Ive been thinking about how introducing an unconditional basic income is going to affect people's disposable income if it is introduced.
Unconditional Basic Income is a payment made to every citizen by the government and it is meant replace all conditional welfare payments. By removing conditionality you ensure that nobody faces hardship waiting for the state bureaucracy to assist when they find themselves unemployed .
I have put together a spreadsheet which I used to compare disposable income before and after basic income. I have use the income tax calculator and benefits calculator from money saving expert to work out disposable income at different levels of pay.
Needless to say the existing benefit system makes it very difficult to compare, so I based the benefit calculations on a single man living in Manchester.
I chose Manchester because the housing benefit paid in London pushes the level of basic income quite high. If basic income was expected to replace housing benefit then it would make people out in the cheaper areas wealthy and others in expensive areas destitute. Basic Income UK are proposing a basic income of £12,000 per year which would be inadequate in London and so we should assume that a basic income might be supplemented with some form of housing benefit in expensive areas like London
So if the UBI was set at the same level as our single man in Manchester receives, he would be expected to pay his rent out of it. But someone in London would need to claim an additional housing allowance. Retaining some conditional benefit would means not all the efficiency savings of UBI would be achieved but it probably still be cheaper to administer than the current system.
In order to simplify things a bit I have assumed a flat rate of tax. This makes it a bit easier to work out how much tax could be raised and makes the spreadsheet slightly simpler.
Of course if you favoured a negative income tax to basic income because it allows higher withdrawal rates then you could use tax bands so that basic income gets withdrawn faster. This would give you the capability to withdraw UBI as people start earning but still retains all the advantages of an automatic payment. It places the conditionality in the tax system and not in the benefit system.
With the spreadsheet I was then able to see what affect could be had on disposable income with different levels of UBI
Basic Income UK are proposing a relatively high basic income of £12,000 and I am assuming that a tax rate of 50% would be needed to help fund it. You can see that even with 50% tax you have to be earning quite a lot before you start to feel the pinch. Higher levels of basic income tend to push things out a bit.
Bear in mind also that for UBI we are combining tax and national insurance. People paying the top rate of tax used to pay 52% with national insurance. Even with a flat rate of 52% you would have to be earning over £52,000 to end up with less disposable income than at present.
I also considered what would happen if we set a tax rate and level of UBI that means that the top rate earners were worse off than today. In this case you can see that there are some losers between the higher rate and top rate. I don't think that is ideal.
For my next trick I'll have a look at building in some tax bands so we can model more complex proposals like the citizen's income trust.
All the data is available from this link