume no national income is paid for people under 20, and those over 20 (about 49m) get £10,000 a year (barely enough to survive on, especially if you have children, and equivalent to pay of £5.20 an hour). That would cost £490bn, or a 64% increase in public spending and therefore of tax.

Supporters of the idea say you could replace existing benefits with the national income. Estimates by FullFact.org say the UK now pays about £81bn of state benefits, £90bn of state pensions, £11bn of child benefit, £900m of war pensions and £30bn of tax credits a year, a total of about £217bn.

That is less than half of what the national income would cost. And those benefits are paid to only the neediest sections of the population. So the people who actually need benefits would be much worse off, if their benefits were replaced by a flat national income paid to all.

Pensions payments have also been promised to people who have worked for decades, and it seems unfair that people on benefits and pensions would have to give those up in return for the national income, while people in work would be able to keep it.

The national income would presumably be taxable, so, very roughly, about £19bn of the £45bn paid to higher rate taxpayers would come straight back to the government, and perhaps £60bn of the £250bn that would be paid to basic rate taxpayers. More people would become basic rate taxpayers, but even if you assume £100bn more of national incomes become taxable at 20%, that would only save £20bn.

Even if you assume the entire benefit and pension bill could be wiped out (causing great hardship and unfairness) the net cost of the policy would still be perhaps £170bn, or a 22% increase in government spending.

A national basic income or citizen’s income would basically be an unaffordable handout to those who are already doing OK financially. And that’s before you think about whether it’s a disincentive to working.

Jon Hay is corporate finance editor of Global Capital

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