Time for a Universal Basic Income?

Updated: Mar 25

Is the time ripe?


The effective shutdown of large parts of the hospitality industry as of this morning – pubs, cafes, restaurants etc – as the government seeks to suppress the Covid-19 outbreak is likely just a taster of the disruption to come.


And the crisis has prompted some to call for a Universal Basic Income as an emergency measure to support those affected.


For the uninitiated, a Universal Basic Income, or UBI, is an unconditional flat regular payment from the state to every adult. Its supporters traditionally argue that a UBI would vastly improve upon the complicated and, in their eyes, demeaning, existing state benefits system – the dole, disability living allowance, tax credits etc. They say it would, ultimately, revolutionise national well-being and even boost our national productivity.


Its detractors traditionally argue that a UBI would either be unaffordable or the individual payments too small to compensate benefit-reliant people for the dismantling of the existing system. They warn that giving people a guaranteed income from the state could damage the incentive to work.


And round and round the argument goes.


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But does the specific nature of the economic shock from the coronavirus suppression measures taken by governments change the terms of that debate? Is there not a case for at least a temporary, flat payment to everyone in the country from the Treasury amid what looks likely to be a major and possibly prolonged economic crisis?


It’s generally agreed that large numbers of working people are going to need help if they are to continue paying their mortgages, their rent, their electricity bills, their groceries over the coming months. There’s talk about the state giving employers financial incentives to keep on staff through the crisis rather than making them redundant. But why not cut out the middle man and give the money directly to the employees instead?


The objection about undercutting work incentives manifestly lacks relevance in these circumstances of enforced shutdown.


Perhaps the strongest argument in favour of the UBI proposition relates to the explosion in the numbers working in the gig economy and self-employment in recent years. The number of self-employed has shot up over the past fifteen years from 3.25 million to more than 5 million people, putting around 15 per cent of the workforce in this category. Some self-employed people are well off, but most are not. Around half are estimated to earn less than the minimum wage.

How to help these workers through this crisis?


The digital platform taxi driver, the agency-supplied cleaner, the zero-hours factory worker don’t have an employer that can be incentivised by the Government to keep paying wages even as the work dries up. Isn’t a UBI a way to get into all the cracks of the labour market?


A UBI would undoubtedly be expensive. But so too would a mass subsidy for firms’ payrolls. And most economists believe concerns about government deficits and debt levels should not be a priority at this time. If the scheme is temporary that would add to its attractiveness. As for the “universal” element, it’s important to bear in mind that those who don’t need the flat payment because their pay doesn’t fall would be required to pay much of it back through a higher income tax bill.


Wouldn’t a UBI not only be effective in supporting incomes of the most financially vulnerable, but also provide a powerful confidence-boosting signal that the state stands as the ultimate insurer for workers?


It’s certainly a beguiling argument. But there’s a powerful counter-case, too.


The advantage of channelling support to workers through their companies is that it also helps prevent the employers themselves from going under – something that would be disastrous for the productive capacity of the economy when this crisis ultimately passes.


There is also more scope to support people better through the existing tax and benefits system than many appreciate. And the capacity of the current system to reach people – even the self-employed – should not be underplayed.


Torsten Bell of the Resolution Foundation, a think tank founded to engage with the practical question of how to help those on low to middle incomes, recommends making statutory sick pay significantly more generous (at the moment it covers only 30 per cent of wages), increasing the level of out-of-work benefits, boosting the resources of job centres and raising tax credits to families.


The advantage of this programme is that it can be done rapidly. An entirely new distribution system for the UBI would not be simple to set up at the best of times, as the decade-long debacle over the roll-out of Universal Credit shows.


And these, as we can all surely appreciate, are not the best of times.

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