Beyond the Lockdown: A proposal for a Recovery Universal Basic Income during COVID-19
As the COVID-19 crisis continues, attention is now turning to the consequences for the economy and household finances once the lockdown ends. As the restrictions are lifted, the government’s income protection schemes will be wound down. Households who do not regain their old jobs will suffer large earnings losses. Meanwhile, the millions not covered by the government’s measures will have endured months of hardship. In addition, the economy will need a demand boost to avoid a prolonged recession and give businesses the confidence to reopen and begin hiring people again.
We propose a Recovery Universal Basic Income (UBI) that provides comprehensive support for households during this critical period as well as delivering a vital stimulus to the economy. The Recovery UBI would be:
£1,000 per month for each adult
£500 per month for each child
It would last for two months following the end of lockdown and be in addition to Statutory Sick Pay and other means-tested benefits like Universal Credit.
Background
A Universal Basic Income is an unconditional and regular cash payment to everybody. Although there are slight differences, it works in a similar way to other payments like the basic state pension and child benefit.
While a permanent UBI would have provided both vital security and comprehensive coverage during this lockdown period, in its absence the government resorted to piecemeal measures. The Job Retention Scheme (JRS) and Self-Employment Income Support Scheme (SEISS) were highly welcome, but they missed out up to 5 million people, many on lower incomes. These include those already made redundant, recent job starters, the newly self-employed, and those taking time out to care for loved ones. As a response to these gaps, a number of organisations, including UBI Lab, RSA and NEF, have developed proposals for an Emergency UBI (or similar), that would provide comprehensive coverage across the whole population for the duration of the lockdown.
This proposal builds on those earlier proposals but crucially it looks beyond the lockdown to address the support that households and the economy will need once the restrictions are lifted. The government’s income protection measures are expected to end at this point. This makes sense because the purpose of the scheme was to pay people to stay at home and this will no longer be necessary or desirable. But it also means that households will be fully exposed to a very fragile labour market. The Office for Budget Responsibility (OBR) estimates that unemployment may have risen by 2 million after a 3-month lockdown, and it seems likely that many furloughed employees will not get back into work or be made redundant shortly afterwards. Meanwhile, those who never qualified for the government’s scheme will have endured months of hardship, may be highly indebted, and could face even worse employment prospects. The need for financial support will be urgent.
The economy as a whole will also need support. Aggregate demand during lockdown has been depressed because households have not been out spending. This was not a problem given the government-mandated shutdown of all but essential businesses – in fact a reduction in demand was desirable given the reduction in supply. But the situation will be reversed after lockdown. The OBR estimates that the economy could be 35% smaller by then. With the restrictions lifted, it will be vital to get consumers spending again so that businesses have the confidence to reopen and hire people back. With no extra stimulus to demand, there is a risk of a prolonged and severe recession.
(1) The Recovery UBI has been developed from stage 2 of the previous UBI Lab 2-stage Emergency UBI proposal.
(2) The government has announced that the Job Retention Scheme will be extended to the end of June 2020.
Proposal
We propose a Recovery UBI to provide financial support for households and give a boost to consumer demand to stimulate a recovery. The amounts are:
£1,000 per month for each adult
£500 per month for each child
The Recovery UBI would last for 2 months and be in addition to any other payments an individual or household may be entitled to. It sits alongside the other COVID-19 measures expected to outlast the lockdown, notably the extension to Statutory Sick Pay and increase in Universal Credit. It should be tax-free and not included as income for the purposes of means-tested benefits.
Payments would be delivered direct to people via the mechanisms discussed below to get money to them as quickly as possible. The unconditional nature of UBI means that no-one need fall through the gaps, as often happens with means-tested benefits - there is evidence that in recent years, over four million low-income families have missed out on means-tested benefits they are entitled to.
The Recovery UBI will provide comprehensive support to individuals and households during the nascent economic recovery. The headline amount for adults is similar to the Minimum Income Standard for a single adult identified by the Joseph Rowntree Foundation and Centre for Research in Social Policy. It provides a solid foundation for households to build on after lockdown. A family of four would receive £3,000 per month and £6,000 over the two months in Recovery UBI payments. Any concern that high income households are receiving money they don’t need can be alleviated by recouping the money though additional taxation once the economy has recovered (see funding options below).
