About the Author: Malcolm Henry is a designer and builder of boats, furniture, houses, sheds, tools, vehicles, bridges. More recently, he has turned his attention to economics, concentrating on the use and meaning of money and credit. He is author of Our Money, available to buy here. 

The opinions expressed are those of the author’s and do not necessarily represent the views of other advocates in Basic Income UK (or indeed further afield). 

Everything that I’ve read about universal basic income (UBI) suggests that its champions have come to the idea while searching for ways to overcome poverty or promote social justice and, having discovered the appeal of UBI, then look around for ways in which it can be funded. I appear to be unusual in arriving at UBI from a completely different direction.

While investigating the credit crunch of 2007/08, and the subsequent financial traumas, I found myself emerging from the fog of confusion that surrounds the nature of money and credit. What became clear to me is the dysfunction that arises from using money as a means of exchange while also using it as a proxy for wealth.

As a means of exchange — a tool for facilitating commerce — money is pure genius, possibly the cleverest thing that humankind has ever invented, but for the tool to work effectively money has to be available and mobile. Unfortunately the idea that money is the same thing as wealth drives us to capture and hoard as much of it as we can, rendering it unavailable and immobile – the exact opposite of what we need money to be if we want our economy to flourish.

Money does not mean wealth

Possibly the hardest bit to grasp of what I’m about to propose is the concept that money is not the same thing as wealth. The idea that money and wealth are synonymous is so deeply entrenched in our culture that it’s difficult for us to see the folly of it.

The things that we need for our survival – food, shelter, fuel – are wealth. The things that make us feel good – family, community, entertainment – are wealth. The things that help us to get what we need and what we enjoy – machinery, infrastructure, education – are wealth. Money is merely the tool that we use to facilitate the production and transfer of wealth. If we can accept this concept then funding a full UBI becomes not only possible, but economically desirable.

So let’s forget about the idea of money sitting in a pile in the bank and think of it purely as cashflow. Every individual and every business in the land needs a reliable flow of money through their hands every month. Money flows from customers to businesses as we buy the things we need, and between businesses as they buy goods and services from each other. Some of the money flows back to customers in the form of wages and dividends.

There are also flows of money from businesses and individuals to government in the form of taxes and government borrowing, and flows from government to individuals and businesses in the form of salaries, welfare payments, interest on government debt, and all the other government spending that goes on.

All of these flows of money represent activity in the productive economy – activity that provides us with everything that we need for our security and comfort – the only bit of the economy that really matters. As long as money is available and mobile the productive economy thrives. If money becomes scarce and stagnant (e.g. if it’s being hoarded) the productive economy suffers.

So, if we want to keep the productive economy productive, we have to find ways to keep money flowing through it. The pump that drives the economy is customer demand, but customers can only buy if they have money to spend, so the first thing we have to do is make sure there is a regular, reliable distribution of money to all the customers in the economy (i.e. everyone).

Our current system attempts to distribute money as a combination of wages, dividends, interest, and welfare payments but all of these methods are precarious or inadequate, or both. This is where I came across the idea of a universal basic income which seemed to me to be an ideal mechanism for distributing money throughout the economy on a regular basis.

In order to ensure that the money flows through the economy and doesn’t get siphoned off to rot in our bank accounts my version of UBI has some novel features.

First it’s paid into dedicated individual UBI accounts from which we have to spend it within a calendar month. Any UBI money that you fail to spend or transfer out of your UBI account before the end of the month disappears – use it or lose it. The other feature of the UBI account is that you can’t pay any money into it. The only money that can enter the account is your monthly UBI payment.

So we have a steady flow of money being distributed as UBI and spent (or transferred) into the economy, thanks to the use-it-or-lose-it feature.

We now need a collection mechanism that gathers money from the economy to refill the UBI pot ready for the start of the following month. Our current collection methods include gross profits (used by businesses to pay wages, dividends and interest), taxation and government borrowing (used to pay for government programmes and welfare), but these are notoriously inadequate with all sorts of unpleasant consequences including widespread poverty and debt.

Every proposal that I’ve seen for funding UBI relies on some form of conventional taxation, most of which is directed at commercial activity – income tax, corporation tax, VAT, etc. Taxing the productive activities on which we all rely for our survival and comfort has always seemed to me to be counterproductive to the point of stupidity, so I started to look for alternative ways of managing the collection part of the cashflow cycle.

