Universal Basic Income: Does the Coronavirus Pandemic alter the case?

woman wearing mask in supermarket aisle, staring into an empty purse

In this follow-on blog post Stephen Moncrief, of the IFoA’s COVID-19 Action Taskforce (ICAT) Social Security Group, completes his blog journey to consider whether the Coronavirus Pandemic should alter our views on the desirability of Universal Basic Income (UBI) approaches.

In this blog I will consider some of the issues that are specific to the Coronavirus Pandemic and whether this should alter the desirability of UBI.

Expert and Political Views

The concept of Universal Basic Income (UBI) has taken on a new relevance in the pandemic era.

Scotland’s First Minister Nicola Sturgeon said of UBI: “I am a supporter of [UBI], I have long been interested in the concept, I think the case for it has been immeasurably strengthened by the crisis we’re living through."

Professor Guy Standing (Basic Income Earth Network) said: “Among the interesting and potentially good things that will come out of the pandemic is a greater appreciation for the community, for care work that is unpaid, for the slow movement, for a sense of community and solidarity, rather than egotism; and for basic security. People with basic security are more altruistic, energetic, innovative, more tolerant of the other. I feel once we have introduced basic income, even on a pilot basis, you will see a surge of people saying this is what we need for our society.”

On the other hand, Patrick Spencer (Centre for Social Justice) is more cautious as even in the context of the current public health and economic crisis a YouGov poll only showed 51% of the British public in favour of UBI. Traditionally the public is in favour of a welfare system that incentivises work and focuses financial support on the most in need.

Whilst academic and political views on UBI are still polarised, it is fair to say there is a great deal of academic support for governments to look beyond “traditional welfare policies” in this time of crisis. This was the view expressed by more than 500 academics from around the world in an open letter. They also highlighted the plight of the informal sector, stating: "societies where a large majority of the population works in the informal sector will be hit especially hard — beyond earnings, there is next to no safety net.”

In times of an unprecedented economic shock it is easy to see the benefit of UBI in being an automatic safety net for the most vulnerable in any society. Cash grants do that in a way that provides maximum flexibility in a time of drastic uncertainty and rapid change.

Short-Term

There has been some debate around a “Recovery Basic Income”, which would effectively be a temporary UBI to assist in economic recovery after the Pandemic.

This would have the advantage of providing the infrastructure to react to similar situations in the future whilst testing the concept for its longer-term potential.

It would also be worth policy makers considering the introduction of a targeted payment as a prelude to UBI. For example, the pre-retirement and post-education groups are those most likely to struggle to find alternative employment at the current time. The current crisis may necessitate some pension reform and, as retirement ages increase, a targeted UBI could be used to bridge the gap between full-time working and access to state and private pensions (impact of pandemic on retirement-provision).

There were also calls for UBI in the early days of the pandemic (e.g. UN Development Project call for temporary basic income to support isolation) as it would have ensured everyone would have had some support rather than the UK targeted approach to job protection (furlough), which did little for some small businesses and the informal sector.

Long-Term

In the long-term any improved welfare system must be responsive to future pandemics or other economic crises. UBI is a system that is simple and efficient to administer and reduces stress and anxiety in society. In the current circumstances the potentially massive impact it may have on alleviating poverty and inequality and promoting independence should not be ignored.

The pandemic has resulted in:

  • Financial Hardship: Many people are in a perpetual state of insecurity, either through unemployment, risk to jobs or inability to operate their business or in the informal economy.
  • Health Risks: Not just Coronavirus itself but other chronic physical or mental health problems caused by the lack of access to healthcare or due to socio-economic factors.
  • Economic Change: A substantial shift in industrial comparative advantage and changing needs and preferences of consumers e.g. shift to homeworking, online shopping etc

UBI could be a useful tool in tackling poverty and inequality at such a time. Means tested benefits might be theoretically more desirable but they are complex and do not always hit the target population. UBI enables people to have freedom to make their own choices. It also has the advantage of having a mechanism in place if a future health or economic crisis required an uplift to UBI rather than introduction of additional schemes, which may mean no requirement for a furlough scheme (although the scheme had the additional advantage of protecting jobs – it remains to be seen how effective this has been in the long-term).

