An Emergency Universal Basic Income

Why it's needed and how it might work

Numerous UK politicians are calling for an Emergency Universal Basic Income (EUBI) to mitigate the Covid-19 crisis. Here I want to briefly outline the scale, the problems and the issues around funding it. 

They are all surmountable but it's worth remembering - as all proponents of UBI like me know - that there are cultural objections to it from both capital and organised labour. We may have to overcome these objections pretty quickly if the UK government's conventional measures don't work.

What problem would an EUBI solve?

The government's self-isolation strategy means that up to 6 million workers will need to take sick leave in the next 6-18 months, either because they are sick or looking after loved ones. Those on the lowest paid and most precarious jobs won't be able to afford this, so may work through their illness, intensifying the outbreak.

In addition, massive layoffs are happening as demand slumps.  This combination of mass absence and layoffs creates the danger of:

  • A sudden stop in household consumption

  • Rising household debts leading to morgage and rent arrears, and other defaults which destabilise the finance system

  • Needless transmission and a bigger epidemic because workers who can't afford to be off sick stay at work

This is excacerbated in the UK by the high number of self-employed and precarious workers, compared to other developed countries: there are 4.8m self employed; 0.9m on zero-hours contracts and 1.4 million temporary workers

How does a Universal Basic Income work?

A UBI is regular income paid direct from the state, funded by the taxpayer, to all people of working age, regardless of whether they already have a job or not. Think of it as "a state pension throughout your life". Unlike welfare benefits it is unconditional - you don't have to go through a Kafkaesque process of form filling and proving you are sick, looking for work etc.

A normal UBI proposal, see for example the Compass/JRF research from 2016, or the Finnish trial, is designed the transition to a post-work society, by de-linking work from wages, allowing people to survive precarity and to reduce work time overall. 

For this reason it is usually proposed and trialled at a level below the minimum wage, though radical advocates of it (like myself) believe it should be set around the same rate as the state pension.

In this crisis we are going to need something urgent and different. There are two forms in which the simplicity of UBI could be harnessed temporarily: a universal sick pay scheme and an emergency full UBI. If the second were done you would not need the first. But the second one would require a revolution in thinking by the Treasury and Bank of England.

A Universal Sick Pay Scheme: estimated cost £4.2bn

Everybody who goes sick can claim compensation equivalent to the national living wage, which from April would be £348.80 based on a 40-hour week. 

Since everyone has to suffer the same during the virus, you would scrap all the floors, ceilings, sick-notes and pro-ratas in the current SSP scheme and just pay everyone who cannot attend work because of sickness or quarantine £348.80, through two channels:

(a) the current SSP system

(b) HMRC direct to self-employed accounts

But a new conditionality would have to apply to employers. They would be required to pay everyone who went sick at their full, existing pay rates. As the Resolution Foundation has shown, this often does not happen, especially when you get below the professional/managerial grades.

SMEs and corporates would be required to take this hit - just as self-employed people on incomes of higher than the living wage would be. But the existing loan schemes are available to them, together with cash grants for SMEs

If 6 million people took two weeks off work and claimed this income, it would cost the Treasury £4.2bn in direct payments. 

It could easily be funded by increased borrowing and would more than pay for itself in flattening the curve of infection rates, and in softening the fall in demand.

It should be a no-brainer to do this, and Keir Starmer's new £300- a week sick pay benefit comes close to it, both in scale and in principle. The second version of the proposal is however an order of magnitude bigger:

An Emergency Universal Basic Income: estimated cost £298 billion

The government pays every adult of working age in Britain the equivalent of the national living wage for the next six months, direct to their bank account, regardless of employment status.

For 33 million adults that would cost £11.5 billion a week, or £298 billion in total. It is a huge sum, but smaller than the £330bn in soft loans Rishi Sunak has assumed liability for this week. This would replace the Universal Credit system for all except those with disabilities and caring roles - and would in most cases be more than the UC maximum in any case.

In this proposal, there is a single channel - HMRC to the bank account. The outcome is an immediate fiscal stimulus and it also has the effect of making all sick pay proposals redundant.