When we understand the need for money to be available and mobile the target for our collection system becomes obvious: idle money. Money in the bank is stagnant, doing nothing to facilitate productive activity. If we shave off a small percentage from every bank balance every hour of every day, not only do we refill our UBI pot in a way that’s proportionally fair, we also discourage the long-term hoarding of money.

What I’m proposing is effectively a negative interest rate (sometimes called demurrage) on all money wherever it’s held, with the exception of the money in your UBI account. When we spend or transfer our UBI money into the mainstream banking system the negative interest rate kicks in and encourages us to make use of that money before we “lose” it back into the UBI pot.

So instead of money lying idle it will be put to use. Some will get spent, which will ensure that businesses have customers. Some will get invested in activities where the money is spent on something productive (rather than gambled). Some will be lent to individuals, businesses and government departments that need a temporary cashflow boost.

It’s likely that most lending will be done at interest rates of zero or below, which will, over time, get rid of the mountain of positive-interest bearing debt under which we are currently buried. The evils of compound interest will disappear from our lives, as will the costs of servicing government debt.

The UBI will remove from government the costs of funding most subsistence benefits – welfare, state pensions, tax credits, and so on, which will allow us to immediately abolish some of the taxes that are a drag on commerce (e.g. VAT and NICs), and it should be possible to reduce or get rid of other unhelpful taxes (e.g. corporation tax, income tax) as government departments learn how to manage their cash flows using temporary loans from businesses and individuals who have spare money and are looking for ways to preserve its value.

Money cash money change coins money

The proposal throws up more questions than can be answered in a single article but I’ll touch on a few of the most common ones.

What about savings? If money in the bank is being eroded every month how can we save up for a new car, or a deposit for a house, or make sure we have a cushion of cash to cover a family crisis?

A UBI that gives everyone in the UK a guaranteed cashflow of £12,000 per annum requires a negative interest rate of around 2.5% per month. This means that if you have £5,000 lying idle in your bank account at the beginning of the month, by the end of the month you’ll only have around £4,884 left because £116 will have been taken out and put into the UBI pot. This sounds terrible until you remember that on the first day of the next month you get your UBI payment of £1,000. If you use £116 of the UBI to replace what was “lost” the previous month you still have £5,000 in the bank and £884 of spending money. You can repeat this month after month, ad infinitum to keep your £5,000 intact. If you have other income off which you are able to live, the £1,000 that you get as UBI every month will maintain an idle balance of up to £43,000 in the bank, which is enough for most people’s “rainy day”.

What about notes and coins? How can the UBI collection system gather 2.5% of the cash that I have in my pocket? Surely I can hoard money as cash.

If I transfer my UBI payment to my high street bank and then withdraw the money as cash I can accumulate a huge pile of money over the course of a year because the collection system – the negative interest rate – can only work with electronic money. The most elegant way around this is to abolish notes and coins and replace them with convenient electronic payment methods (which are already catching on). To placate those who will doubtless complain about the loss of physical money I propose that the UBI fund is established with the money that’s taken out of circulation when notes and coins are abolished. In the UK, to provide everyone with a cashflow of £1,000/month the UBI pot would have to contain around £60,000 million, which is conveniently similar to the value of notes and coins in circulation.

What about inflation? If money in the bank loses value at a rate of 2.5% per month then lots of people are going to buy up assets, which will push up prices of property, for example.

When money is no longer a viable proxy for wealth, people who have spare money will be inclined to buy things that they think will hold their value over time. This will be good for artists, antique dealers, yacht builders and the like but could very easily cause a property bubble which would push the price of houses beyond the reach of many as well as raising rents. We would need legislation to prevent bubbles in the prices of essential assets like houses. Making it illegal to provide a mortgage of more than, say, 90% of the insurance value of a house (i.e. the cost of rebuilding it) would provide a restraint on house prices, for example. As for non-essential assets, let the market decide.

What about capital flight? Surely all the people who have lots of money would take it out of the country leaving us with nothing for investment, so our economy would collapse.

