By Dr Marcia Gibson, Investigator Scientist (MRC/CSO Social & Public Health Sciences Unit), Institute for Health and Wellbeing.

Universal basic income (UBI) is defined as a cash transfer paid to all individuals without conditions, at a fixed value which is not affected by any other income. Definitions vary regarding the value of payments, but a ‘full’ basic income is often taken to include payments which cover basic subsistence (PDF). Interest has mushroomed in recent years in response to increasing employment insecurity and in-work poverty, with pilots and trials conducted or planned in a number of locations, and support from a growing number of politicians. The Scottish Government has expressed interest in conducting a Scottish pilot, to which end they funded a two-year feasibility study to examine the options for such a pilot. The study’s final report included proposals for study designs and recommended that a pilot should go ahead. In response to the COVID-19 crisis, First Minister Nicola Sturgeon has recently expressed unequivocal support for a basic income in Scotland. However, under the devolution settlement, the Scottish Government does not currently have the powers required to conduct a pilot.

Arguments in favour of universal basic income include that it would: reduce poverty and provide income security, particularly to those in precarious employment; promote social solidarity by providing all with the same amount of money; reduce the stress created by conditional, means-tested benefits; be cheaper to administer; promote individual freedom by allowing people to participate in non-market related activities; and improve health through many pathways including reduced stress and financial insecurity. Advocates have been arguing for some time that a UBI is essential in the context of increasing labour market insecurity and potential job losses caused by automation and AI. The COVID-19 crisis has led to calls for a temporary UBI to support those who have lost income due to inability to work during lockdown, and the many more expected to lose their jobs as the furlough scheme winds down (Lansley 2020). However, as Malcolm Torry of the Citizens’ Basic Income Trust points out, the UK currently lacks the required infrastructure to rapidly implement universal payments (Torry 2020). This would make it very difficult to introduce a temporary UBI as a short-term response to the immediate effects of Covid-19 on the labour market. In the medium and longer term, the crisis has brought some of the UK social security system’s failings into sharp relief, but whether a UBI would be the most effective response is debatable. 

The UK social security system has become increasingly focused on the use of conditionality and sanctioning to promote employment in recent decades, because it is believed that people will not try to find work without strict employment requirements (Centre for Social Justice 2018). These supply-side policies place the onus on individual jobseekers to find work, regardless of labour market conditions. There is mounting evidence that conditionality and sanctions lead to increased exits from benefits, but also have negative effects on earnings and job stability, and lead many to exit the labour market (Berg & Johan 2014, Wu et al 2014, Fording et al 2013, Taulbut et al 2018, National Audit Office 2016). Meanwhile, evidence on the negative health impacts of sanctions grows stronger over time (Katikireddi et al 2018, Williams 2019, Williams 2020, Wright et al 2018, Wright & Patrick 2019). Studies in the UK have found these effects even in a relatively buoyant jobs market. Particularly in the context of the COVID-19 related collapse in employment, applying conditionality without regard to labour market demand is unlikely to have positive impacts on employment. However, there is evidence that providing in-work earnings supplements (e.g. Working Tax Credits), or allowing working claimants to keep more of their earnings does have positive impacts on employment (Grogger 2003, Fishman et al 2020), and also on health and many children’s outcomes (Hoynes 2019, Wicks-Lim 2017).

What do we know about the effects of unconditional cash payments?

For many opponents of BI, the belief that unconditional payments would lead to benefit dependency is one of the principal objections (Centre for Social Justice 2018). However, evidence for the effects of basic income is scant because no studies have been conducted of interventions which meet all of the criteria for a full BI. In addition, the effects of a universal, permanent BI would likely differ from those of a short-term trial with a small sample. My colleagues and I recently published a systematic scoping review of studies of interventions which meet some of the BI criteria (Gibson et al 2020). All interventions included in the review had to provide substantial payments with no conditions attached. Thus, although it is difficult to extrapolate the effects of a full BI from the evidence we found, the review does provide evidence on the effects of unconditional cash payments in upper-middle and high-income countries.

In the included studies, reductions in annual hours worked for men ranged from zero to 12%. In interventions very similar to Universal Credit (but without employment requirements), the largest reduction was 9%, although this was not statistically significant. There were larger reductions for single parents and married mothers of young children in several studies, which may reflect the fact that maternity pay was not available in the study locations. There was some evidence that small business owners and self-employed people increased the number of hours they worked. Qualitative evidence suggested that where people reduced the amount they worked, it was often to spend time on activities such as caring for people or returning to education. In one study of payments which were reduced in relation to earnings people reported that the intervention allowed them to remain in work when their circumstances changed, because benefits were not withdrawn immediately if they did a small amount of work. Overall, the evidence suggests that the effects of unconditional cash payments on labour market activity are small for most groups. There was also evidence of positive impacts on a range of health, educational, and social outcomes, which were often stronger in low income or disadvantaged groups. It is difficult to say from these studies whether the effects differed when payments were universal, but there was evidence of positive community-level effects of payments that were universal or available to large proportions of the population

In this light, a universal basic income paid to all citizens unconditionally may seem like an effective policy response, both to short-term labour market shocks such as those caused by COVID-19, and to longer-term labour market trends. Proponents argue that a UBI would provide a degree of stability and security to those in precarious employment, while also permitting people to spend time retraining, caring, or in any other non-labour market activity they wish or need to pursue (Standing 2019). In addition, transferring cash directly to all individuals could provide a fiscal stimulus which would assist in reviving the economy (Torry 2020).

