What Can Finland Tell Us About Universal Basic Income?

The topic of a Universal Basic Income to replace all manner of benefits is being discussed in the upper echelons of government across Europe. Is there mileage in such a utopian idea?

Photo released under Creative Commons

Adele Barnett-Ward

Adele Barnett-Ward

Friday 17 March

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Universal Basic Income (UBI) is a hot topic amongst lefties but I was talking and thinking about it before it was hip.

In my twenties, when I was trying to build a career in theatre, I juggled fringe shows which paid expenses – and rackety little tours that paid little more – with insecure work on zero hours contracts. I signed on for Income Support and Housing Benefit straight out of university but soon realised that Social Security was false security because there was no transition period when you took a job: no hop-on, hop-off system.

Once I signed off it would be difficult to sign back on and I could see how easy it would be to become trained by the system not to aspire, just to protect my benefit eligibility.

How much more civilised it would be, I thought, if we all received a basic income from the state: enough to live on if you are very careful but you could choose to work for more money if you wished.

Reduced bureaucracy, an end to the stigma of relying on the welfare state, and people could have the freedom to retrain, take a career break to care for family and friends, build a career in competitive and oversubscribed areas like the arts – all without having to worry about where the rent money is coming from.

I have been made redundant once, my husband has been through it twice. When we were both working, without dependants, it was unpleasant yet manageable. But my husband’s second redundancy was three years ago and by then he was the sole wage-earner for a family of six people.

A UBI would have made that time less stressful and would still help us now; we run a small business together and our cashflow can vary more than is comfortable.

UBI is exactly the sort of big idea that can only come from the Left of the political spectrum, the sort of thinking that sets us apart from the Right and counters the complaint that “politicians are all the same.”

It comes from an understanding that people cannot live their best lives when they are one pay packet away from homelessness, when they don’t dare to try and get off benefits and work because if it goes wrong – if the childcare doesn’t work out or the boss is a nightmare – they will have to rack up debt on credit cards waiting for their benefits to be reinstated. And be in a worse position than they were in before.

As a concept, as an ideal of equality and giving everyone the economic security that only those with wealthy and generous families currently enjoy, it is laudable. When someone told me recently that Finland has introduced a UBI I was intrigued, and started investigating. At first I found a lot of people on the Left of UK politics saying that Finland’s adoption of UBI is a key moment of change in economic thinking, and speculating that where Finland leads, the UK could follow. Once I looked a bit deeper – really, just a tiny bit – I discovered that Finland haven’t introduced a UBI at all. In January 2017 they launched a two year, 2,000 person experiment in Partial Basic Income (PBI).

First, we need to consider the background to this experiment (my source is ‘From idea to experiment: Report on universal basic income experiment in Finland’).

The idea of BI has been percolating around Finland for some time. Kela (Finland’s Social Insurance Institution) surveyed the population in 2002 and found broad support across most socio-economic groups when very general questions were asked. Planning for Finland’s BI experiment began in 2015 and included a follow-up survey which found that 69 per cent of respondents supported the idea. When asked what level BI should be set at, the median response was 1,000 euros / month, which is 1.4 times higher than the minimum pension.

However, when respondents were told the tax rates needed to pay for BI, support dropped away. Only 35 per cent of Finns would support a BI of 500 euros if it was paid for by a tax rate of 40 per cent on all income above the BI amount. That falls to 29 per cent when a BI of 800 euros with a tax rate of 55 per cent on all income over BI is proposed.

Finland has earnings-related unemployment allowance. The median wage in the Finnish private sector in 2014 was 3,135 euros and the earnings-related unemployment allowance based on this amount (without supplements) is 1,732.25 euros/month. To provide a BI of 1,500 euros, the tax rate on all earnings above that amount would have to be 79 per cent Kela’s report notes that: “Thus, the political problem may be that in principle people are in affirmative but in practice they are not willing to pay the financial costs.”

