Why the universal wage is a non-starter

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:

1. The payment should be enough on which to live.
2. 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:

1. Many people will opt to work fewer hours, take less demanding jobs or cease paid employment altogether.
2. 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.