Mike Buckley considers the disadvantages of the Government schemes announced to support the employed and self-employed and whether a universal basic income might be the way forward.
Everything has been turned on its head in a matter of weeks. The scale of the health and economic crisis unleashed by COVID-19 has forced governments across the world to introduce unprecedented measures, introducing lockdowns and taking actions to protect economies.
The UK Government has been late to the game in its response to the crisis and even now is struggling to provide ventilators, testing and protective equipment for doctors.
One area in which the Government is largely seen to have done a good job is in its provisions for workers. Its offer to pay 80% of wages for employed staff and 80% of the average wage of the self employed is, at first glance, both generous in its own terms and when viewed in comparison to other countries’ provision. Many millions of people will be saved from falling onto Universal Credit as a result and will end the crisis with jobs to go back to instead of facing a diminished job market with thousands of fellow applicants.
But the headlines miss what the Government has got wrong – whether deliberately or accidentally – and the millions who face poverty and hardship as a result. For the employed the oversight is simple – by making the scheme voluntary for employers, rather than compulsory, they left the prospects of staff to the whim of employers.
Most employers will no doubt do the decent thing and furlough staff who they can no longer afford. But a significant number of employers will refuse to do so, yet will face no sanctions from the Government. Take the example of Spicerhaart estate agents. On 20 March, the day that the Chancellor announced the employees’ scheme, it made 379 staff redundant over a conference call in which no questions were permitted. The sacked staff were told that they would hear from HR as soon as possible, but nearly two weeks on many have not heard a thing. To add insult to injury, other staff were later furloughed.
The job losses and financial ruin faced by these employees are completely unnecessary. Rishi Sunak’s offer had been well trailed, but even if you take the generous view that Spicerhaart acted before the scheme was certain, they are able – should they choose to – rehire these staff to place them on furlough. Yet, the staff in question have heard nothing.
Spicerhaart is not the only employer to needlessly ditch employees during the crisis, creating hardship where the Government had intended to place a safety net. But the Government could have prevented this by making the scheme compulsory. Sunak could still choose to do this and make it a legal requirement that anyone in employment on 28 February must be kept on by their employer until the end of the crisis. His failure to act devalues his own intervention. He could close a further loophole by removing the 28 February cut-off, which means that anyone taken on since then is ineligible for the scheme, placing many more at the risk of redundancy.
The employed scheme is however better developed than the provisions for the self-employed. From the Government’s perspective, the latter attracted the headlines desired. The self-employed will get the same as the employed – 80% of their usual pay. But the caveats and omissions make the scheme almost arbitrary in who it helps and who it excludes.
It has an upper earnings limit, for example – of £50,000 a year – which means that anyone earning over that amount gets no help. The intention is clear; the Government doesn’t want to be seen to help the already-rich. But the red line leaves anomalies. A household with one earner who took home £50,500 last year gets nothing, while a household with two people who earned £49,500 each gets up to £5,000 a month. It isn’t fair and it will leave many people with no help.
There are though many people earning far less than £50,000 who will get nothing. The scheme excludes anyone who moved from employment to self-employment in the last financial year and the 400,000 people who work as owner-managers and pay themselves mostly through dividends. That’s a lot of people to deny an income to simply because they have chosen to organise their finances in a particular, and perfectly legal, way. The Government has offered no explanation for its choices other than that it wanted to avoid fraud, but there should be a way to prevent fraud that does not involve leaving at least hundreds of thousands without an income.
A related cause for concern is that as many as one in five small and medium businesses may have to close because their income has dried up and Government help does not go far enough. This would harm both business owners and any employees, employed or furloughed. Businesses have complained that banks are demanding extortionate interest rates and personal guarantees in return for loans.
Universal Basic Income
The employed scheme should be made compulsory for employers, leaving no employees in fear for their jobs, as has been done elsewhere. Denmark, for example, has tied its help to companies to their commitment not to cut staff.
The self-employed scheme should be extended to all workers and, if an upper earnings limit is needed, it should be a taper instead of a cliff edge. But a simpler solution, and one that should be getting its moment, is a Universal Basic Income (UBI). A Government grant of £2,000 for every adult and £500 for every child in the country, every month for the duration of the crisis, would ensure that everyone is covered, that no one gets too much, and that no one falls through cracks in the system.
A UBI is a blunt instrument. Some people who do not need £2,000 would nevertheless get it. But most people do need it, and many will face poverty or need to apply for benefits if they don’t get it. In the current crisis, a UBI’s simplicity is its strength. There would be no need for means testing and monitoring, no requirement for bureaucracy and administration – which would save Government time that could be better spent ending the crisis – and for workers would mean that the scheme could be rolled out quickly. That would be a huge benefit when the current Government schemes are going to take weeks or months to benefit employees or companies.
There is already a strong case for a far lower, but permanent, UBI to redress failures in the benefits system. If implemented during the crisis it is possible that it could be kept and gradually reduced as the economy returned to normal over the coming years, giving businesses the time to recover and households a predictable, even if reducing, income for a set period. It could even, at a lower rate, become a permanent feature of the tax and benefits system, ensuring that everyone has at least some income without the need to apply for benefits.
“A revolutionary moment in the world’s history,” Beveridge wrote in the opening pages of Social Insurance and Allied Service in 1942, “is a time for revolutions, not for patching”. His work led to the creation of the NHS and the expansion of National Insurance. The Coronavirus crisis is different but the challenges are nevertheless dramatic.
The economy is unlikely to return to normal in the short-term. In some ways, it may never be the same again. We need to find ways to support every family and household, not just for the next few weeks, but in the long-term. A UBI could be part of the solution, but even if it is not, we must find ways to be bolder. Incomplete handout schemes that leave many in poverty are not enough. The Government must go further, ensuring that everyone is protected, and must then develop systems that will protect workers and companies for the duration of the crisis and beyond.