UBI success directly trades-off with existing benefits---maintaining both is unfeasible

It should be mentioned at this point that the definition of UBI provided above masks a great deal of potential variation in the actual design of UBI schemes (De Wispelaere, 2015). UBI schemes differ crucially with respect to the level of ‘generosity’ they offer, and the extent to which they are expected or intended to cover basic needs; the way in which they are intended to interact with other benefits (i.e. whether the scheme in question is intended to replace, or run concurrently with, them); and the method by which they should be financed, including any changes to the tax system they necessitate. The implications of varying these design features are explored in the models we examine in this paper.

Much of the microsimulation literature relates to concerns about UBI’s financial and administrative feasibility. As noted by Torry (2016b), financial feasibility involves two separate issues: fiscal feasibility, pertaining to the impacts ofpotential reforms on government finances4; and household financial feasibility, pertaining to the gains and losses experienced by households as a result of reforms. Torry (2016a) and others (Reed and Lansley, 2016) have used microsimulation in order to design UBI schemes which strike an acceptable balance between these two types of feasibility.

However, there appear to be a series of irreconcilable trade-offs with respect to UBI design, mirroring the familiar iron triangle of welfare reform (Blundell, 2001). In Blundell’s conceptualisation, it is impossible (in the short term) to meet each of three conflicting goals of social security design: controlling cost, meeting need, and maintaining work incentives. One can achieve at most two of these goals5. For example, in order to ensure that a UBI scheme is fiscally feasible, net spending on other benefits needs to be reduced. One way to achieve this is simply to eliminate a substantial proportion of existing benefits, risking losses at the household level. Another way, and that deemed as the most feasible transition to UBI by Torry (2016) and Reed and Lansley (2016), is to retain means-tested benefits, taking UBI payments into account in their recalculation. However, this solution sacrifices administrative simplicity – often cited as one of UBI’s keys strengths6 – and retains high marginal withdrawal rates which cause poverty and unemployment traps.

We therefore contend that we are faced with a trade-off – or indeed a series of trade-offs – with respect to UBI design. It is impossible to design a UBI scheme which is fiscally feasible, has no adverse distributional consequences, and is sufficiently generous to eliminate the need for means-testing; we must sacrifice one of these policy goals. In Hirsch’s (2015: 35) analysis, there is necessarily a “huge tension… between finding a politically acceptable version of the scheme and retaining its advantages in terms of both simplification and adequacy”. It is the nature and magnitude of these apparent trade-offs with which this paper is concerned.