Economic Analysis: Universal income is a Labour pipe dream that we just can’t afford

Are you over 18? How do you fancy £20,000 a year? No questions asked — you don’t even have to work. Tempted? Of all the largely scathing commentary on Shadow Chancellor John McDonnell’s conference speech this week, among the less-remarked was his flirtation with the idea of a Universal Basic Income (UBI).

McDonnell is “interested” in the concept and wants to “learn from its potential from the experiments currently taking place across Europe”.

So what is a UBI? Exactly what it says on the tin. The state guarantees a basic minimum income for all adults and children. You get it whether you go out to work or stay indoors watching Homes Under The Hammer. It’s not linked to salary either, so the homeless man on the street gets the same as a billionaire.

The concept has fans on both sides of the political divide; the Left because they see it as combating inequality in society, and the libertarian Right because they see it as a way of simplifying welfare systems while empowering the individual.

The idea is gaining some traction in Europe, too. Switzerland staged a referendum on the topic in June, and an overwhelming majority rejected the proposals for a guaranteed income of Swfr2500 (£1755) a month for adults, as well as Swfr625 for each child.

At the other end of the scale, economic struggler Finland sees it as a way to reduce a swollen welfare state, and will experiment with a watered-down proposal.

But if Labour wants to improve on the already-infinitesimal chances of gaining power in 2020, McDonnell would be advised to stop talking about UBI straight away. As last year’s election showed us, when you’re behind in the polls on leadership and economic management, you lose. Advocating a UBI would hardly rebuild Labour’s reputation for fiscal responsibility in the eyes of sceptical public because it is so expensive.

Say we introduced a £10,000-a-year guaranteed income, barely a third of the UK’s £27,000 median pay. To make it “cheaper”, exclude the 12.1 million under-16s and the 11.4 million pensioners. That leaves you 43 million people — a cost of £430 billion. The Government spent £258 billion on welfare in 2014-15, so it’s already plain the idea is cuckoo.

That’s before you get to the longer-term impact on the economy. More people would be likely to withdraw from the workforce, potentially pushing up wages and inflation. That’s because people have still got money to spend even if they’re not working.

Then there’s adjusting for regional differences; £10,000 doesn’t get you far in London but goes a long way in Wales. Given the strong anti-immigration thread in the Brexit vote, when do overseas workers become entitled to it? And where is the fairness in the working population and businesses taking on a much higher tax burden to pay for the benefit for all?

It hardly helps our companies to invest and improve productivity. If McDonnell is really serious about being a Government-in-waiting, he needs to leave the fairy stories for bedtime.