The fear of capital flight is based on the belief that money is wealth, which we’ve established is not the case. The wealth of a country is represented by its natural resources and its people. When someone in the UK decides to exchange their millions of pounds sterling for US dollars they don’t remove a single atom of wealth from the UK. They don’t even take any money away. All that happens is that a bank gives them dollars, taking the unwanted pounds in exchange. At some point the bank will find a customer from the US that wants to buy millions of pounds worth of Range Rover cars, for example. The bank gets dollars from the US buyer and the pounds get spent back into the UK economy via the manufacturer of the cars. In a conventional financial system the problem with capital flight is that lots of the native currency gets stuck in the banks, leaving the productive economy short of cash. But the negative interest rate ensures that banks will not leave money lying idle for long. They’ll soon lend or invest it into the productive economy.

These questions, and others relating to the nature of money and our relationship with it, are discussed more fully in my book – Our Money. In the book I present the UBI and negative interest as a unified system called the Common Cashflow Fund (CCF).

For readers who are enthusiasts of universal basic income the CCF provides a reliable, affordable means of funding UBI that acts as a stimulant to commercial activity rather than a drag. The CCF will make UBI much easier to sell to sceptics, especially those in the business community who feel most keenly the burden of conventional taxation. When they realise that UBI can be part of wider reforms to our financial systems that will increase the opportunities for commerce they will be more inclined to get involved.

Malcolm Henry




Our Money: how to shrink government, boost business, eliminate poverty and make the economy work properly for everyone

Main photo Courtesy of Malcolm Henry.

Other Photo Courtesy of Doug88888

About Malcolm Henry

Malcolm Henry has posted 1 contributions in this website.

Malcolm Henry is a designer and builder of boats, furniture, houses, sheds, tools, vehicles, bridges. More recently, he has turned his attention to economics, concentrating on the use and meaning of money and credit. He is author of Our Money.


  1. Chris

    Interesting idea.

    I wonder if that means that people with lots of cash are more likely to just buy something like a market-based ETF (say IVV which I have). They would probably still get mostly gains, but it is no longer really in a savings account somewhere. This is how IRAs/401ks generally work in the US today rather than just cash.

    It would be interesting to know how much cash actually just sits in savings accounts for those people that have a lot of cash. My gut tells me it is much less of a percentage of total value in comparison to those that have less…

    1. Malcolm Henry


      The ETF is just another asset. The money moves from the buyer’s account to the seller’s, along with the liability for the negative interest rate.

      All money (apart from notes and coins) sits in bank accounts all of the time. The negative interest rate would apply to all accounts – current (checking) as well as savings – no matter who is the account holder (individual, business, trust, government).


      1. Shelly

        Oh, what a beautiful, intelligent, economical….(a vast many adjectives well express) idea!

        “”When we understand the need for money to be available and mobile the target for our collection system becomes obvious: idle money. Money in the bank is stagnant, doing nothing to facilitate productive activity. If we shave off a small percentage from every bank balance every hour of every day, not only do we refill our UBI pot in a way that’s proportionally fair, we also discourage the long-term hoarding of money.

        “What I’m proposing is effectively a negative interest rate (sometimes called demurrage) on all money wherever it’s held, with the exception of the money in your UBI account. When we spend or transfer our UBI money into the mainstream banking system the negative interest rate kicks in and encourages us to make use of that money before we “lose” it back into the UBI pot.”  
        Mr. Henry, you’ve made my night.  Will read more of you :)

  2. Shelly

    Money’s toward markets, or loaned money, will not escape UBI backflow if we do this right.

    Money used simply to make more money is not considered an economic reinvestment in my view. A stipulation will have to be agreed upon and written in. A means to monitor and a sum such applied at tax time. More doable that the existing means testing on individuals I imagine.

    Nothing will stop someone with an obsession from stuffing it between mattresses or burying it in the backyard, though!  At least the family will see their instability and maybe get them some help.

  3. hmmm

    This is a very novel idea, at least to me.  It would make me nervous, though, to have a harder time saving for retirement than I do now.  Well, I think then, maybe to avoid having too much cash on hand and paying too much in tax, I would just buy investments that I could sell off when I wanted to retire.  Actually, that’s what I do already. In fact, I think few people keep huge amounts of money as cash.  Probably richer people need to keep a higher balance in their checking accounts to cover their monthly than poor people do, so richer people probably do keep more cash in their checking accounts.  That means richer people would tend to pay more money in taxes than the poor, as we would want to be the case.  

