Universal sick-pay for workers with Covid-19

Why the UK needs an immediate cash injection into its sickness benefit system

Summary

  • Create a one-off sickness grant of £697.60 designed to cover two weeks absence from work

  • Finance it through borrowing, to a maximum of £4.2bn if six million workers claim the grant

  • Consider the Bank of England monetising the entire sum

What’s the problem?

The UK government's strategy to mitigate the impact of Covid-19 sees up to 80% of the population eventually infected, with up to 20% of the workforce forced to miss work, either due to having symptoms of the disease or needing to care for relatives who are self-isolating. There are 32.54 million people in the UK workforce, so 20% of that is 6.5 million people

To achieve the government's objective of "flattening the curve", so that the expected acute cases happen over a longer time period, allowing the NHS to cope, the entire workforce needs to have easy and universal access to sick pay.

In Budget 2020 the Chancellor offered a £0.5bn package to fund earlier and wider access to SSP for employees, easier access to Universal Credit (UC) for those not eligible, and easier access to Employment and Support Allowance (ESA). An additional £0.5bn was allocated to a local government-administered hardship fund.

SSP is paid to employers at the rate of £94.25 per week for up to 28 weeks. It is a wholly inadequate rate given the scale of the challenge. In addition, with 4.9 million people self-employed, 0.9 million on zero hours contracts, and unknown numbers living in the cash economy, outside the official system, there is a danger that - even if all affected employees obey the advice to stay away from work - many of those self- or precariously employed workers cannot afford to do so.

The alternative: a one-off statutory sickness grant financed by borrowing

My proposed alternative is designed as an emergency and temporary measure. The principle behind it is universality: the entire UK population - citizens, workers or not - have a common interest in fighting this disease effectively.

The government should:

  • create a new, one-off statutory sickness grant available to every adult of working age, not just employees

  • this should be paid at a flat rate equivalent to the National Living Wage x 80 hours (the estimated two weeks off needed by people who are self-isolating or caring)

  • the cost per worker would be £697.60 from 1 April

The payment should be drawn down through one of two channels: 

  • for employees, via the SSP system, so that the grant is paid direct to their employer with a statutory requirement to keep them on full pay for those two weeks

  • for self-employed people and those in precarious work, or in the informal economy, who would be expected to claim via ESA or UC, a single payment direct from HMRC into a nominated bank account

If all the expected maximum of 6.5 million people take two weeks off work due to the Covid-19 epidemic, the total cost to the Treasury would be £4.2 billion. If dispensed within a 12 month period it would represent a significant extra fiscal stimulus, especially if made available up front.

A separate, and longer term reform to SSP is needed, together with a rise in the normal rate of SSP, so that those who end up relying on it long term can live on it. But this proposal is designed to meet the urgent need to persuade workers who are sick to take sick leave.

Though more than 4x larger than the government's proposed measures, this proposal would create lower administrative costs and have the benefit of transparency and universality.

Since the Covid-19 epidemic is an emergency, with currently incalculable downside risks, safeguarding the ability of UK workers to follow the required self-isolation nd social distancing strategy represents a one-off investment and should be funded through borrowing

There are clear macro-economic benefits to the demand side (reducing the slump in spending power) and supply side (maintaining the solvency of SMEs and self-employed people).

However, with the bank rate now approaching the zero lower bound, there is also a case that unconventional monetary policy could play a part. The government should consider issuing a special bond to finance £4.2bn of emergency sickness payments while the Bank of England expands its balance sheet by an equivalent sum to buy that bond direct.

Whether financed by debt or QE, the overt intent is to use a small amount of "helicopter-type money" to stimulate the economy and help people cope with the stress. 

There are bigger proposals than this floating around - for example a direct grant of £500 to every citizen - but this proposal is doable within a week.

Next steps

The Treasury/OBR and the epidemiologists should immediately model this proposal - a £4.2bn fiscal stimulus with and/or without Bank of England monetisation - against the effects of the current £1bn proposal.

My hunch is it will massively facilitate self-isolation and social distancing.

What do you think?