• The Welsh government has launched a guaranteed income scheme for people leaving the state care system.
  • The programme provides a monthly payment of $2,140.
  • It is aimed at easing what can be a difficult transition to independent life.
  • Guaranteed income schemes have been tested in a number of countries.
  • Research shows that recipients work more and have better mental health than those on unemployment benefits.

Some of the most vulnerable young adults in the United Kingdom will be offered a financial helping hand as they move out of the state care system.

The devolved government in Wales has announced it will launch a guaranteed income scheme for 18-year-olds who are leaving care homes and foster parents. The pilot programme will pay care leavers $2,140 a month. The payments will continue for two years and will not be withdrawn if the recipient gets a job.

The Welsh government says children leaving the care system face a particularly difficult transition into adulthood. Finding work, housing or continuing in further education can be challenging for those who have grown up in care.

“Care leavers have a right to be properly supported as they develop into independent young adults,” Welsh Minister for Social Justice Jane Hutt said when announcing the pilot programme. “It’s also important to note that this policy is underpinned by the United Nations Convention on the Rights of the Child, emphasizing our commitment to strengthening the rights of children and young people in Wales.”

The government says its scheme “will provide a test for the stated benefits of basic income, such as addressing poverty and unemployment and improving health and financial well-being”.

Guaranteed income schemes tried and tested

With the rising influence of automation in the jobs market and a widening global wealth gap, guaranteed income schemes have been put forward as one part of the solution to growing inequality.

The most comprehensive system is known as universal basic income (UBI). The World Bank defines UBI as follows: “A programme to be delivered in cash, unconditionally and to everyone. Its design features – all in cash, no conditions, and no targeting – challenge current practices to varying degrees.” The World Bank says only a handful of countries have trialled UBI schemes and no country has one in place long-term.

Finland UBI experiment benefits mental health

Unemployed people were given payments of about $620 a month as part of a UBI trial in Finland in 2017 and 2018. There was no means testing and the payments continued even if the recipient subsequently got a job.

People receiving the payments worked an average of 78 days between November 2017 and October 2018 – six days more than those on unemployment benefits. An analysis of the trial by McKinsey confirmed the increase.

Chart focusing on universal basic income.
The Finnish trial of UBI showed a range of benefits for recipients.
Image: McKinsey

The trial also found that people who received UBI reported a significant boost to their mental health, well-being and levels of confidence when thinking about the future. The McKinsey report concluded that, “a relatively small positive intervention seems to have generated multiple mutually reinforcing positive effects”.

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Alaska’s annual payments for all

The US state of Alaska has been running a form of guaranteed income since 1982. Every resident in the state, including children, receives an annual payment from the Alaska Permanent Fund, which draws its revenue from oil and mining leases. This means the payment varies depending on oil prices, but it’s normally between $1,000 and $2,000. The payment for 2021 was $1,114, but with oil prices surging, the dividend for 2022 is likely to rise.

One of the main concerns from UBI sceptics is that providing guaranteed income will remove the incentive to work. However, in a review of the Finnish and Alaskan schemes for the Knowledge@Wharton programme, Ioana Marinescu, a professor at the Penn School of Social Policy and Practice, says the opposite actually appears to be true. “What we found was astonishing, which is that on average, Alaskans work at the same rate as comparable states.”

Marinescu also points out a positive effect on the broader economy, saying local businesses, such as cafes or shops, see increased sales as a result and then hire more employees to handle the boom. “The two put together end up seeing no effect on employment.”

Better ways to use the money?

The basic principles of guaranteed income schemes appear to run counter to the fundamentals upon which much of the global economy is built.

Despite the positive outcomes in Alaska and Finland, critics suggest that no scheme has been demonstrated to work in a way that would help any nation’s entire population over the long term.

Some say the funds could have more impact if used in other ways. “The money needed to pay for an adequate UBI scheme would be better spent on reforming social protection systems, and building more and better quality public services,” according to a report by British think tank the New Economics Foundation.