    The rich would probably not pay a higher percentage of their income as tax than poor people do, right?  So this system would be a little regressive, as they say.  I do think the basic income could help make up for that regressiveness.  Also, I think that the present graduated income tax system in the U.S. (sorry but that’s all I know about) actually ends up being regressive, because the rich find so many loopholes that they often can end up paying a lower percentage of their earnings as income tax.  So perhaps a tax that is pretty flat across income levels would be better than what we in the U.S. have now.  

    I like the fact that there would be no deductions for this or that, no paper work to keep track of or accountants to pay to try to trump up the figures for the benefit of the taxpayer.  It seems relatively straightforward.

    It runs against our very basic upbringing, the moral idea that saving is good and spending is bad.  But, then, so does the idea that we should get money even if we don’t work and even if we are rich, which is the premise of the unconditional basic income, a premise which I have come to support.

    What about people who spend too much, though, and send themselves into debt irresponsibly?  Surely that creates a burden on society that should be avoided, wouldn’t you say?  The constant buy, buy, buy mindset also seems to be catastrophic environmentally.  What would be the tax consequences in your system of having negative savings?  Someone who has 0 dollars in their savings and checking would pay zero tax, while someone who owes 10,000 dollars would pay zero tax as well, right?  I guess in the present U.S. system, we actually reward people who go into debt by giving them a tax write-off, so again, maybe your system is an improvement over what we have now.

    So I guess I’m just thinking out loud and have no real criticism to offer.  Maybe I’ll have to buy your book!

    1. Malcolm Henry

      All very good questions, most of which you’ve answered for yourself in your process of thinking out loud.

      Here’s some ideas for the questions you leave hanging….

      The system doesn’t protect people who borrow and spend “too much” any more than they are protected at the moment, except that they won’t have the burden of interest payments to deal with when they try to dig themselves out of debt. Society will still have to deal with the feckless and the reckless.

      I suspect that the UBI would have a positive effect on resource depletion. When people are no longer forced to work to get money to survive they have much more opportunity to incorporate ethics into their decision making about what work to do.

      Someone who owes $10,000 will pay the negative interest rate on any of the money that he hasn’t yet spent. If he spends it all then the recipient is liable.

      The negative interest rate is a tax on money, not people.

  4. Rob

    I think UBI is a great idea. I think a much more simple way to pay for it would be to return the creation of money to the state. This would mean we could have 20-50billion pounds without taxing anyone or reducing any services. This website has all the details: http://www.positivemoney.org/

    1. Malcolm Henry

      Rob, I’m a big fan of what the team at Positive Money is proposing with regard to banking reform, especially removal from the banks of the power to create money as debt.

      I’m less sanguine about the idea of the state creating money on the same scale as the banks currently do and handing it to the government to spend. This perpetuates what’s essentially a linear flow of money from creation to accumulation in the hands of the few who are good at capturing money. The productive economy only gets a sniff of the money as it passes through from creation to capture, which is why we have trouble feeding the poor, funding hospitals and roads, etc.

      What I’m proposing is built on the foundations of PM’s proposals. It’s designed to keep money circulating throughout the productive economy which means the need for money creation/destruction is almost eliminated. We would still need something like PM’s money creation committee to make periodic adjustments to the money supply to take account of things like changes in population or global prices of commodities.

      Adding money to the economy would be done by adding a bonus payment to everyone’s monthly UBI. Removing money from the economy would be done by minor adjustment to the negative interest rate, but these adjustments would be tiny compared with the amount of money creation/destruction that’s currently carried out by the banks and would be carried out by PM’s committee.

      1. Rob

        “This perpetuates what’s essentially a linear flow of money from creation to accumulation in the hands of the few who are good at capturing money. ”

        But if we give it straight to the people in a UBI account like you have suggested it won’t be accumulated by the few, all will have the same share and have some incentives like you suggest to spend it not hoard it.

        1. Malcolm Henry

          If we create new money every month to pay for UBI the quantity of money will increase month after month, so the value of money will decrease, which means the amount we have to create for UBI will have to increase, and so on. The rate of increase accelerates and very soon a loaf of bread costs £100, then £1,000, then £10,0000, and so on.

