Coronavirus and the case for a universal basic income

Managing the economic impact of coronavirus has been a key challenge for the Government. One response that has been suggested is the introduction of a universal basic income.

What is a universal basic income?

A universal basic income (or UBI) is a periodic cash payment unconditionally delivered to all on an individual basis, without a means-test or work requirement. It is also sometimes referred to as a citizens’ income or a guaranteed basic income.

Proponents of a universal basic income argue it would bring a number of economic and social benefits, including:

  • Providing financial security.
  • Promoting flexibility in the employment market, allowing people to balance work with caring responsibilities or voluntary activities, and making it easier to start a new business or become self-employed.
  • Creating social cohesion.
  • Reducing the unemployment trap, so getting a job would always mean additional disposable income.
  • Being easy to understand.
  • Being cheap to administer, easy to automate and less prone to errors or fraud.

Critics of the idea question its affordability, effectiveness and fairness. For instance, in a 2018 report, the Centre for Social Justice (CSJ) argued that:

  • There is a trade-off between affordability and effectiveness. The more effective a universal basic income is at achieving its aim of eradicating poverty, the less affordable it becomes. The CSJ calculated that providing a universal basic income equal to the income poverty line (60 percent of the median wage) would cost £669 billion, or just over a third of UK GDP. A lower basic income payment would be more affordable but could also pay less to at-risk households than they receive under universal credit.
  • State subsidies can help solve short-term crises but are less successful at tackling non-financial roots of poverty such as education failure, family breakdown and drug addiction.
  • Paying a universal basic income to rich households may not be fair or sensible—it could still amount to “welfare for the rich” even if some of the payment was reclaimed through taxation.
  • It may disincentivise people to work and reduce the labour supply.

The Labour party and the Green party both included proposals for a universal basic income in their manifestos for the 2019 general election. The Green party pledged to phase in a universal basic income for all UK residents regardless of employment status that would replace most income-related benefits. Labour said it would explore innovative ways of responding to low income, including a pilot of universal basic income.

Has it been tried?

Currently no country has a universal basic income in place, although there have been a number of small-scale pilots and larger-scale experiments.

Finland trial

One of the most-discussed recently is a two-year basic income trial carried out in Finland from January 2017 to December 2018. The Finnish social security agency paid a monthly tax-exempt income of €560 to 2,000 randomly selected unemployed people aged between 25 and 58, regardless of whether they had any other income or were actively looking for work. The Finnish authorities said their experiment was unlike others carried out elsewhere as it was nationwide, and participation was not voluntary.

The final findings of the Finnish trial were published in May 2020. Researchers found the impact of a basic income on employment rates was small. During the first year of the trial, the basic income did not have any employment effects overall on the group receiving the basic income compared to a control group not receiving a basic income. During the second year, the employment rate for basic income recipients improved slightly more than for the control group. However, at the beginning of 2018, Finland introduced an ‘activation model’ into its unemployment benefits system. This meant that jobseekers received a lower benefits payment if they were deemed to not be active enough in seeking work. Researchers concluded that the employment effects in the second year of the basic income experiment could not be separated from the effects of the activation model.

The trial also looked at the effects of a basic income on wellbeing. Recipients rated their mental wellbeing and their perception of their economic wellbeing more positively than the people in the control group. Researchers said it was not possible to say with certainty based on the study that the better wellbeing of the test group was due specifically to receiving the basic income. Researchers concluded that the basic income “seems to have increased activity of different kinds among those who were active already earlier”. However, for those who were in a challenging life situation beforehand, “the basic income does not seem to have solved their problems”.

Other evidence

These results mirror the findings of some other studies. A review of three unconditional cash-transfer programmes in Canada and the US published in 2017 concluded that: “the effects of unconditional cash transfers vary depending on programme design, but there is either no impact on or a moderate decrease in labour participation and a significant increase in other quality-of-life benefits (mental and physical health, education outcomes, parenting, reduced criminal activity etc)”.

