The draft report of a project to model the economic impact of a citizen’s basic income in Scotland has been published today.  The report, co-authored by researchers from the Fraser of Allander Institute, the Policy Evaluation Research Unit at Manchester Metropolitan University and IPPR Scotland, looks at the costs and benefits of implementing a basic income in Scotland and the channels through which it may impact upon the economy.

The modelling is fiscally neutral – that is, it looks at the reality of how to pay for a basic income, as well as the impact of paying out the basic income.

Two versions of a citizen’s income are modelled: a lower level basic income that replicates the standard allowances already in place in much of the social security system and a second, higher level, CBI that used the Joseph Rowntree Foundation’s Minimum Income Standard as a guide to the level of payments.

The cost of the lower basic income is estimated to be £27 billion. The cost of the higher-level basic income is estimated to be £58 billion.

Although savings could not be realised within the current devolution framework, around £20 billion could theoretically be offset via replacing existing benefits (including the state pension) and eliminating the personal allowance. This leaves around a £7 billion funding requirement for the lower level CBI and around £40 billion for the high level.

The modelling looks at the impact of using income tax to pay for the remaining cost, and then considers the impact on the economy of both the basic income and changes in tax. To fund the lower level basic income, an increase in 8 points on each Scottish income tax band would be required, with people paying income tax on even the first pound of income because of the abolition of the personal allowance. Changes to fund the higher-level CBI would be significantly greater.

Other tax combinations are possible, although using income tax provides a helpful benchmark given its scale, its progressive properties and its devolved nature. Alternative taxes or spending cuts would also have significant implications for the economy given the scale of the funding requirement.

The analysis shows that what happens to the economy depends upon how people respond to both the introduction of the basic income and the increase in tax. 55% of people would be net gainers from the lower level basic income we modelled and 45% of people would have less take-home income (i.e. after tax and the basic income is paid).

If people who lose income take some action to restore their living standards by demanding more pay or changing how much they work (i.e. by changing their hours or moving elsewhere), then we might expect negative economic impacts. If people instead are content to see their own income reduced due to the existence of a basic income that benefits others, then we might expect more positive impacts.

Other impacts, such as changes to productivity (good and bad) may also occur. At present, there is a lack of evidence – both in Scotland and internationally – to say conclusively what the final economic impact will be.

Modelling the Economic Impact of a Citizen’s Basic Income in Scotland – Key points

Modelling the Economic Impact of a Citizen’s Basic Income in Scotland – Full report