Of course I know how this situation arose. We don’t want anyone to go hungry or homeless but we’re too stingy to feed and house people who could pay for it themselves if we cut them loose. This leads to some people in work making little more (and sometimes a bit less) than people who don’t work. It seems unfair but it’s a price we’re willing to pay for our stinginess.
One way of looking at the current system is like this: we work out how much somebody needs to subsist, and pay that to everyone. Then we have a tax band of 100% on a worker’s first earnings up to the subsistence level. Of course when you look at it that way it seems to discourage work and disproportionately tax the poor. We counterbalance the economic disincentive by forcing people to attempt to find work, even work where all or nearly all of the pay will be taxed at 100%, on pain of prosecution or removal of their subsistence wage. It’s an ugly system.
What I’d like to see is the government paying a subsistence wage to anyone who claims it, even Richard Branson and Prince Philip. Since it goes to everyone, you wouldn’t have to pretend to find work if you wanted to live off just that, and you wouldn’t have it taken away if you worked, so there wouldn’t be the current economic incentive not to. If you lost your job you wouldn’t have to claim benefits you weren’t claiming before, or which people in the workforce weren’t getting, so I suppose there’d be less stigma attached. It’s also worth pointing out that sometimes people would benefit from what other people would spend their time doing if they didn’t have to work. There’d be more economically unviable art produced, for example. Some would be good, and if you didn’t like it you wouldn’t have to consume it. I suppose it’d improve the lot of the children of single parents, too.
Note that this shouldn’t distort the market at all. It’d change the market, of course: everything changes the market. But it shouldn’t create any inefficiency in the economic sense, because unconditional benefits don’t disincentivise exchanges which would otherwise take place and benefit both parties, because they’re unconditional. It should make the market more efficient in the obvious way that people wouldn’t have an incentive not to work, and also in a less obvious way because there wouldn’t be the same humane imperative to have a statutory minimum wage, the alternative to low-paid work not being starvation. If you wanted someone to join Alarm Clock Britain you'd have to pay them what they thought their time was worth, since they could afford not to take the job.
I suppose some people would be horrified by the idea on the grounds that the world doesn’t owe us a living. But it’s worth looking beyond the slogan to see whether this is what we really think. We already provide education up to age eighteen and most healthcare for free, even to people who could afford to pay for it themselves. We don’t charge people who can afford to pay, and we don’t cut people off from these services for not seeking work. I’m only suggesting we apply the same treatment to food and shelter that we already apply to education and healthcare. (And policing, firefighting, military protection of the national interest, drainage, roads, streetlighting, snow management, the coastguard...) Some people think there are things people deserve just for being human. I can’t remember what the term for such entitlements is at the moment, but I’m sure there is one.
So why aren’t we doing this? It isn’t because nobody has thought of it, because it’s not a new idea. I’m not economically literate enough to know which calculations to do to find out if we could afford it, so perhaps we can’t. I guess it'd be expensive, but so are the NHS, the school system and the armed forces. I’m also aware there’d be issues with children, immigrants, and the children of immigrants if a country implemented the policy unilaterally. But that doesn’t explain why we’re not even doing something a little bit like it, like cutting the de facto tax band from 100% to 80%. If I’m right that the current system is almost equivalent to a national subsistence wage and a 100% tax band for the poorest workers, then it's both economically inefficient and brutal towards the poor. And since we live in a democracy, we could do something about it.