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15 April 2020updated 16 Apr 2020 8:53am

Covid-19 has changed my thinking on universal basic income

I'm more open to the scheme than I was before.

By Stephen Bush

Although I haven’t closed my mind to the idea of a universal basic income (UBI) in principle, I’ve tended to be sceptical of UBI schemes. Very few manage to escape being either inadequate, iniquitous or pointless.

Many fail to offer an adequate income. Thanks to the work of Citizens Advice, we have a good idea how much money people without care requirements need to cover their basic costs without getting into debt: £960 a month for individuals, or £1,700 a month for a couple with children. Most adults therefore need around £11,000 a year. The basic income proposal created by the RSA in 2015 offered less than £4,000 a year.

It is actually more expensive to have an inadequate basic income than an adequate one. The RSA put the cost of its basic income plan at £280bn a year: for context, the UK currently spends around £220bn on all welfare, including pensions. But because the basic income would not be enough to replace existing income support and pensions, you wouldn’t be able to cut back all that much on existing expenditure. In practice, you’d be doubling the UK’s current spending on welfare, just to get support for those on low to average incomes up to 2012 levels.

What would be the point of this? You’d have to fight and win the argument for a huge increase in welfare spending, with far less conditionality, in order to give people what would in practice be relatively small amounts of money.

An adequate basic income of £960 a month would have a far bigger upfront cost – by my figures we’re talking about £580bn. For context, at the moment, total government expenditure (not counting the extraordinary measures deployed to combat the economic shock of the coronavirus lockdown) is around £800bn. But because you’d actually be spending enough to meet people’s financial needs, a good-sized chunk of that existing £800bn budget would fall away, including the vast majority of the UK’s £220bn in welfare spending, all state pensions, and much of the social security network. You’d need, at a generous estimate, £15bn to provide child benefit and to help people with complex needs. You’d also make considerable savings on administration and elsewhere in government spending because of the handout.

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However, giving every adult in the United Kingdom £960 a month runs into the other problem that a lot of UBI models have: inequity. Most of the time, when we talk about a universal benefit going to people “who don’t need it”, we’re talking about sufficiently small numbers that it doesn’t really matter either way. Take child benefit: before George Osborne removed it from higher-rate taxpayers, sure, some people who were receiving the benefit didn’t need it. But if you don’t need the extra 80 quid a month, you are not going to be buying a particular advantage by getting it.

To give higher earners an extra £960 a month, however, would hand them serious financial firepower to entrench their advantages, whether in saving to buy property, paying for private education, or any number of other socio-economic advantages.

The very worst UBI proposals are the ones which offer, say, £650 per person – barely enough to live on if it’s the only option, but a serious boost to your already considerable advantages if you are wealthy. It might address the problem of poverty at the bottom of the income distribution, but it does so by creating a problem of severe and entrenched inequality, in which the opportunities and influence of those at the bottom of the income distribution are drastically curtailed.

There is another fix for this, which is simply to claw back the £11,500 through the tax system — so in practice, your basic income simply acts as a guaranteed income floor.  This creates an inevitable inequality in that somewhere around the £30,000 mark, you have people who are losing all of their basic income but not seeing much of a benefit from their extra earnings until they hit the £40,000 mark: an inevitable feature of any basic income scheme is a degree of unfairness to the benefit of the better off, but this would eliminate the biggest problem.

Some people are concerned that this would reduce the incentive to work, but frankly, those people have never earned minimum wage. Yes, you can live on £960 a month, but it’s not a lot of fun. People will take the opportunity to earn more than that, not because of sanctions, but because being able to get a takeaway whenever you feel like it is a nice freedom to have.

There’s the added bonus, too, that clawing back most people’s basic income payments as they earn more further reduces the headline cost.

But here we run into the third problem with UBI schemes: pointlessness. At this point, we’ve created a system that gives nothing to the highest earners but ensures that the working poor and people who are out of work will have enough to avoid getting into financial difficulty. Congratulations, you’ve just invented a system of in-work benefits and unemployment benefit. Tweak a half-promising UBI proposal into shape and you often just end up with a kinder benefits system.

For this reason I’ve been increasingly inclined to agree that UBI is, as Declan Gaffney puts it, a useful thought experiment to work out what an ideal welfare system would do, not a welfare system in itself.

But the Covid-19 pandemic has made clear the advantage of a system in which, at any given time, income support kicks in without anyone in government having to invent a new lever, find people’s bank accounts or otherwise conduct complex and large-scale administration in the middle of a crisis. It seems unlikely, in my view, that we will not have another pandemic; HIV-AIDS has been written out of mainstream history, and the Sars and swine flu pandemics were not as lethal as they first appeared, but they reveal that we should expect a new pandemic every few decades. I think that is unlikely to change, so there is an argument that we will need an off-the-shelf tool for income protection again.

We may well also need further subventions of government money direct to households to get the economy moving after a pandemic – and a welfare system that already has everyone plugged in, even if in most cases most people are not receiving very much from it, does that very well.

I am no longer so sure that UBI is useful only as a thought experiment – it may now be, in itself, a useful aim.