          We need mechanisms for recycling money from producers back to consumers. We need a mechanism for collecting money that’s been spent and making it available for re-spending, over and over.

          1. Rob

            “The rate of increase accelerates and very soon a loaf of bread costs £100, then £1,000, then £10,0000, and so on.”

            This is hyperbolic. There are good reasons why we should expand the money supply if we can keep inflation around 1-3%. I am not suggesting creation of money is the only source of paying for UBI (because that would mean large inflation as you suggest) but it can be a part of it as economic circumstances dictate.

  5. Malcolm Henry

    Hyperbolic in the short term, but not if you look a bit further ahead.
    The UK money supply is c.£2,250,000million.
    UBI of c.£1,000/month equates to around £720,000million/year.
    If we create new money every month for UBI the money supply will double after three years.
    All else being equal the value of UBI payments will have to double over the same period of time.
    This will give us permanent inflation at c.33% p.a.

    A loaf of bread currently costs c.£0.80.
    If the price doubles every three years it will take 21 years for the price to break the £100 mark. Within another 10 years it will cost more than £1,000 and ten years later it will cost more than £10,000.
    So in a 40 year period bread will be 12,500 times more expensive than it is today.

    Compare that to our current system where most of the money created as debt is destroyed on repayment. In 1974 a loaf of bread cost 14p, now 80p. Over 40 years the price has multiplied by only 5.7.

    If we’re going to have permanent money (as proposed by Positive Money) – which we agree is a good idea – then we have to have a mechanism for recycling UBI money. If we simply add new money every month rampant inflation will ensue.

  6. Amanda

    Malcolm. I think this is would have to be the most well thought out, insightful pieces of writing on addressing our economic predicament that I have ever read. I don’t normally make comments on posts, but need to congratulate you on this. Now to make it happen!

  7. Amanda

    However just one thing I have thought of. To put in place this system of demurrage and UBI accounts expiring – this money would need to be ONLY electronic. We could not allow people to withdraw the money as cash – as physical money could not “disappear” or undergo demurrage.

    Now it is a matter of perspective and opinion,, but I have some concerns about citizens not being allowed to hold their own money physically. However I like your idea and don’t see any other way around this conundrum. It just could lend itself to privacy issues/ control blah blah. 

    I like to hold some cash always,, so I hope it wouldn’t mean a cashless society.


    1. Malcolm Henry

      You’re right, Amanda. It doesn’t work with notes and coins. In my book I propose abolishing physical cash and replacing it with instant electronic payment methods.

      Cards are already ubiquitous for customer-vendor transactions. Mobile phones are starting to be used for peer-to-peer transactions. I could see electronic wallets being used for all types of instant transactions (maybe using bluetooth between wallets and mobile networks to update the accounts).

      I realise there will be resistance to the abolition of physical cash so I suggest that the Common Cashflow Fund is nominally established using the cash that’s taken out of circulation. There’s approximately £60,000 million of notes and coins in circulation which is conveniently similar to the amount needed for the CCF. If we sell the idea as a trade-off – agree to abolishing physical cash in exchange for £1,000/month for the rest of your life – then it might not be such a problem.

  8. Tom

    Charles Eisenstein hit a lot of the same ideas in his book Sacred Economics, which is available for free on his website.

    A couple of points I’d like to raise: First, I’m not sure why there needs to be a “use-it-or-lose it” system for the UBI account separate from everything else. If we’re already taxing the money people save through negative interest, why do we need another layer to overcomplicate the system?

    The second is that demurrage currency has been used with physical currency in historical experiments in the form of bank notes that required stamps to be affixed to them in order to remain valid. If I have a £10 note, but I need to spend 10p every month on a stamp to validate it, the practical effect is that it is decreasing in value. A little cumbersome maybe, but it worked.

    1. Malcolm Henry


      If our UBI is paid into an account that’s not touched by the negative interest rate then it retains its full value over the month. This, I think, is important for people who have no other income and rely solely on the UBI.

      If the UBI is paid into a normal account that is subject to the negative interest rate then people who rely on it will feel they have to spend it quickly before it loses value, which might leave them short towards the end of the month.

