Is the current emergency pay-out resulting from the side effects of the Covid-19 virus, aimed at helping millions of people suddenly out of work, a distraction to the UK’s Chancellor’s ambitious budget and an overall plan to get Britain out of the post-Brexit situation with a minimum harm? It could be. Some people have argued that even if 250,00 would have died in the UK by the end of 2020, that would have been just a third more than the average annual number of deaths. Mortality varies over years, so that would have been a slightly worse year than on average. By acting as we do, not only in the UK, but world-wide, we are paying an enormous social and economic cost, which will become a burden perhaps for a generation.
However, treating this virus pandemic like a normal flue, and pretend that nothing particular has happened would have destroyed the fabric of the society and the liberal democracy. It is based on the motto “all for one and one for all”, which is best exemplified by the effort put by some countries, like the USA and Israel, to save the life of just one kidnapped soldier. We are really “all in it together”. In this sense it is a big awakening of a global spirit of Humanity at its best. Therefore, in the long-term it may have a very positive social, and perhaps a political, impact on all of us.
The second question is whether it would be better to compensate the people who are in financial difficulties right now with a Universal Basic Income (UBI), or a negative income tax (an expanded version of the existing Universal Credit) rather than paying them the money through a one-off, ad-hoc payment. I believe so and so does the Spanish government.
There have been many arguments presented for and against UBI over the last 20 years, with those supporting the UBI prevailing. So, why we still do not have UBI? In 2018, there has been a very significant, well-validated survey by the European Social Survey carried out in 2018 across the whole EEA area with 32,000 participants where a slight majority of respondents were in favour of UBI. The in-depth analysis of that survey provides some answers, why not more people support the UBI. It all comes down to factors only indirectly related to the cost of implementing UBI, but rather to the current employment situation of the respondent. One of the reasons is that the employed, who are in vast majority, feel mostly comfortable and do not want to pay for those that may be out of work, especially if the additional UBI income for them would not make a big difference.
What surveys like this one tell us, is that the arguments against UBI are largely social and political, rather than economic. It would be difficult to build a fully-fledged UBI system in the UK in a matter of a few weeks, but it might still be possible to convert the current payments to individuals as a prototype UBI by the end of the financial year 2020-2021. But before I put forward my arguments, I must explain what I mean by UBI to avoid any misinterpretation. I believe that UBI should consist of two types of payments:
- Universal Unconditional Basic Income (UUBI), to which everyone would be entitled, meaning:
- Universal: paid to everyone eligible, including children, adults and pensioners (but only for nationals or residents who acquired the necessary rights for UBI)
- Unconditional: paid without a requirement to:
- Pass a means test
- Prove that the recipient actually works
- Demonstrate even the willingness-to-work
- Basic: such benefit should not be sufficient for a person to live even at a “poverty line”
- Periodic: paid at regular intervals (e.g. monthly or weekly), rather than a one-off lump-sum
- Paid in cash: allowing the recipients to decide how they wish to spend the money
- Individual: paid on an individual basis and not, for instance, to households
The level of the UUBI in the UK should be set at about 10% of an average annual salary – about £3,000 for an adult, including pensioners (children half of that). That is just £500 more than every taxpayer receives today in tax allowance. That’s what ‘basic’ should mean – it is impossible to survive on that amount of money. This is broadly in line with the conclusions made by The New Economic Foundation and, independently, by Compass in 2019. It could be financed by abolishing all tax allowances and many benefits and by an additional tax of about £30bn (1.5% of the UK GDP). Those who argue for means-testing its eligibility, should consider that only about 300,000 adults (0.5% of the adult population) would receive it ‘undeservedly’.
