Dr Neil Howard is a Research Fellow in the Department of Social and Policy Sciences at the University of Bath.
By any measure, these are extraordinary times. As the coronavirus spreads rapidly around the world, ordinary activity moves from slowdown to shutdown. Production everywhere has diminished, work is either reduced or impossible, and Nasa images even show that air pollution has radically decreased.
This is the backdrop for Rishi Sunak, the chancellor, producing two extraordinary economic announcements in quick succession. First, on March 20 he introduced a Job Retention Scheme to cover 80 per cent of wages for people who are not working but are furloughed and kept on payroll (up to a total of £2,500 a month). Second, amid outcry that this was insufficient, on March 26 he announced a follow-on package to cover millions of self-employed Britons, giving up to £2,500 a month to those with average annual profits of £50,000 or less — calculated on the basis of their average monthly profits over the past three years and coming into effect in June.
Again, these are extraordinary steps and very much to be commended. What the corona-crisis is laying bare is how intertwined our economic lives are, and how vulnerable the system and those of us who live in it are to its wheels ceasing to turn. This is precisely why there has been such an outpouring of cross-party political, scholarly and civil society support for the idea of an emergency basic income.
Basic income is a simple idea. In essence it can be understood as working like a pension, only for everyone. It consists of a simple cash payment given to all unconditionally. Historically, versions of it have been advocated as the basis of an alternative social security system from across the political spectrum, ranging from free market guru Milton Friedman to more left-wing public figures such as Professor Guy Standing.
Although never implemented at a national level, it has been widely trialled and the evidence base is extensive. In particular, the idea behind it — that we all need cash to survive in a cash economy — has been taken to heart by the humanitarian community, to the extent that humanitarian agencies routinely respond to wars and natural disasters simply by giving affected people cash. Indeed, 10 per cent of all humanitarian assistance comes in this form.
Right now we are living through what is fast becoming a humanitarian emergency. This means that, in reality, however forward-thinking the chancellor’s announcements, what he offers simply will not be enough. For a start, they fail to cover gig economy workers and those on zero-hours contracts who currently have no work to do. They also leave behind the long-term unemployed, the recently fired and those who care. Beyond this, the idea that all of the self-employed can get by without income until June is questionable, as is the notion that the already widely critiqued bureaucracy of universal credit can cope with an influx of applications totalling in the hundreds of thousands.
Traditional social security policies and even radical measures like those announced recently operate on a safety net principle: to catch people when they fall, which millions are doing right now. Yet safety nets always have holes and people always fall through them. This is one of the primary reasons why so many are turning to basic income as a more effective and inclusive alternative — because basic income sidesteps the need for a safety net by offering people a secure floor to stand on, a cash dividend that will enable them to survive in the cash economy.
What of the critiques? One holds that the policy will be too expensive, but such claims ring hollow in the context of the enormity of the bailouts offered, the rock-bottom cost of borrowing, and a Treasury committed to doing “whatever it takes” to get the country through. What is more, serious macro-economic backing exists from senior officials within the World Bank, alongside careful proposals from domestic institutions as esteemed as the Royal Society of the Arts, who suggest one-off payments for all of £1,500, followed by £100 a week for the duration of the crisis.
Others worry that a basic income would see the already wealthy receive money they do not need and potentially disincentivise work for many others. The first of these concerns somewhat misses the point, while the second is misplaced and refuted by the evidence.
On the first, economists think about this type of problem in terms of inclusion or exclusion errors. Inclusion errors refer to people receiving a certain benefit when they are not supposed to, while exclusion errors refer to those who should have received but did not. Simply put, inclusion errors are less important, since the human cost of a few extra people being included is far smaller than that of any needy people being excluded. This is especially so when progressive taxation will regroup whatever resources are lost in giving money to those who do not need it.
On the second concern, we know from basic income and emergency cash transfer research around the world that people who receive cash are actually more likely to be economically productive, accessing opportunities that previously would have been out of reach, with new small-scale businesses springing up and more investment in the local economy.
Arguably, in the midst of a massive demand shock such as the one we are experiencing, this is exactly what the country needs. Indeed, if it is to bounce back and avoid the worst of any coming recession, budding entrepreneurs will need to have the security offered by a basic income to take the risks they need to develop. Likewise, for those unable to set up their own businesses, a basic income could support increased community participation and resilience of the kind that we evidently need right now.
To this extent, a basic income may represent both common sense economics and good social policy in this time of unexpected difficulty.
This blog was originally published via Times Red Box on 2 April 2020.
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