If we consider the key traditional objections to UBI:

  1. Expense. The pandemic has resulted in concern over government finances and there are many issues to contend with such as the overall economy, unemployment and early retirements etc

However, the political landscape has changed in terms of what is considered acceptable for governments to spend on welfare support. In the UK millions was spent on universal credit and billions on the Job Retention Scheme (furlough) and on the self-employed.

The cost of UBI can be mitigated by the level of interaction or replacement of other benefits (e.g. state pension, universal credit, child benefit) or tax reliefs and depends on the level of income UBI is initially set at.

Therefore, in the context of the amount of money spent in the pandemic on keeping people and businesses afloat and to stop the economy collapsing, UBI might no longer be looked upon as being prohibitively expensive. However, governments also have less flexibility for future spending plans due to the desire to recoup excessive expenditure during the pandemic.

The cost would vary depending on the amount paid, any removal of existing benefits and whether consideration of cost savings on health and social care systems are taken account of. However, it is likely that the headline cost could well be in the range 20% to 30% GDP.

  1. Disincentive to work. The impact of the pandemic on whether UBI causes a disincentive to work is difficult to assess. In principle there might not be any impact but some individuals may prefer not to work during the pandemic – governments may not be adverse to this either. Some economists argue that UBI would result in a disincentive to work and is often the main academic reason for not recommending UBI (such as in the USA in the late 1960s). The empirical evidence we examined in my previous blog does not support this argument but nor is there sufficient credible evidence to conclude that UBI would not result in some marginal disincentive to work. It is likely the culture and socio-economic conditions of an individual country would be important in considering whether this is such a significant obstacle.
  2. Never going to happen. The pandemic has opened up the intellectual debate and the possibility of more radical solutions to social security. This could result in a more fertile ground to consider UBI schemes. In particular, the economic shock associated with the pandemic will inevitably result in greater poverty. The benefits of a regular income on both immediate alleviation of poverty and long-term health from access to food and a less stressful lifestyle is likely to result in significant additional benefits of UBI.

Professor Standing has said: “In the course of my 40 years of work on UBI, there have been half a dozen moments when [UBI] could have come. Each time I thought there had been a five or 10 per cent probability of having UBI accepted. It was that low. This time, in Britain, I think we’re up to a 60 per cent chance.”

What factors are likely to impact individual governments’ views on UBI?

There are clearly many diverse economies and cultures in the world and there are likely to be some countries where the conditions are more suitable to the introduction of UBI than others. The following list is just to give a flavour of some of the factors that might be considered:

  1. Maturity of the economy
  2. Public attitudes
  3. Intellectual curiosity and the existence of UBI “champions”
  4. Level of informal economy (and more widely the nature and stability of income from work)
  5. Health & social care policy:
    1. Pandemic related e.g. self-isolation
    2. Promotion of improved socio-economic conditions resulting in healthier choices and potential to reduce stress related illness.
  6. Ability to instigate economic recovery
  7. Political landscape
  8.  How it would be financed and whether it was sustainable

Overall, it looks like the case for considering UBI has been strengthened by the pandemic. Only time will tell if governments take this opportunity to make such a substantial shift in social welfare. It would be interesting to consider how the last 12 months would have been different if UBI had already been in place – I am sure someone is looking at this right now!

Thank you for reading this and my earlier blog posts and I hope they will promote debate on whether UBI has a part to play in the future.

The IFoA Covid-19 Action Taskforce Social Security group comprises Laura Llewellyn-Jones, Stephen Moncrief, Alan Newton, Peter Tompkins, Chris Sutton and Tawanda Chituku.

Previous articles in this series:

Universal Basic Income: Where have UBI schemes not been implemented?

Universal Basic Income: What is the experience?

Universal Basic Income: What is the concept?

For more information on ICAT and actuarial resources on Covid-19, please visit the IFoA Pandemics Hub.

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