As the proposal would be time-limited, you could model the costs, behavioural changes and multipliers fairly easily. At around £9k per adult, the sums sound remarkably similar to various helicopter money schemes that were mooted by central bankers in the last crisis. 

The first objection, beyond how to pay for it, would come from both firms and unions: by delinking work from wages, do you encourage firms to lay off workers, or workers to make behavioural changes they would not have otherwise done. To both the TUC and CBI, the work channel for income support is important because (a) it preserves the workforce and skills and (b) it preserves the cultural status of work (see for example the Rachel Reeves/GMB pamphlet Everyday Work)

For these reasons trade unions and the Labour Party have been traditionally hostile or dubious about basic income schemes.

A second objection, in a fairly high-welfare society like the UK, would be: shouldn't we attempt to achieve the same effects through universal basic services? A UCL study concluded that the provision of free housing, food, transport and IT etc could work better and more cheaply than UBI, because it delivers more bang for bucks in terms of stimulus and the ability to survive a precarious work environment.

The UCL study found that for £42bn a year you could feed everyone, double the social housing stock, give everybody a "freedom pass" for public transport and provide basic phone, internet and TV services.

However, while I prefer the UBS as an early post-capitalist transition measure, it is not suited to a crisis situation - or rather doesn't achieve the bang-for-bucks in the same way. You can't build 1.5 million social homes overnight - nor summon into being a national food service.

How to pay for an emergency UBI

Some on the left are saying we need to "tax the rich" to pay for the needed interventions. Unfortunately the scale of the problem is too big, and in a crisis like this we are going to need tax cuts to stimulate investment and consumption.

The only solution is borrowing and money creation. 

Central banks are now pledged to massive balance sheet expansion, rapidly lowering the quality of the commercial and government debt they will buy. The UK Treasury meanwhile is set to raise debt levels to above £2 trillion by the end of this parliament.

To finance the emergency UBI, HM Treasury should issue a long-maturity gilt to the value of around £300bn, and the Bank of England should expand its balance sheet by that amount and purchase the bond direct.

It would mean overt monetisation of part of the debt, but you could make the case for it in an emergency. There would be an impact on sterling, and there may therefore be capital outflows which would have to be stemmed with targeted capital controls.

Neither of these outcomes are welcome because we need international co-ordination. If the ECB/Fed/BOJ could be engaged in co-ordinating a helicopter money drop, the disorganising effects on the global system would be less.

According to the OBR, the measures announced in Rishi Sunak's 11 March budget are set to add £125bn to public sector net debt, taking it to £2.03 trillion by 2024-5. Meanwhile the Bank of England is currently committed to maintain £435bn of quantitative easing.

By borrowing £300bn now for a temporary, six-month UBI scheme, we would raise UK debt to £2.1 trillion immediately (from £1.8bn now) but the upside is, by the end of a five year period, GDP and capacity would be higher than if we didn't do it. 

Next steps

It should be obvious that the only quick and easy way to do UBI is to do it big, simple and direct to the household. To assuage its critics, supporters of the move need to acknowledge it creates fiscal, currency and reputational risks, and possibly unforseen changes in the relationship between workers and firms. That's why the proposal should be temporary. Those interested in making it happen should start modelling and explaining it.

On its own it may not stave off catastrophe - because the secondary effects in financial markets will be global, and we are already feeling the strain in the banking system of global supply chain slowdowns. 

Analysts at Macquarie Wealth this week warned investors that, by the end of this, UBI schemes and the fusion of central banks with treasuries may become long-term and obligatory: 

We have been arguing that conventional capitalism is dying, or at least mutating into something that will be closer to a version of communism,” they wrote:

“This transition will be marked by cross-currents and external shocks. Ultimately, a fusion of monetary and fiscal levers will lead to MMT-style policies, effective nationalisation of capital, universal income guarantees, and deep changes in work practice.”

Ironically, one of the best ways of avoiding this might be to do the UBI hard and fast now.