- Universal Conditional Basic Income (UCBI), that would be paid out only if certain conditions are met, such as being in full, or partial employment, study or a certified volunteer etc. Such UCBI would probably be best implemented using the Negative Income Tax (NIT), rather than a straightforward payment. This is a progressive income tax system where people earning below a certain amount receive supplementary pay from the government instead of paying taxes to the government. It would be a mirror image of a typical tax system. It could be applied either on an individual (personal) or on a household basis. Benefits received would vary inversely with the income earned via employment or coming from others sources, in line with a negative tax rate and threshold. For example, if the NIT is set at £10,000, the basic tax rate is 20% and the income threshold above which the tax is paid is £25,000, then a person earning £25,000 would get an additional 20% cash on the difference between what he earned (£25,000) and the NIT (£10,000), which is 20% on £15,000 = £3,000. Negative income tax has already been tried in a number of countries. In the UK, the current Universal Credit is at least ideologically close to UCBI with the underlying assumption – you will be better off to work even part time than be on benefits.
- Both payments could probably be initially paid out using the current Universal Credit as a kind of a taxable ‘advance’. This would simultaneously drastically reduce the number of current Universal Credit claimants. Once this is fully rolled-out, the annual payment increase target should be planned ahead for five years, similarly as it is being done for the living wage. There would be no tax allowance and both UUBI and UCBI would be taxable.
Here are my arguments to support the introduction of the UUBI right now:
- The Covid-19 pandemic has already changed the way we live and will live, beyond what we could imagine even a few months ago. The main consequence of that will be an almost exponential growth in robotization, self-service and an online shopping. This will create a huge wave of Technological Unemployment, which will arrive next year, instead in about 5-7 years from now, with perhaps 3-4 million unemployed. Since almost no government has been prepared for that, introducing UUBI and UCBI is the fastest, and the most effective way to prevent large scale social unrest. Andrew McAfee, a renowned MIT scientist, thinks that great American society will sort out the problems of technologically originated unemployment because it has always dealt nicely with a crisis. I do not believe it. It is a social problem, not a technological one. Just think about American Health System, insurance, lobbying, voting system, gun law. These are all social problems waiting to be solved.
- The governments should be pro-active, instead of being reactive as they always have been. It would be easier to implement such schemes if they are introduced simultaneously in most developed countries, which will be most affected by the Technological Unemployment. First of all, it will be easier to argue the case, if others are already doing it. Secondly, it would limit a competitive advantage if some countries abstained from such a reform. To create a critical mass, it should start in the EU (as EU-wide UUBI) and in the USA, which has already had some experience in UBI in several states, and has been in place in Alaska for 38 years (in 2018 everyone got $1,600 p.a.).
- The UUBI should subsume as many current single benefits as possible because it would make the whole operation more cost-effective and easier to administer. That is also the rationale behind the Universal Credit now being implemented in the UK. Therefore, the UUBI entitlement should also include children (with lower level of benefit). Pensioners in the UK should be entitled to UUBI, with the same level of benefit as the working adults. Gradually, UUBI for pensioners should be high enough so that it should cover most of the basic cost of care home for the elderly.
- UUBI should be individualised rather than applied to a household, since individualisation would drastically reduce the cost of distributing the benefit (very few checks, if any), greatly reducing false benefits claims and state intrusion in private lives (who lives with whom).
- In most cases the main reason why prisoners re-offend is that they are either badly educated, or have no prospect for employment, or no income at all. To reduce the re-offending, if every person, including those out of jail, gets £3,000 of annual UUBI then the released prisoners could start a new life, especially if it is supported by an education system. The total cost would amount to just £104M. The people in prison would have not been entitled to £3,000 UUBI. The savings to the UK government would have been substantial. If 30,000 prisoners on a lighter sentence had not gone back to jail every year but instead would have been sentenced to serve in a curfew system, and 10,000 would not re-offend at all, the UK state would have saved 40,000*£35,000 (annual cost) = £1,4 billion.
- In the UK, as in most other countries, there are plenty of hindrances rather than incentives for unemployed to do any part time work. People have to contact the job centre if they can pick up the job and still retain the benefit. The system is just too complicated. The soon to arrive so called Technological Unemployment will force the governments to implement UUBI since this is the fastest, simplest and most effective option to maintain social order, as well as fulfil the dream most of us have, i.e. to devote time to that what we like doing most.
