Future of work - tax proposal put forward to support universal pay

Derek du Preez Profile picture for user ddpreez February 15, 2018
A new study RSA provides a convincing policy proposal to fund every citizen under the age of 55 with a £5,000 “opportunity dividend” for up to two years.

The RSA, a charity that analyses the challenges currently facing society, has put forward one of the most convincing tax proposals we’ve seen in recent years to support the idea of ‘universal pay’ - or a Universal Basic Income (UBI) - in order to address the changes in the future job market.

The study proposes the idea of a Universal Basic Opportunity Fund (UBOF), which it sees as an opportunity to pave the way for future a UBI, supported by new government investment funds or new tax measures.

It’s a significant proposal, as it quantifies the cost to the government’s balance sheet and provides data on how it could be realistically funded.

The idea of a UBI for all citizens has grown in popularity in recent years, given the threats that the current job market faces, with new technologies and automation wiping out huge swathes of low-skilled opportunities. It is thought that a UBI could give people the freedom to reskill or find new areas of work, and potentially drive up productivity.

However, given the ongoing negative rhetoric around state benefits - with the implication that it creates a ‘lazy society’ - it faces an uphill struggle in terms of political and public acceptance.

The RSA’s central proposition is the creation of a UBOF - “an effort to reimagine how society supports people to live meaningful, contributory lives”. It suggests funding every citizen under the age of 55 with a £5,000 opportunity dividend for up to two years, taken at a time of their choosing over the course of a decade. During this time, those receiving the fund, would be exempt from receiving certain other state benefits.

The fund would initially last for ten years, with dependent children also eligible for the payment in the year a parent, or both, were receiving it.

The RSA estimates the cost of the UBOF to be approximately £14.5bn per annum over 13 years, with the cost each year dependent on how many citizens elected to take the payment and at what point in the year.

The RSA’s report acknowledges that the UBOF would be a significant change and would need to be introduced gradually to ensure administrative success - but argues that it’s a quicker route to such a policy proposal than a full UBI.

Alongside UBOF, the state, civil society and business would have to provide a range of support services from training to advice, to support for entrepreneurship and a range of other supports both financial and personal in nature, it argues.


As noted above, the study is particularly interesting because it provides a full analysis of how the UBOF would be funded.

It argues that one option is to create a Norway-style sovereign wealth fund. This could be funded out of a government endowment which raises capital through the gilt markets and transfers the capital to sit in the account of the Universal Basic Opportunity Fund (so a negative balance on government accounts would be balanced by a positive asset in the fund).

Norway’s fund is currently worth in excess of $1tn and has historically returned 4.1 percent post inflation and management fees. By way of illustration, if the return were 4.1 percent and the interest 0.5 percent then the annual ‘profit’ for the fund would be £7bn. The report argues:

Of course, these calculations are highly sensitive to returns and interest rates. Nonetheless, alongside corporate equity and other funding sources that the fund could acquire in the model outlined here, this could help move the fund towards self-sustainability over the period of its operation.

The fund would have its investment goals established by government. This could include high return global investments and domestic investments for public benefit, such as in housing, digital, energy, and transport infrastructure which need patient finance. In so doing, it could improve the UK’s physical infrastructure as well as supporting the dividend to help people to invest in their own skills and opportunities.

The report adds that whilst a £14.5 billion per year cost is “substantial”, when placed in the context of other government policy decisions, it is “far from unprecedented”. For example, the planned reductions in corporation tax from 28 percent in 2010 to 17 percent in 2020 will cost the exchequer at least £16.5 billion per year.

The RSA argues that an increase in levels of corporation tax back to the mid-2020s percentage alone “could therefore go a long way towards funding the UBOF”.
However, it also suggests some interesting alternative solutions. The report adds:

A longer term UBOF would require a sustainable funding model, options for which would be explored during the initial thirteen year phase. There are a number of potential avenues. These include levies on large corporates (along the lines of the apprenticeship levy), wealth taxes and increased taxes on higher incomes, or an equity levy.

Novel ideas such as taxes on the use of common assets (for example the value of data transferred to major tech platforms) or some reimbursement for profits made dependent on public assets should be explored.

Essentially this is a model of funding support for citizens that moves away from the income tax and national insurance system and more towards funding via wealth and common assets whose value is as yet uncaptured for the public.


The RSA study also provides a convincing argument for why the UBOF could benefit society, alleviate challenges around the future of work and support UK productivity growth. The report notes:

A status quo of low-paid, low-skill work is a key factor in the UK’s poor productivity growth rate. This is further compounded by a diminishing commitment among employers to providing training, which contributes to overemployment and unfilled vacancies. Recent statistics detail the decline since 2000 of numbers of employees taking training courses or working towards some kind of qualification.56.

The UBOF potentially provides an opportunity to reverse these trends, by offering recipients the means with which to upskill themselves and thus offer more value at the workplace, which should ultimately drive up productivity.

It is entirely plausible that an investment in people along the lines of the UBOF would be good for business and good for economic growth. It could kickstart a cyclical process whereby economic growth produced by a more skilled and fulfilled workforce could drive up living standards, producing a healthier and happier workforce able to push further economic growth.

While the initial debt taken on by the government to fund the UBOF is significant, a potential impact through induced economic growth could stand to make it a sensible long-term investment as opposed to a costly expenditure. Arguably, with the right support, the UBOF could support wider innovation strategies, at the margin at least, by providing the means through which creative citizens could invest in starting a business, developing prototypes or developing skills.

At the core of the UBOF idea, the report adds, is the idea that people seek purpose and if given the opportunity, freedom and support to do so, will usually make the best decisions about their own lives. It states that it “does not subscribe to common political characterisations of citizens as lazy or in need of an overly paternalistic state to make decisions on their behalf through means such as strict welfare conditionality”.

My take

An incredibly interesting read and one that should be taken seriously. Will it gain the political and public support it needs? That’s where the challenge lies.

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