The Recovery UBI provides a demand stimulus of just under 5% of GDP. The suggested amounts are in the same ballpark as the cash stimulus to be paid out under the US CARES Act ($1,200 for adults and $500 children). The US payments are one-offs but other proposals put before Congress provide for monthly payments. Similarly, the Japanese government is making a stimulus payment of about £750 (100,000 yen) to all residents.
Costs and funding
The upfront cost of the Recovery UBI is £118 billion over the two months. The cost could be reduced to £95bn if only the under 66 year-olds were included - this could be argued on the grounds that most pensioners have been fully protected financially during the crisis and already receive a UBI-like payment in the form of the state pension. Both figures are high but should be compared with the cost of the government’s other measures - for instance the JRS alone may cost up to £40bn over a 3-month lockdown. The cost is also less than the £137 billion spent on the bank bailout during the 2008 financial crisis. Moreover, some of the cost will be recouped through additional tax revenues as the economy grows from the effect of the stimulus.
There are different options for funding the Recovery UBI. First, it could be financed by the direct creation of money by the Bank of England (“helicopter money” or “people’s QE”). This is a controversial policy but it may be justified as an emergency measure (and was the basis of the quantitative easing programme to counter the 2008 recession).
Second, the government could use conventional borrowing as it is doing to finance its other measures. Again, a one-off increase in long-term debt can be justified as an emergency measure.
Third, the government could borrow and pay some of the debt back afterwards (beginning in the next financial year) using progressive taxation. This would ensure that the highest earners didn’t benefit from the Recovery UBI in the longer-term. Similarly, closing some of the 1,156 tax reliefs in the UK, many of which disproportionately benefit the wealthiest households, could also be explored.
Mechanisms
The Recovery UBI could be paid to all adults and households with children through HMRC, the DWP or via employers through PAYE.
The monthly UBI for children could be easily paid to all households currently in receipt of child benefit.
The self-employed and those in receipt of tax credits or Universal Credit could have their UBI paid to them via HMRC and the DWP respectively. Those in paid employment could be paid by HMRC via the PAYE system. The over-65s could be paid via the DWP Pension Service.
Those without an online bank account could be issued cheques, while those without any bank account could be provided with emergency bank cards with the UBI payments added to them.
The UBI Lab network
25th April 2020
References
Millions slipping through the cracks - Lukasz Krebel, Christian Jaccarini, Alfie Stirling https://neweconomics.org/2020/04/millions-slipping-through-the-cracks
UBI Lab - A proposal for an Emergency Universal Basic Income (UBI) during Covid-19 https://www.ubilabnetwork.org/blog/a-proposal-for-an-emergency-universal-basic-income-ubi-during-covid-19
The RSA Emergency Basic Income scheme: Cash now for the self-employed https://www.thersa.org/discover/publications-and-articles/reports/emergency-basic-income-self-employed
NEF - A safety net for all https://neweconomics.org/2020/04/an-income-floor-for-all
OBR Coronavirus reference scenario https://obr.uk/coronavirus-reference-scenario/
A Minimum Income Standard for the United Kingdom in 2019 https://www.jrf.org.uk/report/minimum-income-standard-uk-2019
A guide to COVID-19 economic stimulus relief (US) https://www.consumerfinance.gov/about-us/blog/guide-covid-19-economic-stimulus-checks/
Automatic BOOST to Communities Act https://tlaib.house.gov/sites/tlaib.house.gov/files/ABCAct.pdf
How to get the ¥100,000 coronavirus payout from the Japanese government https://www.japantimes.co.jp/news/2020/04/21/national/how-to-get-coronavirus-payout-japan/#.Xp8u-5nTWUk
Coronavirus: More than 9 million expected to be furloughed https://www.bbc.co.uk/news/business-52209790
Fullfact - £1 trillion was not spent on bailing out banks during the financial crisis https://fullfact.org/economy/1-trillion-not-spent-bailing-out-banks/
The Case for People's Quantitative Easing http://www.coppolacomment.com/2019/07/the-case-for-peoples-quantitative-easing.html
What is quantitative easing? https://www.bankofengland.co.uk/monetary-policy/quantitative-easing
Basic Income as Common Dividends: A Report for the Shadow Chancellor https://progressiveeconomyforum.com/events/basic-income-as-common-dividends-report-launch-with-guy-standing/