Robert Henderson
The universal or citizen’s wage is finding favour in various political quarters. This is remarkable because it is very obviously hopelessly impractical.
The idea of the universal wage is that every adult in a society should receive a payment from the state. It is predicated on these two rules:
- The payment should be enough on which to live.
- It will replace all forms of direct welfare which provide money to the individual. Indirect welfare such as healthcare and education would continue as now.
If the payment is not enough to live on then it will be impossible to do away with welfare payments because not every person can be assured of a job which pays enough to allow them to live by combining the universal wage with their earned money. Moreover, there will always be substantial numbers who cannot find work for substantial periods of time. Then there are the old who are over retirement age, children and the disabled or ill who cannot work. Again, unless the universal wage is enough to live on, benefits in the shape of additional payments would have to be made which would again break the second rule described above.
The amount needed to live
At what level should the universal wage be set? In the UK it would be difficult for any person to provide for all their basic needs on less than £10,000 pa and in most parts of the country £10,000 would be grossly inadequate if the person does not own their own home or live in council housing or its like.
It would be possible to pay different amounts according to the cost of living in different parts of the country, but that would mean reintroducing large scale public administration to work out who gets what. That would breach the second rule.
To allow a person to live in any part of the country when they have to pay a private market rent or bear the burden of a huge mortgage would probably mean a universal wage of £20,000 although even that would be pushing things in London and other parts of the South East of England.
£20,000 might fund a single person, but even two people living as a family would find it difficult to raise children on a combined £40,000 if they did not own their home or live in affordable housing in much of the UK. If we are to believe the estimates the media frequently make of what it costs to raise a child in the UK we would think £10-15,000 a year would be required for each child . The Fostering Network charity estimates that the weekly maintenance cost of a baby is £164 and for a 16-year-old or older £245. Most people will think that is much higher than most parents actually spend, but £5,000 a year on average for a child is probably realistic.
The population of the UK was officially estimated at 65 million in 2015. It has probably risen to about 66 million by now, but for the sake of arithmetical co0nvenience I will take the population to be 65 million. In 2015 the age distribution was as follows:
UK Population 0 to 15 years (%) 16 to 64 years (%) 65 years and over (%)
65,110,000 18.8 63.3 17.8
Rounded to the nearest whole number that is 81% over the age of 16 and 19% under the age of 16. That gives approximately 52 million people over the age of 16 or older and 13 million people under the age of 16.
If the £20,000 adult payment is used (52 million x £20k) that would cost £1,08 trillion.
If the £5,000 under 16 payment is used (13 million x £5k) that would cost £130 billion
Total Cost £1.38 trillion
That is greater than the estimated UK Government expenditure for the present financial year, viz:
Estimated Government revenue and expenditure for the year 2017/18
Revenue £744 billion
Expenditure £802 billion
Clearly the £20, 000 adult and £5,000 child universal wage would be impossible as the cost is not far short of twice the total estimated expenditure by the UK government for the financial year 2017/18. Even if the universal wages for adults and children was half that it would cost nearly £700 billion leaving just over £100 billion to fund for everything else a government is expected to provide such as healthcare, education, defence and roads. Clearly £100 billion would be a hopelessly inadequate for that task.
But dismal as those figures are the position is far worse because the government’s tax revenue will be set to plummet because if the universal wage is enough to live on two things will happen:
- Many people will opt to work fewer hours, take less demanding jobs or cease paid employment altogether.
- Consumption will shrink substantially reducing tax paid on purchases.
Hence, trying to fund the universal wage by orthodox means through would meet with a double problem, far less money coming in and far more going out. A wonderful recipe for governmental financial catastrophe.
As this would be a permanent state of affairs government borrowing would not be a solution. There would be nothing to stop a government attempting to pay for the universal wage by doing what has been done with Quantitative Easing (QE) , namely, magic it out of thin air, but that would lead to at best hyperinflation and at worst the complete collapse of the currency. That experiment would not last long.
What is certain is that simple arithmetic tells you the universal wage is completely impractical It fails because it either has to be set at a level which would allow the individual to live without working, which means it is far too expensive, or its proponents are driven back to making additional payments for those who cannot live on the universal wage because of different regional costs of living (particularly the cost of housing) or circumstances such as old age or disablement or sickness.
Comments
See the ZWT proposal for the UBI http://bit.ly/2xkQoWv