Is UBI the Answer to Our Economic Crisis?

By Stephen Richmond

Coronavirus is a complicated and difficult problem for any government, let alone one with leadership as out of touch and incompetent as the current UK one, so I’m not going to cover all aspects of how we should respond here, just whether we should give people cold hard cash.

Cash is being proposed to solve two big problems at the moment, one of those two is correct, one incorrect. Let’s start with the incorrect one.


UBI and cash transfers are a really good choice for fighting recessions… most of the time. Sadly this isn’t something cash transfers can do at the moment. There is no amount of money we can give people that will push them into going out and spending (and we wouldn’t want them to anyway) nor do we want them going out to work and so UBI isn’t the solution to the financial crisis right now. That changes considerably after the medical crisis has passed and we need to get the economy moving again but it isn’t the case right now.


So what is UBI useful for at the moment?


Simple, paying the bills.


Right now people need to be able to pay their rent/mortgage, they need to be able to afford food, electricity and water bills, and the list goes on.


So why not just legislate to cancel those bills?


Well firstly because we’ll never think of every expense people might have and secondly because if we stop those payments that will increase the financial crisis and that increases the economic problems we will face after the health crisis has passed. Keeping those bills in place but supplementing people’s incomes will allow everyone to financially weather the crisis and so will leave us in far stronger economic shape once the virus has passed.


So how could it be done?


Well ideally we would have planned ahead and had a UBI and the infrastructure necessary already in place for a crisis such as this, something SLF has been calling for for a long time, but we haven’t so what stopgap measures can be used?


Firstly we do have the details of everyone on benefits. We can simply pay them more, and we should.


Second, we can pay companies to pay their staff extra. They already pay their employees and so have everything set-up to transfer the money. It won’t cost them anything because the government is picking up the tab. Between those on benefits already and those employed in some capacity we will do as good a job as we can do, there is some chance of some people accidentally being paid via two mechanisms, which is irritating but not disastrous, and a risk that some people will be missed but that number should be minimised.


We can minimise it further by taking measures to avoid layoffs. Layoffs will be a huge problem as it will take time for those people to get on benefits and they will get less on benefits than they would get through wages.


The solution I would propose is a student loan style loan for any company that agrees to keep all current employees (including freelance contracts and part-time employees) being paid at the rate they were being paid before the crisis, if this is considered too much you could insist on some percentage of wages that ends up being topped up by the UBI. Companies that do this will be given the cash to survive the crisis (perhaps with some limit like one and a half times the amount they are paying out to employees) but without the additional burden of traditional loan repayments. Instead, they could be required to pay back, say, 1.5 times the amount they borrow via an additional tax on their revenue of, say, 3%. Exact numbers could vary but this would avoid handing companies free cash while also avoiding the bankruptcy issues that can come with traditional borrowing. It may even be reasonable to give all firings a lag time of, say, three months, to ensure people keep getting paid in the short run so we have time to transfer people onto the benefits system. That would likely mean more companies were forced into taking the loans but it would give us time to considerably soften the sudden drop of income from mass layoffs. Student loan style loans allowing people to borrow a percentage of their income could also be used to further smooth out income drops.


Putting these measures together you would keep companies afloat and wages being paid while also putting cash in people’s pockets to keep paying all their bills. Once the crisis is over this should mean we come out with our economy largely intact and if it needs a further boost that’s when UBI can stimulate spending and get things moving again.

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