Is universal basic income a good idea?

Think tank Autonomy has proposed England's first universal basic income (UBI) trial, suggesting up to 30 participants receive £1,600 monthly for two years. This pilot aims to assess UBI's impact on poverty and inequality.

Interest in UBI is growing alongside the rise of artificial intelligence (AI). A 2023 report by Goldman Sachs estimates AI could replace 300 million jobs, sparking debate over whether UBI is a necessary solution or an unfeasible expense.

Here’s a breakdown of the UBI trial, its pros and cons, and the implications for payroll and tax.

How would the universal basic income trial work?

Most countries, including the UK, offer citizens a means-tested benefits system. The idea of universal basic income would be to replace some or all of these benefits with a regular, guaranteed income paid out to all citizens. In other words, every adult living in that country would be entitled to receive a set amount of money regularly.

Supporters of UBI say these payments could help eradicate poverty, as individuals would no longer rely solely on income from the job market. Payments could also be put to use towards education and training costs, particularly for children and younger adults starting out.

Where will the universal basic income trial take place?

The initial proposals for the trial were designed to run over two years and to draw on a pool of participants from Central Jarrow in the North East and East Finchley in London. While these specific plans have been in development since 2023, momentum has continued into 2025 with new proposals for similar pilots, such as those suggested for Greater Manchester.

During the trial, researchers will look to understand how money affects these participants’ lives and whether or not receiving additional funds will make a difference to their overall physical and mental health. This specific study will provide crucial data for future decision-making.

A control group will allow researchers to weigh up the experience of the trial participants against a group of people not receiving UBI.

Exactly how much would people get paid?

The trial proposed by Autonomy would initially see 30 individuals based in the UK given a monthly stipend of £1,600.

Who would be able to apply for universal basic income?

It’s all in the name: Universal. The main models developed so far for UBI all align with the idea of a regular cash payment paid out to everyone in society, enough to bring them well above the poverty line.

What are the pros and cons of universal basic income?

Pros

Advocates argue UBI provides a necessary financial floor, helping those made redundant avoid poverty. It grants employees bargaining power to demand better wages and enables victims of financial abuse to survive independently. Furthermore, UBI offers security against the predicted AI takeover and simplifies the complex welfare bureaucracy.

Cons

Critics warn of the prohibitive costs and potential to drive inflation. There are concerns that guaranteed cash might encourage people to leave the workforce or mismanage funds. Additionally, replacing targeted benefits with a flat rate could disadvantage those with complex needs who currently rely on specific support like Personal Independence Payment (PIP).

How much does the UK currently spend on benefits?

There’s no two ways about it: benefits are expensive to provide. For the 2024/25 period alone, UK government welfare spending is estimated to be approximately £313 billion. This represents a significant increase compared to previous years (such as the £231.4 billion spent in 2022/23). Adding a UBI scheme would see the total expenditure rise by another billion or more depending on the exact implementation details.

But how does this compare to other countries? Overall, the UK spends approximately 3.9% of its gross domestic product (GDP) to provide working-age benefits. However, looking at official figures, the gross cost of a full UBI rollout would be substantially higher. In other European countries, this proportion is higher, with countries like Belgium spending 6.4% of GDP on benefits.

In fact, it was found that the UK has one of the least generous out-of-work benefits systems out of all the Organisation for Economic Co-operation and Development (OECD) countries, suggesting a different approach might be needed.*

What is the payroll perspective on UBI?

Of course, no discussion on UBI, as far as PayFit is concerned at least, would be complete without considering the effects on payroll.

For this, we consulted our payroll expert, Rebecca Russell, to get her take on what a UBI programme could do to employee compensation, benefits and pay over the long run.

What are the possible impacts of UBI on wages and retention strategies?

To start, it’s worth thinking about what UBI could do to wages. If everyone receives a cash payment every month, this may lessen the incentive for some workers to put up with gruelling 40-hour-a-week contracts when they’re on minimum wage and don’t enjoy the work.

As Rebecca says: “People are likely to opt for less stressful roles, taking on more meaningful work where they can prioritise their mental health and personal relationships. In other words, opting for more work-life balance.”

Companies that aren’t prepared to raise wages or rethink their compensation packages might find it even more challenging to retain the right people. Offering better salaries, more tailored benefits or simply more opportunities to do more impactful work will be vital to retaining and attracting new talent.

How could UBI affect pensions and contract complexity?

UBI could also affect the number of people who decide to contribute to a pension. “That might mean more people opting out of pensions altogether”, Rebecca shares, “making re-enrolment more time-consuming.” Given this, businesses may need to consider raising contribution rates or making pensions more enticing.

There could also be a considerable migration to flexible working and zero-hour contracts, with employees seeking out more flexibility in their working arrangements. That, in turn, will make processing payroll more complicated: “For example, holiday entitlement when the employee has no fixed schedule or working out the training costs for two people where the work is usually done by one.”

What are the taxation and funding challenges of UBI?

Finally, the funding of UBI poses a significant challenge for businesses already navigating a tighter tax environment. In the current financial year (2025/26), employers saw the Employer National Insurance rate rise from 13.8% to 15%, while the secondary threshold (the point at which employers start paying NI) dropped significantly to £5,000.

Higher taxes to fund such a scheme, on top of recent increases, could decrease the real value of earnings. This might reduce net take-home pay and trigger a never-ending cycle of increasing salaries. The operational cost for businesses to adjust to these changes would also be significant. Nevertheless, despite the high cost, the potential benefits of UBI are compelling.

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