Should Northern Ireland follow Finland’s example and consider a universal basic income for all?

Anti poverty campaigners and economics geeks alike have reason to be cheerful this week with the news that Finland is to carry out a trial of a basic income. A basic income, in its purest sense, is a non means-tested payment to all citizens regardless of income or wealth which replaces existing benefits such as unemployment benefit.

The Finnish trial, which has been developed at the behest of new centre-right Prime Minister Juha Sipilä and is supported across the political spectrum, is an experiment designed to determine which type of a basic income will prove most effective at “[reflecting] social changes, abolishing work disincentives and diminishing bureaucracy”. As explained in this Vox article, there are four options that are to be considered:

  • A full basic income, high enough to replace almost all benefits
  • A partial basic income, replacing almost all non-insurance based benefits but leaving insurance based benefits in place
  • Negative income tax, where (for example) if there was a £10,000 per annum negative income tax with a 50% phase-out, an individual with no income would receive £10,000, if income was £10,000 they would receive £5,000, until their income reached £20,000 and they would receive no benefit at all
  • Other approaches, for example merging some existing benefits, and then making additional payments to reward behaviour such as volunteering

The Finnish experiment will provide extremely valuable information on the impact of various basic income schemes. Whilst there have been a small number of trials elsewhere in the world on introducing similar schemes, there is very limited data available on the results of the basic income experiments.

A series of experiments were conducted in the United States in the 1960s and 70s, primarily centred around negative income taxes, when incoming President Richard Nixon tasked Donald Rumsfeld (and his assistant Dick Cheney) with leading the poverty reduction campaign. However, the scheme was subsequently undermined when the data appeared to show that divorce rates in the experimental population were 53% higher than in the control population, and a number of politicians withdrew support for the programme. This result was later identified as a statistical error, and no other experiment found any relationship between basic income and marital stability.

In terms of solid empirical data, the most useful experiment with basic income was the trial carried out in the small Canadian city of Dauphin, Manitoba, between 1974 and 1978, known as MINCOME. Every family in Dauphin (and the surrounding rural area, a population of approximately 10,000) would receive 60% of the Statistics Canada low income cut-off, which varied by family size. Every dollar received from any other source would reduce benefits by 50 cents. An important aspect of the MINCOME scheme was that it led to a significant increase in income for the working poor.

The province of Manitoba maintain data on all contacts between patients and doctors and hospitals going back as far as 1970, which means that it was possible for researchers at the University of Manitoba to compare healthcare outcomes between Dauphin and other comparable towns and cities in the province.

The results are striking; hospital visits per capita in Dauphin were higher than the provincial average before the scheme started in 1974, but at the end of scheme in 1978 there was no difference between hospital visit numbers in Dauphin and what would be expected elsewhere in the province. A similar pattern was observed with mental health diagnoses, with Dauphin having noticeably higher diagnoses than the control population in 1974, with the gap closed entirely after 1978.

There was an impact on education, as well, as students in Dauphin were more likely to progress to the Canadian equivalent of sixth form during the years that the trial was operational.

Despite being a small trial that commenced over forty years ago, the Dauphin experiment remains the best source of empirical data on the potential benefits of a general basic income. The Finnish experiment, due to run from 2017 to 2019, will be crucial to see if the Dauphin experience of improved health outcomes and higher educational achievement will be replicated.

Northern Ireland has a famously high welfare bill compared to Great Britain and the Republic of Ireland. It seems somewhat counter-intuitive that the solution to a higher welfare bill might be an even higher welfare bill, at least in the short run, and to my knowledge the Green Party are the only UK party that support the concept of a universal basic income.

But it could be argued that freeing people of the demeaning cycle of welfare sanctions and food banks could have a transformative effect on the local economy. It would facilitate risk taking and entrepreneurship by ensuring that basic needs are taken care of whilst people start new business ventures, and the multiplier effect of redistributing money to the poorest in society could increase the size of the economy, and the resultant income tax take, far higher than the cost of implementing the basic income policy in the first place.

