Blueprints for a universal basic income (UBI) have come a long way in recent years, particularly in explaining how UBI could be paid for. In ‘Universal Basic Income is affordable and feasible: evidence from UK economic microsimulation modelling’, the authors (Reed et al, 2023) set out in admirable detail how additional taxes could be raised, in some scenarios supplemented by increased public borrowing. All the schemes presented are highly redistributive, focusing on improving benefits for those at the bottom of the income distribution.

In itself, this does not answer the question of whether the schemes described would be politically acceptable. Johnson, Johnson and Nettle’s (2022) study appears to show that presenting the advantages of UBI to sceptical citizens can increase their levels of support for it – but did not test this where the objection was on the grounds of cost. This evidence is not exactly a game-changer, or an indication of how the combination of a basic income and higher taxes will fare in electoral politics.

The article shows that its most modest, ‘fiscally neutral’ UBI could more than halve child poverty and concludes that such a scheme can therefore be ‘affordable, feasible and highly progressive’. But fiscally neutral here does not mean replacing our social security system with one that costs the same; but rather being up-front about building extra taxation into the design in order to pay for additional expenditures. Whether it is feasible depends on whether people are willing to vote for those additional taxes to achieve such results. And if they are, is UBI the only way of achieving them?

Let’s start by noting in more simple terms what these additional taxes comprise. The fiscally neutral versions require anything from a 58 per cent increase in direct personal taxation receipts in Scheme 1 to a 185 per cent increase in Scheme 3. Since the latter requires marginal tax rates of between 65 per cent and 95 per cent (and even Scheme 2 requires 48–78 per cent), the authors’ conclusion that implementing it would be ‘potentially politically challenging’ makes a good candidate for academic understatement of the year. Scheme 1 requires marginal rates only 3 per cent above present ones, but would still increase taxes by £160 billion a year, about half of it from the near-abolition of tax allowances. The higher tax rates would raise most money from the rich, but the tax allowance reduction would raise proportionately more from those with modest earnings. This explains why some losers would be on very low incomes, including the nearly one in five households in the second income decile who would lose at least 5 per cent of income. So, while the biggest losers will be rich, some losers will be poor.

Such imperfections in distributional impacts for a minority of households have with some justification been depicted as inevitable in a scheme that brings a massive simplification to social security. Yet a striking aspect of Scheme 1 is that it seems to negate some of the key advantages of basic income schemes. Not only does it retain Universal Credit as the main means-testing programme, but arguably it increases complexity, as well as increasing maximum earnings withdrawal rates for the lowest earners.

As far as complexity goes, it took me quite a while to get my head around how Universal Credit (including both its basic and its housing elements) would interact with UBI, earnings and taxation. In practice claimants will be faced with three different thresholds (tax allowance, UBI disregard and UC Work Allowance) and three interacting rates of withdrawal above these thresholds (55 per cent UC taper, 23 per cent basic tax rate and 12 per cent NIC rate). These three rates will all apply at well below the current tax threshold, causing low-earning families to lose 71p in each extra pound that they earn. (At present they lose 55p if earning below £12,570, and 70p if above.)

Table 6 demonstrates why this somewhat complex design retaining a high level of means-testing is worthwhile in terms of distributional results. By far the greatest winners are in the bottom decile, on average well over doubling their incomes, compared to an increase of just 8 per cent in the second decile. An important driver of this is the fact that households on Universal Credit get a boost of £20 per head to family income (disregarded for UC), plus an additional amount equivalent to the remaining UBI payment minus the 55 per cent of it that is tapered. So for example, a couple with two children gets £208 a week in UBI, of which £80 is disregarded in UC and £58 of the remaining £128 is retained after the rest is tapered, a total pay-out of £138 a week. This is a massive income boost for the poorest families. For a non-working family, it represents an increase in basic entitlements of over 50 per cent which is nearly seven times the temporary boost to UC during the pandemic. No wonder it takes so many families out of poverty.

Could these gains not be achieved in other ways, however? The article claims that previously hostile organisations such as Joseph Rowntree Foundation are coming round to the UBI idea, but in fact what they say (JRF, 2021) is that UBI’s objectives are laudable, but that a more adequate minimum income could potentially be better achieved in other ways. In the case of Scheme 1, imagine that instead of using a basic income mechanism, UC basic allowances were raised by amounts equal to the gains that I refer to in the previous paragraph. This could be achieved with a much smaller increase in personal taxation than is required to pay every citizen a basic income. If something like a 3 per cent increase in income tax rates became a politically acceptable way of drastically cutting poverty, the complication of abolishing tax allowances, introducing an additional tier of income (UBI) and increasing marginal withdrawal rates could be avoided.

It would be helpful to see a modelling of such a policy for comparison: how much would need to be raised to increase UC allowances to the amounts referred to above; what would the impact be on child poverty; and how much would the basic income tax rate need to rise in order to fund it? If UBI advocates only ever model their own preferred policy without such comparisons, it is difficult to compare the effectiveness of UBI and UC as mechanisms for distributing the fruits of tax increases.

With commendable honesty, the authors start this article by pointing out that UBI ‘experiments’ have yet to be tested at scale. This limits the extent to which they test the political feasibility of such schemes in situations where they require voters to accept much higher tax rates. Only the most modest scheme that they present (Scheme 1) has tax rates remotely close to those approved by UK voters in recent years, and even this will create substantial net losers, some but not all of them well off. There are two outcomes that may make this seem worthwhile. One of them, the social achievement of bringing child poverty down to record low levels, could also be achieved through tax and benefit increases in the present system: most simply, as I have argued, by raising the basic rate of income tax and using the proceeds to increase UC allowances. The other outcome, the simplicity of every citizen receiving an income from the state, paid for by taxpayers according to their means, is the more familiar prize of the UBI movement. But in designing their scheme to maximise its redistributive power, the authors have recreated complexities that bring this second advantage into question. This may make it harder than they claim to sell the scheme, along with the higher taxes that it entails, in the political arena.