      In terms of administration the Citizens’ Bank/UBI accounts would be part of our civil registration architecture. Your account gets opened when your birth is registered and gets closed when you die, or suspended when you emigrate. It could also be sequestered by the courts during a prison sentence, for example.

      If we accept the need for distinct UBI accounts then the “use it or lose it” feature is essential. Otherwise people will allow UBI to accumulate in the protected account instead of moving the money through the economy.

      I considered the stamp scrip idea for physical cash as well as several others but they were all too cumbersome to be attractive. I’m certain that clever people will come up with electronic devices that mimic physical cash while connecting with our bank accounts. I’m also certain that numerous unofficial physical cash substitutes will emerge (e.g. LETS) that will be used for local exchanges and “black market” transactions. But the UBI and the ubiquity of the official currency will, as now, be used for the vast majority of payments.

      1. Tom

        I see your reasoning, but from the perspective of someone who is dependent on benefits and has to worry about how much is spent on food before the rent goes out every month, the prospect of losing 2.5% of it is much less scary than the prospect of losing all of it. Yes, there’s more coming in, but small mistakes could lead to me going into arrears I won’t be able to pay off. As I see it the more elegant the system the better.

        I recognise the necessity for there to be some impetus to get the money out of your account and moving through the economy, but surely this impetus is inherent in negative interest already.

        This is not to detract from a very well thought out article, and an idea that should be seen much more in the mainstream.

    1. Malcolm Henry


      I used the Joseph Rowntree Foundation’s Minimum Income Standards as a starting point.

      These equate (or did so in 2011 when I wrote the book) to approximately £1,000/month for an adult, £800/month for the first child, and £450/month for subsequent children.

      Population figures came from the ONS website (I think).

      The sums are as follows:

      Category/Population/UBI share per month/Category UBI per month

      Adult/49.3 million/£1,000/£49,300 million

      1st Child/3.7 million/£800/£2,937 million

      Subsequent children/9.9 million/£450/£4,470 million

      Total monthly UBI = £56,707 million

      My proposal to recycle the UBI fund every month means that the total value of the fund is £56,707 million. Multiply this by 12 to get the total annual contribution of UBI to GDP (assuming everyone spends all of their share every month).

  9. Brian Donaghy

    When is the negative interest deducted from bank accounts?

    Is it deducted from the balance at the close of business each day?  Or is it deducted each week/month/year on the basis of the average daily balance in the account?  The timing makes a huge difference as to how much the person will lose in negative interest.

    If the interest is deducted every day, the longer you leave any money in the account, the more you will lose.   This makes investing much more difficult for a business:  no one will leave money in the bank if they can help it, so banks will have less money to lend;  if businesses save to invest, they will pay interest on the money in the bank instead of earning interest.

    The same would apply to anyone having to save up to buy a big-ticket item, such as a new carpet, a car, or a house.

    1. Malcolm Henry


      You’re right about the timing of the negative interest being charged. It’s vital. I propose that it’s charged on an hourly basis. Anything longer than that leaves scope to game the system.

      The primary aim of the negative interest is to make it unattractive to leave money in the bank, to put pressure on individuals and businesses to make use of their spare money.

      Anyone with a cash surplus will be keen to lend it or invest it. The choice will depend on how long you are prepared to have your money tied up.

      For example, a short term cash surplus can be used to fund someone else’s short term cash shortage. Businesses and governments will get good at managing their cashflows using other people’s spare money, facilitated by the banks. You won’t earn anything from your spare cash but neither will you be liable for the negative interest.

      If you have spare cash for which you have no short-term use you’ll probably invest it – give it to somebody who will spend it on a productive enterprise that you hope will be profitable – and get an income off it.

      If individuals have a source of income other than their UBI then they can use the UBI payments to offset the negative interest on spare money. If you have enough earned income and can use all of your UBI for interest payments then you will be able to keep around £44k in the bank, indefinitely, plenty to cover big ticket items.

      If you have a pile of spare money in the bank but lose your job you can protect its value indefinitely by repeatedly lending it for someone else’s short term cashflow (as described above).

      Organisations that handle large amounts of money will pay a lot of negative interest every day, but this is offset by the abolition of payroll taxes, VAT, corporation tax, etc., and (in some cases) reduced wage bills (thanks to the UBI).

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