At a 2014 NICVA Masterclass on Basic Income, it was estimated that the cost of implementing a Basic Income policy in Northern Ireland at the “poverty line” level, defined as £51.60 per week for under 16s and £172 per week for over 16s, would cost £12.565bn after netting off employers’ NI contributions and an increase in VAT revenues, including £25m on administrative savings.

The Northern Ireland Executive currently spends £8.16bn on benefits and pensions. A basic income would see almost all of this spend eliminated and also preclude the need for the form of basic income that already exists in the UK, the tax-free allowance, which currently lets people earn £10,600 per year without paying any income tax, which I’ve roughly estimated costs £1.3bn in lost income tax revenue in Northern Ireland each year.

That would leave a gap of around £3bn which would need to be plugged were Northern Ireland to introduce a basic income of this type, if the Northern Ireland Executive had welfare spending and tax raising powers, which they currently don’t. This is obviously a substantial amount, but not a fantastical amount, and it is certainly possible that the benefits to the economy, healthcare and education would exceed the outlay.

Ultimately, the argument boils down to what sort of economy and society is desirable as technological change quickens and entire industries no longer require human employees. For example, what impact will self-driving cars and lorries have on those who work in the taxi and road haulage industries. If everyone were to find themselves out of a job due to automation, then there would be no consumers and hence no economy.

The lessons from the Finnish experiment will be invaluable in determining what the role of the welfare state could be in the future. The radical approach of a basic income to all citizens may be the key to both unlocking economic potential and ending poverty.

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  • TruthToPower

    The part about creating a more entrepreneurial spirit chimes with me. I can see how this would work. People could take more risks without fear of destitution if things didn’t turn out right. However we can’t encourage society to become more risk averse. There are only so many pop up coffee shops and crisp butty stores an economy can maintain and there is a critical mass of business failure that an economy can absorb beyond which things may unravel

    Another unexpected consequence is that there would be little incentive to get a job that paid only a marginally bit more than the mincome. Why work 40 hrs a week for just an extra fiver.

    Who knows but here’s a question : why are countries like Finland so more given to such experiments then we are? What’s in their psyche?

  • hurdy gurdy man

    Another unexpected consequence is that there would be little incentive to get a job that paid only a marginally bit more than the mincome. Why work 40 hrs a week for just an extra fiver.

    The basic income would be claimable regardless of any additional income.

  • hurdy gurdy man

    Actually this response needs to be qualified in the light of option 3 (above). But the upshot remains the same: it needn’t remove the incentive to work.

  • aquifer

    Finland has a climate that teaches the lesson co-operate or die. They even had plans to evacuate civilians out of any war or invasion zone quickly by train to avoid them freezing and starving to death. Culturally they are quite cohesive, having descended from some tribes from south eastern Europe that migrated north together.

    Basic income has immense potential to move populations out of poverty and safely decommission the massive pile of debt tottering over our financial system, by injecting missing demand into the economy. Unfortunately the concept reduces the social power of the rich, the welfarist bureaucracy, religions, socialist cults, sado-monetarist accountants, and low consumption tax fetishists, so is unlikely to be adopted.

    Except in Alaska, where a basic income is paid for with oil revenues.

    If we added tax onto current oil prices we could pay for basic income and keep oil consumption down to suppress the pre-tax price further, but lots of countries would have to do that. And after Paris it looks like they should.

  • Croiteir

    I am not sure about this – are they socialising the costs of wages but not socialising the profits?

  • Croiteir

    “Unfortunately the concept reduces the social power of the rich, the welfarist bureaucracy, religions, socialist cults, sado-monetarist accountants, and low consumption tax fetishists, so is unlikely to be adopted.”
    Can you explain to me how that would occur for those groups?

  • New Yorker

    This concept has so many possible beneficial effects that it should be considered. NI is small enough for an experiment once initial results are in from Finland. Three billion is not an impossible figure for the UK and it would have ramifications for all the UK. The NI political parties should be asked where they stand on a basic income experiment.

  • SeaanUiNeill

    TruthToPower, the extra fiver is still an extra fiver on top of the “citizen income” and as such is an incentive.

