Covid-19 has brought many things into sharp focus but as attention moves to the economic impact of the pandemic, alongside the loss of life, a debate has begun about how best to support people amid potentially years of sluggish or no growth.
While the world needs to consider innovative ways to mitigate the impact of Covid-19, many – such as both the main political parties in the UK – have dismissed a policy I believe could transform societies, Britain included, for the better.
I’m talking about the concept of Universal Basic Income (UBI), which has received increasing attention as a way of simplifying the benefits system and meeting other needs. In recent years Finland has trialled UBI, while Spain recently said it would introduce a version to lessen the economic pain of Covid-19. Facebook founder Mark Zuckerberg backs the policy as a way to reduce poverty.
So what is it and how and why would it work?
In simple terms UBI (often termed a ‘Citizens’ Income’) is a basic, unconditional payment made to every person. While interest in UBI has been building over the past decade, there is not a single country which has implemented a comprehensive programme. In essence, a tipping point is needed and the response to the Covid-19 crisis may just be the catalyst for this.
“If we are genuinely in this together, radical short-term changes are needed”
The concept of basic income has a long history, with the philosopher Thomas Moore mooting the idea of providing everyone “with some means of livelihood” in the 16th century. The arguments for the policy have often centred on social justice, equality, fairness and poverty alleviation from a left-wing perspective, as well as attracting support from feminists as a way of giving income directly to women.
Those on the political right like UBI’s simplicity and reduced administrative cost, the smaller role for the state in means-testing and the removal of some of the perverse incentives that arise out of the current benefits system, such as clawback rates, in which citizens can end up paying back more than 70% of their income.
Yet despite its merits, and support from across the world, UBI has yet to be meaningfully implemented anywhere. There are perhaps two main reasons for this.
The first reason is included in political journalist Isabel Hardman’s book Why We Get the Wrong Politicians. Few politicians dare to show real leadership and be bold with radical policy ideas. The easy option is to wait for someone else – another country – to enact such a policy, and, if it works, to copy it. This, of course, is the ultimate chicken and egg situation, with no one daring to go first.
Second, many have concerns about cost. If one works on the basis that a full UBI would be around £7,000 per year for an adult and £3,500 for a child, giving a family of four annual income of £21,000, the cost is likely to be north of £300bn. This is about 50% of UK tax revenues, though of course there are benefit savings to be offset against this. Nonetheless, the net cost would remain significant and would require major and wide-ranging taxation changes to fund it.
Back in the world of Covid-19, chancellor Rishi Sunak’s policies – notably the furlough scheme – are set to be eye-wateringly expensive. Latest estimates suggest that the number of people being paid by the government is about half the workforce. Inevitably, Universal Credit applications have soared. However, there are many gaps and more problems to come. Those who are only recently self-employed do not qualify, nor those on higher salaries or those who are remunerated in other ways. The chancellor is yet to announce his changes to the furlough scheme but they are likely to involve a requirement for employers to bear more of the cost which in turn is likely to lead to more redundancies. The number of hardship cases will increase.
Perhaps this is the tipping point that UBI has been waiting for. The rules of the game that dictate government social security policy have changed as a result of Covid-19, creating the opportunity to conduct a comprehensive but time-limited experiment.
Clearly, this needs paying for, and here’s how we could begin to fund it. A temporary increase in all tax rates of 50%, so that a 20% income tax rate becomes 30%, along with the abolition of the Personal Allowance, would raise significant revenue. Adjustments would also be required to the State Pension in the interests of fairness, though I will leave others to consider whether VAT should also increase amid fears it could fuel inflation.
Young people have been disproportionately affected by the crisis – university years torn apart, the substitution of remote teaching for lectures and the withdrawal of job offers. I would not want to be part of the graduating class of 2020. A UBI would offer some degree of compensation.
If we are genuinely in this together, radical short-term changes are needed, to both benefits and taxation. This moment in time has the potential to be the tipping point, with 2020 the year of the UBI experiment. Fairness dictates that we try it.
Steve Jeffels is a doctorate of business administration student at Alliance Manchester Business School, University of Manchester.