Act Now: Costs, benefits and funding

We analysed the policy reforms outlined in the report using a model of the relationship between Gross Value Added (a measure of economic output) and public and private spending on services and investment at the regional and local level in the UK and constituent countries. We assume that the capital spending commitments in our recommendations will have positive impacts on productivity via multiplier effects, and we used an established estimate of 2.74 based on public investment in infrastructure after 5 years. This means that an increase of £1 million per year in spending produces an increase of £2.74 million in GDP. The initial spending commitments in this book total approximately £407bn, of which just over 70% is current spending rather than capital spending. However, current spending also has multiplier effects. For example, additional spending on the NHS contributes to a healthier workforce with lower levels of premature mortality and morbidity and better mental health. Basic Income also has positive multiplier effects on health. We assume that the multiplier impact of current spending is equal to one-third that of capital spending at 0.91.

The estimated increase in GDP due to higher capital and current spending generates additional tax receipts from taxes on earnings and corporate profits as well as receipts from consumption taxes due to higher spending. Based on the current share of tax receipts in UK GDP, we assume that tax receipts increase by an amount equal to 40% of the increase in GDP. 

Taking second round productivity impacts into account, we model an increase of just over £268 billion in tax receipts. This increases the total amount raised in tax from around £320 billion to £588 billion. £320 billion of tax receipts is enough to fund the £308 billion of current spending commitments in our plans – including our starter Basic Income scheme – with £12 billion left over. With £588 billion, it is possible to fund a Basic Income scheme at halfway to Minimum Income Standard scheme with almost £70 billion to spare. Given longer-term positive productivity effects of this scheme and the other spending plans in this report, there is every reason to think that the UK would be able to afford a Basic Income payment to all individuals at the Minimum Income Standard level at some point in the not-too-distant future. This would be a huge and welcome achievement.