Reforming social security now

However, it is possible that similar objectives could be achieved with a degree of reform to the existing social security framework. The government’s response to the pandemic has shown that Universal Credit can be adapted to suit changing circumstances; for example, the lifting of work-related conditions in order to receive benefits for a period of three months. Universal Credit differs from a UBI in that is not paid universally to all citizens and is only available to those whose income falls below a certain threshold. UBI advocates stress the importance of universal payments for promoting social solidarity and social justice (Standing 2019). However, the negative effects of COVID-19 have not been experienced equally by different socio-economic groups. Analysis by the Resolution Foundation has shown that those in the upper quintiles of the income distribution saved money during lockdown, as opportunities for spending on leisure were severely curtailed (Bangham & Leslie 2020). Meanwhile, many of those in the lower quintile have seen no change in their outgoings and increasing debt levels (ibid.), even as they risk exposure to the virus while delivering the essential services on which we all depend. This is reflected in the unequal distribution of COVID-related mortality, with men in the elementary and caring occupational groups dying at nearly four times the rate of those in the managerial, professional, and technical groups (ONS 2020).  

Modifying Universal Credit so that it is more generous, conditions are less onerous, and workers can keep more of their earnings is a practicable and relatively affordable reform that would assist in ameliorating the inequitable distribution of the pandemic’s negative impacts, while protecting the incomes of those in greatest need. 

Sectors which attract lower incomes will also be more negatively impacted by increasing unemployment when the Coronavirus Job Retention Scheme comes to an end, with up to 32% of workers in the accommodation and food services sector at risk of redundancy by the end of 2020 (PDF). In this context, targeting income protection at those groups could equally be seen as a means of promoting social solidarity. Further, those on lower incomes spend monies received as cash transfers, while those on higher incomes are more likely to save, pay down debt, or accumulate assets (Joyce and Xu 2019), risking a further magnification of inequalities if payments were to be made universally. For the same reason, payments targeted at those on lower incomes would likely be a more effective fiscal stimulus (ibid.).

The available evidence indicates that conditionality does not lead to higher employment and unconditional payments do not cause a large reduction in labour market activity. Sanctions have negative effects on health; conversely, earnings supplements lead to increases in employment while improving health outcomes. The Universal Credit Work Allowance as it was originally proposed was intended to incentivise work and ensure that those in work were always better off. Subsequent cuts have undermined this intent and removed the Work Allowance from single claimants altogether. This suggests that removing or substantially easing conditionality for UC claimants, in conjunction with the reversal of cuts to the Work Allowance, could have many of the putative positive effects of a UBI, while effectively targeting those in greatest need.

Statistical modelling suggests that the government’s decision to increase the UC standard allowance by £20 per week for single people has helped to limit the average decrease in household income to only 1% and mitigated the impact on poverty (Bronka et al 2020). However, standard rates of social security in the UK replace less than 16% of average earnings, and are among the least generous in the OECD (Brewer & Handscomb 2020). The £20 uplift has not been extended to those on legacy benefits, a situation described as ‘untenable’ by both the Social Security Advisory Committee and the Work and Pensions Committee (Work and Pensions Committee 2020). Given that the available evidence does not suggest that more generous social security decreases employment rates (Gregg & McMillan 2020) the government should give serious consideration to retaining the uplift for UC claimants and extending it to those still on legacy benefits. 

Such measures clearly would not be cost neutral, but modelling conducted by the Institute for Fiscal Studies prior to the pandemic showed that implementing the Work Allowances proposed in 2012 and uprated by 20% would cost £3 billion per annum while increasing the incomes of the lowest deciles. Tax reforms proposed by the government would be equally costly while favouring higher earners (Joyce and Xu 2019). Meanwhile, modelling of the cost of introducing a post-COVID UBI at the rate of £60 per week for working age adults indicates that it would require the abolition of the Personal Allowance and rises of 5% across all tax bands, while leaving 26% of the population dependent on means-tested benefits, with their attendant bureaucracy and intrusiveness (Torry 2020). In light of the unequal distribution of COVID-19’s negative impacts, a one-off wealth tax could represent an equitable approach to funding an increased Work Allowance and retaining the UC uplift. 

A growing body of evidence shows that conditionality is not an effective approach to increasing employment, particularly when few jobs are available. Conversely, studies of unconditional cash payments do not suggest that they lead to a collapse in labour market activity. However, providing a basic income to all would be very expensive and risks further increasing inequalities already magnified by the pandemic. Modifying Universal Credit so that it is more generous, conditions are less onerous, and workers can keep more of their earnings is a practicable and relatively affordable reform that would assist in ameliorating the inequitable distribution of the pandemic’s negative impacts, while protecting the incomes of those in greatest need. 