    In the early years of any intellegent but small scale (single trader or partner) entrepreneurial project you usually need to self subsidise through taking out loans and this is the sort of exact foundation that has permitted people to actually think about how to make money rather than simply set up a franchise that the banks will support in the first year. The surprising thing is that the governmemnt wishes to keep people in a degrading and oppresive system with incentives to abuse it for more money rather than instigating something that cannot be cheated.

    There is an excellent page on the subject out there:

    http://www.citizensincome.org/

  • aquifer

    Rich is a relative term and the rich are less so when others get more. When people do not need to present themselves as supplicants or chronically sick to the welfare authorities the status of bureaucrats is reduced. Religions underpin their authority by providing support to the most needy. Socialist cults need to maintain a narrative of economic exclusion to thrive. When wage money matters less to people, accountants cannot squeeze wages the same way. Consumption taxes are the obvious way to pay for a large distributive scheme, so a basic income scheme is likely to result in those advocating low taxes being overrruled.

  • TruthToPower

    I like the idea but can’t see it being done here in the UK as we are impervious to new ideas
    We still worship The Victorians.

    Good luck to Finland and al other advanced nations with this. We will just watch and snipe from the sidelines and doff our caps to the rich like we always do

  • SeaanUiNeill

    But when Switzerland adopts it, and after it becomes clear that benefits are becoming almost universal because of the collapse of jobs from computerisation, then the UK and Ireland will follow the example like the dumb kid who tags along with the big boys and girls………….

    Unless of course we wake up one morning to a world entirely without computers, Citizen Income is as inevitable long term as sunrise……

  • Croiteir

    That explains why the Church has been campaigning for just wages for centuries then – they want to lessen the need for the poor to depend on them. Seems to me that they can do no right.

  • patrick23

    I’m not a fan, but this is a good article.
    Anyway.
    If Stormont got tax raising powers, and “found” the 3bn, a huge amount of the consumer spending boost that a basic income would cause would flow back to London as VAT and corporation tax on UK firms.

  • JohnTheOptimist

    Left-liberals in Ireland and Britain are suckers for everything Nordic. However, they don’t like to dwell on the fact that the main reason Finland is going down this experimental route is that its economy is sinking. Unlike Ireland and Britain, it has failed to recover from the fall in GDP it experienced as part of the global recession 2008-2010. In the past 2 years Finland has had negative growth, while Ireland has grown by 6%-7% annually and the U. Kingdom 3% annually. Extremely high taxes and extremely high government spending are the main reason Finland is faring much worse than Ireland and Britain. So, we should be wary about importing the Finnish model. That said, if the proposal can be implemented without a net increase in taxation, without disincentivising fit and able people from working, and possibly reducing bureaucracy, it is maybe worth a look.

  • Kevin Breslin

    I think yer wee man from Limerick was a bit more on the ball earlier.
    http://www.thejournal.ie/willie-odea-basic-income-2451882-Nov2015/

  • SeaanUiNeill

    Kevin, some of us saw this coming twenty years ago and longer! The stifling bureaucracy of running and policing a means tested benefits system is already so convoluted that tax credits in the UK rely on a simple check up on your tax returns! Citizen Income simplifies this even further, which is why Switzerland is sniffing about it. The alternative is to simply create more rather pointless “whitewashing coal” desk jobs, the solution of the 1990/2000s, but something that has worked to inhibit the imagination and creativity required to seriously revitalise an economy.

  • murdockp

    Stormont has tax raising powers. Business rates and by Christ it knows how to use them as it lays waste to the SME economy of NI

  • murdockp

    One small cultural problem in NI and it is called telling lies.

    From cigarettes sold under the counter through the to working whilst claiming benefits and claiming a DLA company car, the culture of taking what you can get away with is endemic across all people both in and out of work.

    Until this changes our financial affairs are best manged by others.

    Ironic that a country divided by religion behaves like we do.

  • SeaanUiNeill

    If everyone is given a basic “Citizen Income”, non-means tested, then its rather more problematic to “get away” with pumping it up in any way. Unless of course you have access to the Records office and can invent a string of new identities…….

  • chrisjones2

    Don’t we already have this free and on demand – in some areas anyway. Its called DLA

  • Croiteir

    The whole debacle includes the stupidity of individualisation of tax instead of treating the family as a unit. In order to get the family back to a sensible level of taxation they then have to credit the tax back. Why not get it right the first time?