- In most of the OECD countries, expenditure on social assistance is quite significant. In Luxemburg, per-capita benefit spending has already reached 50% of the poverty line. For most governments, the first step would be to convert all benefits and tax allowances into the UUBI with some supplementary amount added. Most countries already spend over 20% of their GDP on paying benefits.
- The UK should lead the way in introducing UUBI, since it compares favourably with the EU countries. In January 2017, 22 out of 28 EU countries applied a binding statutory minimum wage – Belgium, Bulgaria, Croatia, Czech Republic, Estonia, France, Germany, Greece, Hungary, Ireland, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and the UK. In the EU Member States, where there is no statutory minimum wage, (Austria, Denmark, Finland, Italy and Sweden), the minimum wage level is de facto set in (sectoral) collective agreements. It is important to note that the coverage of these agreements varies between countries and as some employees are not covered, they may not have any minimum wage. (Eurofond, 2017)
- In the long-term, the amount of UUBI should at some stage reach half of the poverty line or half of the minimum wage. The level of statutory minimum wage greatly varies between the EU countries. As of 1 January 2017, the lowest minimum wage (usually less than €500 per month) was in the new member states. Of these, Bulgaria applies the lowest monthly minimum wage in the EU – €235. Immediately following is Romania. Malta and Slovenia form a middle group, together with Portugal, Greece and Spain, in which the minimum wage ranges between €500 and €1,000 per month. Of the Eurozone countries, Portugal has the lowest monthly statutory minimum wage. Notably, in Greece (only the private sector), in Portugal and Spain, employees are entitled to 14 monthly wage payments per year; in other member states they receive 12 monthly minimum wages. A majority of the Eurozone countries have the highest minimum wage, exceeding €1,000 per month: the highest – in Luxembourg (€1,999 per month) – is 8.5 times the Bulgarian minimum. The current UK’s minimum wage of €1,600 is thus one of the highest in Europe.
- The minimum wage is a very good indicator of potential problems the EU would have if it wanted to federate as a whole on the same day. Even in 2030 that may not be a feasible option, or at least such an option would be difficult to sell to the taxpayers in the richer EU countries. This is why a multi-speed Europe, favoured by president Macron, has a lot of sense. However, an increased minimum wage that would effectively become the living wage, combined with other proposals may be a necessary option at the time of social or economic crises that may happen when other risks are triggered off at the same time, such as local wars, pandemic or Technological Unemployment. Altogether they could combine into an existential risk.
These arguments illustrate again, that the problem with UUBI implementation is not economic but a social and a political one. It is the social attitude that in the end determines people’s and government’s preferences and these are embedded in the 19th and 20th century stereotypes. They impact the programmes of the parties on the left and right of the political spectrum for various reasons, but which lead them to the same conclusions. Those receiving UBI, as have been shown in various schemes all over the world, have generally been more motivated to find employment, seeing work, at least partially as a way for self-fulfilment. In the end, whatever the arguments of the left and right have been so far, life itself, as the Covid-19 pandemic proves, will force the governments to introduce the UUBI anyway, perhaps under a different name. But Covid-19, at least in Britain, has proven something else. For at least a few months, over 1/3 of the nation has been on a kind of UBI and this is likely to continue for some time. According to the views held by some people, those without of work and with means to survive will become ‘de-socialised’. Yes, I am sure that may happen, since at least 5% of the adult population is incapable to do almost any work and another 5% has other social and personal problems. There may also be an additional 5-10% that will treat this period as a the start of permanent holidays. But I would suggest that the vast majority of people will use this time to reset their life goals and adapt to changing work patterns. Additionally there will be perhaps a few millions who will discover self fulfilment in voluntarily work, as almost 1 millions people who have volunteered in just a few days did, to help 1.5 million people in need of special care.
Finally, those that envisage the world of abundance in a few decades from now, where most people will not have to work, with which I agree, should also point to the most effective way, in which a transition from where we are today to the time of incredible material wealth can be made.
Tony Czarnecki, Sustensis