References  

• Bangham, G., & Leslie, J. 2020. Rainy days: An audit of household wealth and the initial effects of the coronavirus crisis on saving and spending in Great Britain. London: Resolution Foundation. 
• Berg, G.J., & Johan, V. 2014.  Monitoring Job Offer Decisions, Punishments, Exit to Work, and Job Quality. The Scandinavian Journal of Economics 116(2): 284-334  
• Brewer, M., & Handscomb, K. 2020. This time is different – Universal Credit’s first recession. Assessing the welfare system and its effect on living standards during the coronavirus epidemic. London: Resolution Foundation. 
• Bronka, P., Collado, D. & Richiardi, M. 2020. The Covid-19 Crisis Response Helps the Poor: the Distributional and Budgetary Consequences of the UK lock-down (No. EM11/20). EUROMOD at the Institute for Social and Economic Research. 
• Centre for Social Justice. 2018. Universal Basic Income: An Effective Policy for Poverty Reduction? London: Centre for Social Justice. 
• Fishman, M., Bloom, D., & Elkin, S. 2020. Employment and Training Programs Serving Low-Income Populations:  Next Steps for Research. OPRE Report #2020-72. Washington: Office of Planning, Research, and Evaluation. 
• Fording RC, Schram SF, Soss J. 2013 Do Welfare Sanctions Help or Hurt the Poor? Estimating the Causal Effect of Sanctioning on Client Earnings. Social Service Review ; 87(4): 641-76 
• Gibson, M., Hearty, W. & Craig, P. 2020. The public health effects of interventions similar to basic income: a scoping review. The Lancet Public Health, 5(3), pp.e165-e176 
• Gregg, P., & McMillan, L. 2020. Intergenerational joblessness across Europe: the role of labour markets, education, and welfare generosity. London: Centre for Education Policy and Equalising Opportunities. 
• Grogger, J. 2003 The effects of time limits, the EITC, and other policy changes on welfare use, work, and income among female-headed families. Review of Economics and Statistics,. 85(2): p. 394-408 
• House of Commons Work and Pensions Committee. 2020. DWP’s response to the coronavirus outbreak: First Report of Session 2019–21.HC 178. London: The Stationery Office Limited. 
• Hoynes, H. 2019. The Earned Income Tax Credit, The ANNALS of the American Academy of Political and Social Science, 686(1), pp. 180–203 
• Joyce, R., & Xu, X. 2019. Options for cutting direct personal taxes and supporting low earners. In: The IFS Green Budget 2019. London: Institute for Fiscal Studies. 
• Katikireddi, S.V., Molaodi, O.R., Gibson, M., Dundas, R. & Craig, P, 2018. Effects of restrictions to Income Support on health of lone mothers in the UK: a natural experiment study. The Lancet Public Health, 3(7), pp.e333-e340 
• Lansley, S. 2020. Meeting the economic and livelihood crisis: From a recovery basic income to a permanent income floor. London: Compass. 
• National Audit Office 2016. Benefit sanctions: Report by the Comptroller and Auditor General. HC628. London: National Audit Office. 
• Office for National Statistics. 2020. Coronavirus (COVID-19) related deaths by occupation, England and Wales: deaths registered between 9 March and 25 May 2020. (accessed 26/9/2020) 
• Standing, G. 2019. Basic Income as Common Dividends: Piloting a Transformative Policy. London: Progressive Economic Forum 
• Taulbut, M., Mackay, D. F. & McCartney, G. 2018. Job Seeker’s Allowance (JSA) benefit sanctions and labour market outcomes in Britain, 2001–2014.Cambridge Journal of Economics. Aug 18;42(5):1417-34  
• Torry, M., 2020. Evaluation of a Recovery Basic Income, and of a sustainable revenue neutral Citizen’s Basic Income, with an appendix relating to different Universal Credit roll-out scenarios (No. EM7/20). EUROMOD at the Institute for Social and Economic Research. 
• Williams, E., 2019. Unemployment, sanctions and mental health: the relationship between benefit sanctions and antidepressant prescribing. Journal of Social Policy, pp.1-20 
• Williams, E., 2020. Punitive welfare reform and claimant mental health: The impact of benefit sanctions on anxiety and depression. Social Policy & Administration. 11 June 2020 
• Wright S, Dwyer P, Jones K, McNeill J, Scullion L, & Stewart AB. 2018. Final findings: Universal Credit. York: Welfare Conditionality. 
• Wright, S. & Patrick, R. 2019. Welfare conditionality in lived experience : aggregating qualitative longitudinal research. Social Policy and Society. pp. 597-613 
• Wu, C.-F., M. Cancian & Wallace, G. 2014. The effect of welfare sanctions on TANF exits and employment. Children and Youth Services Review 36: 1-14 

To cite this article: Gibson, Marcia, Would a basic income be the best response to the COVID-19 crisis?, Policy Scotland, https://policyscotland.gla.ac.uk/would-a-basic-income-be-the-best-response-to-the-covid-19-crisis, 27 August 2020

Image credit: SbytovaMN | iStockphoto