  • TruthToPower

    Another unexpected consequence of this is its inflationary effect. For example, if everyone was given an extra £500 a month for example, what would stop landlords hiking their rents up by £500 a month? What would stop employers from cutting salaries by £6k a year or not increasing salaries by the rate they would have had if MINCOME did not exist?

    I do like the MINCOME concept but there are many considerations and safeguards needed to truly make it work

  • Kevin Breslin

    I think the question is should the United Kingdom (and/or the Republic of Ireland) follow Finland’s example, after giving back the power to Westminster our (take your pick Northern Ireland/Norn Iron/Sé Contaetha) only fiscal control over welfare provisions is down to individuals choosing whether to take it or not.

  • Kevin Breslin

    It is difficult to go back to the system of treating a family as a unit when you are likely to have two earners, or two members with a disability or various combinations … but in terms of relational databases you would imagine creating a family unit claimant level and an individual claimant level would be a lot more easier these days than a simple pen and paper, form and calculator approach.

  • TruthToPower

    Very good DLA for all

  • Thomas Barber

    Its not as if it hasn’t been tried and tested before Seaan

    http://www.theguardian.com/business/economics-blog/2014/dec/18/incomes-scheme-transforms-lives-poor

    But when you keep getting rid of the middlemen who’s left but the bankers.

  • Croiteir

    I do not accept that it would be any great difficulty, what it would be is a potential loss of revenue as well as a retreat from the assault on the family. The Finns, interestingly, found that once they introduced taxation on a family unit level working mothers decided to exercise their option of staying at home. Down with that sort of thing eh?

  • Croiteir

    Personally I would prefer the concept of a just wage. Not too far from this basic wage idea. The just wage is when the family are looked at as a unit. It would look at what the family needs to survive, cost of housing, food, clothing heat and so on, the cost of pensions, the cost of entertainment.

  • Kevin Breslin

    As the son of a working mother and a working father with a stable family upbringing I am biased in favour of having all options available. Both are my greatest heroes and inspiration of course. My place of birth of course has a reputation for men playing mother’s roles.

  • Reader

    A single, transferable (basic?) tax allowance might have the effect you are looking for. Transfer only possible between Civil Partners or married couples.

  • eac1968

    I know the urban myth says that DLA is easy to get but believe me it is anything but.

    I was forced to retire from work as a result of chronic ill-health. Having studied at university for 5 years full-time and a further 5 years part-time to get 2 master’s degrees relevant to my job, retiring early due to ill health was not by choice. Since my retirement I have had 6 major spinal surgeries, and I rely on huge doses of morphine to allow me to function. Even with all the medical evidence that I have, I have still had to go to appeal twice in recent years to stop my DLA being removed.

    So sneer all you like at DLA recipients – I would far rather be on your high horse than on my crippled one.

  • Reader

    eac1968, I am sure that most of the people who feel that there are undeserving recipients of DLA also feel that there are fully deserving recipients as well.
    Unfortunately, on this topic, there are vast tribes making war on their own straw men.

  • Kevin Breslin

    You don’t think that the Irish and British aren’t capable of self-autonomous experimental economic policy decisions themselves?

  • Hugh Davison

    Have they? News to me. The Pope may have uttered an aspiration of that sort in the late 19th century, but in practice churchmen of all persuasions have sniffed around the powerful (= rich) in society.

  • Croiteir

    Really – you didn’t hear announcements like this one earlier this year by Pope Francis?
    “You cannot make donations to the Church on the back of the injustice that you commit with your employees,” Pope Francis reportedly said in Italian at his Saint Martha residence in the Vatican. “If you go to Mass on Sunday and take communion, you should ask: what is the relationship with your employees? Do you pay them off the books? Do you pay them a fair salary? Do you pay the pension contributions?”

  • Hugh Davison

    All well and good. I wish him well. But he hasn’t been around for centuries.

  • Croiteir

    He hasn’t – that is very perceptive of you, however from the first the Church has been preaching this, it is even in the gospels