The Cost of Basic Income in the United Kingdom: A Microsimulation Analysis

Abstract

This article uses microsimulation analysis to estimate that the net cost (the real cost) of a roughly poverty-level Universal Basic Income (UBI) for the United Kingdom is about £45 billion per year or 2% of GDP. We use 2019/2020 fiscal year data to examine a scheme with a UBI of £8,040 for adults and £4,020 for children with a marginal tax rate of 50% on net beneficiaries. This UBI scheme adds only 25% to the cost of the UK's existing transfer system and only 5.1% to total UK government spending. About 54% of UK families would benefit from the transition to this UBI scheme, with the average gain for each net-beneficiary family being £3,025. The £45 billion figure is a “net” cost in two senses. First, it subtracts the amount of UBI that individuals pay themselves as they simultaneously receive UBI and pay higher taxes to finance it. This calculation alone shows that the cost of UBI is only about one-third of the often-quoted-but-not-very-useful concept of “gross cost,” which ignores the fact that it costs nothing for a person to give themselves a pound; neither does giving oneself a pound affect any marginal cost or benefits faced by any person's budget constraint. Second, this article also adds and subtracts the costs and savings involved in integrating the UBI scheme into the UK's existing tax and benefit system. This calculation further reduces the scheme's cost to 10% of gross cost. Under this scheme, the percent of UK families with incomes below the current official poverty line would drop by 72% from 17.9% to 5.0%. The largest increase in incomes would be felt by those most deeply in poverty, so that deep poverty, poverty among children, and poverty among the elderly would all but disappear.