And here’s the rub, the boring reality. Say – to make things simpler – these figures translated directly to the UK and pounds and pence (I know they don’t but I haven’t found any reliable costings for this for the UK, so let’s work with what we have). Can you imagine the Labour party, already way behind the Tories in the polls, characterised (however unfairly) as favouring scroungers at the expense of aspiration, as being spendthirift and tax-happy, can you imagine that party going to voters and saying “We’re going to give every adult £1,500 a month, regardless of earnings (or lack of). For every pound you earn over that amount, the treasury is going to take 79 pence. You can keep 21p out of every pound you earn”? The 1983 Labour Party Manifesto would become only the second longest suicide note in history.

Even in Finland, a country with a history of support for BI from the populace, the country ranked 5/38 for life satisfaction on the OECD Better Life Index (we are 21/38), they are not trialling Full Basic Income. There just isn’t the support for that level of taxation. The trial they have just embarked on, as the Kela report admits, is a compromise. It is too scaled down to offer hard evidence of the workability of BI. 2,000 unemployed people will receive a Partial Basic Income of 550 euros a month. The original aim was to have a sample across the entire population, but this proved unworkable. The amount of PBI will not replace all benefits paid to the participants. To pay for even this compromise to cover all adult Finns the basic rate of income tax would have to rise to 42%.

Even Full basic income would not wipe out all bureaucracy (what about disability benefits, child allowance, child support ?) Partial basic income could result in some bureaucratic cost-savings, but as Finland’s experiment does not even replace all out-of-work benefits any reduction in administration costs, Kela points out, will be small. They do note that the merging of basic benefits will reduces delays on moving from one benefit to another as well as the elimination of gaps between work and social security payments, which supporters of the idea rightly claim as one of its major benefits.

The Finnish PBI scheme is, however, too small in scope to answer another criticism of BI schemes: disincentivisation. It will not tell us whether, as well as giving an artist the freedom to create, a true UBI might give a sewage worker the freedom to not be a sewage worker. When you are taking home less than 25 per cent of what you earn, how many people will choose to be care workers, or hotel housekeeping staff? If Theresa May succeeds in her stated aim for Brexit of reducing immigration we are already be facing a staffing crisis in the NHS, in seasonal farm labouring, in any area where EU nationals currently work hard for low pay. How many native Brits are going to want to pick raspberries when eight hours at minimum wage nets you only an extra £15 a day? How much tax revenue will the country lose if people on low incomes decide that work no longer pays?

One possibility is that businesses would have to raise pay rates to attract staff. Those who cannot make a profit doing so would fold, reducing Corporation tax receipts. Large firms could counter the drop in profits caused by a higher wage bill by fancy footwork around business taxes, so we either lose revenue or spend more on the bureaucracy of closing tax loopholes.

The Finnish compromise of PBI would be low enough to keep people working, even in low-paid jobs, and therefore not high enough to abolish the welfare state. It, like the tax credits system, would benefit employers, allowing them to underpay their staff because the state is propping up the system.

In May 2016 Dalia Research surveyed populations across Europe on basic income. The idea got slightly below-average support from UK respondents (62 per cent support versus an average of 64%)this is in contrast to a 2015 YouGov poll which had only 18 per cent of respondents supporting it. Crucially, neither poll talked about how BI would be funded. The British electorate are not prone to voting for tax rises, and if even the Finns go off the idea when told how much it will cost them personally, then it’s a fair assumption that announcing a massive tax rise will not be a vote-winner over here.

If you can’t win an election with BI in your manifesto (more creative ideas for funding BI have been suggested, but it’s hard to imagine negative savings rates – for example – being any more popular), then the topic is moot. Kela expect to report on their experiment in 2019, and I shall read that report with interest, but I anticipate that the Finnish experiment will not give us the answer for the puzzle of how we could sell a universal basic income to the British electorate in 2020, or ever.

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