A recent World Bank review of evidence from existing case studies concluded that for a given level of spending, targeted social assistance programmes have a higher impact on tackling poverty than a universal basic income. However, where a universal basic income replaces regressive measures, it makes poor households better off. It said that the poverty effectiveness of a universal basic income can be enhanced by providing more generous transfers, but these can quickly become unaffordable. The report suggested that “recurrent concerns over the negative effects of a UBI on labour markets might be overstated” and that “labour market distortions remain relatively modest”.

Coronavirus and the case for a universal basic income

Parliament

The economic impacts of the coronavirus pandemic have prompted calls to introduce a universal basic income. In April 2020, 110 MPs and members of the House of Lords from Labour, the Liberal Democrats, the Green party, Plaid Cymru, the Scottish National Party (SNP), the Social Democratic and Labour Party (SDLP) and Alliance, signed an open letter to Chancellor Rishi Sunak calling for a “recovery universal basic income in response to the coronavirus crisis”.

The letter argued that regular cash payments to every individual should be “sufficient to provide economic security” and create “an income floor nobody falls below and a springboard to recovery”. It said there needed to be a mechanism to distribute cash to everyone as the current social security system was “too cumbersome”, universal credit was “struggling to cope” and the Government’s coronavirus job retention scheme was “welcome but […] unsustainable in the long-term”.

An early day motion calling for a temporary universal basic income during the Covid-19 outbreak has attracted 99 supporters in the House of Commons to date.

Other comment

Anthony Painter, chief research and impact officer from the Royal Society of Arts (RSA), has argued that Covid-19 strengthens the case for a universal basic income—a policy which the RSA already supported. In his view, a universal basic income would alleviate financial stress, the health risks that come from a lack of economic security, and economic change, all of which are heightened by the pandemic. He argued that a basic income is the right response for two reasons. Firstly, it would provide universal coverage, whereas targeted benefits, such as universal credit, “often miss the target”. Secondly, it would provide “distributive justice”, because it results in “a fairer distribution than wage-based schemes” such as the Government’s support scheme for the self-employed.

Torsten Bell, chief executive of the Resolution Foundation, argued in March that responding to the coronavirus outbreak by introducing a basic income would be “misguided given the pace of what is happening”. He said the introduction of universal credit had shown it takes time to introduce a new system. Instead, the Resolution Foundation urged the Government to support family incomes threatened by the coronavirus crisis through the existing social security system. Looking ahead, the Resolution Foundation advocates government support for household incomes could be provided through changes to the national minimum wage and universal credit. It acknowledges that “when the crisis has passed, there should be a broad debate about the nature of the UK’s welfare state” but “we must address the current crisis using the tools we have available now”.

Government position

The Government’s position is that “a universal basic income is not targeted at the poorest in society and is not an appropriate way for the Government to distribute money”. It argues that a flat-rate universal basic income does not take into account people’s individual circumstances. Ministers have also argued it is less redistributive and less flexible than universal credit.

The Government points instead to the “substantial package of targeted measures” it has introduced to support those affected by coronavirus and the related disruption. It says these can be delivered “quickly and effectively through existing systems”. These measures include: the coronavirus job retention scheme, the self-employed income support scheme, and increases to universal credit, working tax credit and local housing allowance.

What next?

There are fears that unemployment could rise to 4.5 million as companies make redundancies when the coronavirus job retention scheme closes at the end of October, and a recent report from the Commons Treasury Committee that over a million people have “fallen through the gaps” of the Government’s coronavirus support schemes. Given this, debates about how to support household incomes are likely to continue.

Nicola Sturgeon, Scotland’s first minister, said in May that the “time has come” for Scotland to look at a universal basic income. She said she would like to begin “constructive discussions” with the UK Government “reasonably quickly” after the pandemic is over. This month, a steering group of four Scottish local councils commissioned by the Scottish Government to investigate the feasibility of a citizens’ basic income recommended a pilot should take place in Scotland.

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