Universal Basic Income is not the answer

18th March 2020

Sir Iain Duncan Smith writes for the Telegraph.

There is no doubt now that the Covid-19 crisis is a national emergency. The NHS is already being pushed to full capacity. Our healthcare professionals are working around the clock, and we need access to appliances such as ventilators that are crucial for patients with respiratory problems.
 
Our economy is on life-support too. The FTSE All Share Index is down more than a third since the beginning of February. Lost revenue in the pub, food and tourism trade is problematic for such essential British industries. News that international airports may need state support was also concerning.
 
The bold measures introduced by our new Chancellor to alleviate these pressures are very welcome, not just through his £350bn package of loans but also the grants that will help our smallest businesses. Alongside that, we will need to make sure that employers continue to do their part in awarding sick pay, allowing staff to work remotely, and supporting their supply chain. But from our own collective experience, herd mentality and panic are as much of an economic risk as the underlying fundamentals. As Franklin Roosevelt as US President said: ‘The only thing to fear is fear itself’. For that reason it is right that the Government step in to calm the nerves of employers, suppliers and investors. It will be expensive but it is the right thing to do.
 
But one proposal being pushed around at the moment is the redundant idea of a Universal Basic Income. Let me say now, it’s unaffordable, impractical, produces massive disincentives for people to work and most importantly won’t make any difference to poverty in this country. And even if that weren’t enough, this would not be the moment for such a massive upheaval of our welfare system.
 
At the Centre for Social Justice we ran the numbers. We found that if the Government wanted to offer every adult over the age of 16 a UBI stipend of £5000 (hardly generous at less than a third of the poverty line) it would cost approximately £260 billion, more than twice the NHS budget. If they wanted to up the generosity to a level that would really boost incomes, say £16,320, it would cost, at nearly £900 billion, more than the total UK public spending budget.
 
That’s an astronomic amount of money especially when you consider a lot of it goes towards middle and higher income earners. At a time when our NHS needs more ventilators, should we really be subsidising higher earners to the tune of £16,000 each? Worse still, UBI has not got any of the inbuilt incentives to encourage people to get in to work, stay in work and increase their earnings and hours.  
 
In answer to this, I have heard supporters of UBI say that UBI could be tapered away from higher earners and those that don’t need it. Yet that of course would be even more absurd, for you would in effect have tried to turn UBI into a completely new benefits system. I shudder at the thought that officials would have to drop everything and create all the mechanisms for such a system, it would be mayhem and as one senior civil servant said to me - certainly un-implementable for close on a year.
 
In fact, even if such a system were possible, Universal Credit would still be more generous than UBI for claimants in certain conditions. A single unemployed mother with two dependents can claim nearly £17,000, far more than they would get under a modest UBI and more than even our generous UBI simulation of £16,320.
 
Small wonder then that when UBI was trialled in Finland they gave up half way through the test saying it was unworkable and organisations from the OECD to the Joseph Rowntree Foundation have also come out against it for good reasons.
 
I believe we do need to act fast to make sure we are looking after people worried about their incomes, many already reliant on the welfare system. However, fortunately Universal Credit was designed with just such critical moments in mind. It has the mechanisms to adapt to the wider economic climate in a way Tax Credits and other legacy benefits did not have. UC essentially has three levers that can be adjusted to make the system respond in times of need, the level of the taper, the amount of the work allowances and the level of the basic rates of benefits. Thus it is possible to adjust not just the overall generosity of the system, but the amount of money people in work keep before the payments taper away (called work allowances), and then the rate at which they taper.
 
For people who will be losing hours of work in the coming months, this taper rate can be used to help them, by investing the money in lowering the current 63 percent rate much closer to the original design of 55 percent. As businesses face the challenge of paying salaries when the work isn’t there for them to do, the system can in essence put a floor underneath employees as government steps in and takes the strain, this will support people to stay in work where possible. If the government wanted to go further, benefit rates could be increased and work allowances could be adjusted to target the most vulnerable. Importantly, trying to make changes like this to the old legacy benefits like tax credits would have taken months, now, as a senior civil servant at DWP told me, we can make these adjustments to UC within a couple of weeks or less.
 
Our economy is on a knife edge but as Rishi Sunak said earlier this week, we will get through this and we will do it together. There is generous  financial support of £330 billion for businesses, small and large. Now the Chancellor knows he must target people who through no fault of their own could fall unemployed. He needs to help keep people in work but also support those who fall unemployed. He can do all of this for he has a mechanism which will respond quickly to the much-needed employment support he plans to make available and that is Universal Credit.
 
He should ignore those who want to create a new system into which you then pour vast amounts of untargeted support. Such an outcome would not only fail to support those who need it but worse, it would place an unnecessary and enormous burden on the economy slowing down our future recovery.

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