There has been much discussion over the last few days about the desirability of a universal basic income (UBI) for the United Kingdom. Demand for this has only grown since Friday when the Chancellor announced a highly discriminatory scheme of income support for those employees, but no one else, laid off as a result of coronavirus. This leaves the self-employed, in particular, in an exceptionally difficult situation that cannot be justified on any social or economic basis because they, like those employees who have lost their jobs, are the victims of circumstance at this point of time.
So the question is whether a UBI might address this issue. I have been in discussion with quite a number of other interested parties on this point in the last week, and I am expecting a statement soon, but feel it worth exploring the issues as soon as possible given the urgency of the crisis that we are facing. That requires that it be understood just what a universal basic income is.
The UK based Citizen's Basic Income Trust defines a basic income (which might also be described as a universal basic income) a having five characteristics:
- ‘Unconditional': A Citizen's Basic Income would vary with age, but there would be no other conditions: so everyone of the same age would receive the same Citizen's Basic Income, whatever their gender, employment status, family structure, contribution to society, housing costs, or anything else.
- ‘Automatic': Someone's Citizen's Basic Income would be paid weekly or monthly, automatically.
- ‘Nonwithdrawable': Citizen's Basic Incomes would not be means-tested. If someone's earnings or wealth increased, then their Citizen's Basic Income would not change.
- ‘Individual': Citizen's Basic Incomes would be paid on an individual basis, and not on the basis of a couple or household.
- ‘As a right of citizenship': Everybody legally resident in the UK would receive a Citizen's Basic Income, subject to a minimum period of legal residency in the UK, and continuing residency for most of the year.
Just reading this list makes clear how many problems that a UBI would create at this moment.
Firstly, note that what the government has at present offered is a guarantee of, in effect, a maximum of £24,000 of income to a person on an annual equivalent basis at this point of time. This is, however, taxable, meaning that around £350 A month could be expected to be paid on this sum in tax and national insurance, leaving a net income of about £1,650 a month. This is considerably in excess of most UBIs being discussed at this point in time, and unavoidably means that there must be an interaction between any UBI and the tax system if parity is to be created. We have no capacity at present to create that interaction. To avoid that we would, then, require a lower UBI to be be payable to the self-employed at present and it is, of course, appropriate to ask if that is fair.
Secondly, many might also ask whether it is appropriate to pay a universal benefit at this point of time when there going to be so many other additional cost for the government to face, particularly if most people (and this is true present) will remain in employment throughout this crisis. Whilst I have no doubt that governments can, must and should run deficits at present but I am not in favour of unnecessary, and maybe duplicated, cash injections. It could, of course, be argued that if a universal basic income be paid then for those in employment this sum should then be deducted from payments made to them as wages, and that their employer should then pay the UBI deducted from them back to the government to prevent double payment. Technically, this is possible. However, massive complications could arise. In the first instance,it would have to be ensured that the government could get a UBI to everyone, and as I note below, there is no guarantee that that is the case. Then, employers would have to operate the scheme properly, and that cannot be guaranteed. And in some cases, some people may then end up doubly out of pocket for a while. That would be extremely unfortunate. So I am not persuaded.
Thirdly, at a time of national crisis, when it is already going to be the case that HM Revenue and Customs are going to be under massive stress because of sickness, social isolation and (it has to be said) the impact of cuts then to expect them to add the payment of a UBI into the national accounting system in a matter of days or weeks is an extraordinary demand: it is extremely doubtful that the capacity to do this exists.
Fourthly, there is a basic information problem. As a matter of fact HMRC do not hold accurate details for everyone in the UK. Nor do they know who everyone in the UK is. There is no database of such people. The national insurance register is incomplete, and some people have duplicate numbers. In addition, by no means everybody has taxable income, or benefits, and there is no one integrated dataset the covers all people in employment, on benefits, or pensions as well as those who are not working as well, but the universal principle of UBI would require this, and it is simply not in existence. The chances of errors would be enormous as a result and significant social costs would arise as a consequence. There would also be a massive delay in getting a UBI working, and that cannot be tolerated now.
Fifth, Even if the Revenue knew to whom UBI should be paid they do not, as a matter of fact, have bank account details for all those who would be recipients. They have no need for this information for most employees, for example. So payment might not happen.
Sixth, it is also important to note that there are still quite a significant number of people in the UK who do not have a bank account, and so could not receive a UBI by direct transfer. The number is less than 10% of adults, but it is still significant. There is a real problem to be addressed here, come what may, but this is not that moment.
Add all these facts together and right now there is no obvious way in which, in purely practical terms, a UBI could solve the immediate cash flow crisis that many people in this country are going to face. Of these by far the largest number will, following the Chancellor's announcement of support for employees, be those self-employed people who will have seen their incomes collapse as a consequence of coronavirus. I stress, I am not saying that there are no other groups who need support: there are, but this group is the next and most immediate priority and they are the reason why most people who are demanding a UBI are doing so.
I think that there has to be a better mechanism for delivering a UBI to these people, at last at present. This has to be through the HMRC self-assessment system. I happened to note that Heather Self, who has a long record of thinking about tax systems, agrees this morning but what I am proposing is a little different to, and I think fairer than, the system Heather suggests.
My suggestion is in X parts, but some facts have to be considered first
In practice, what Sunak has offered to employees is a maximum of £24,000 pounds a year, which for an average person, after tax and National Insurance of about £4,200 on this sum would leave them with a net income per month of about £1,650. As a matter of fact, this is higher than the average self-employed earnings in the UK at present. The importance of this figure is that any support to the self-employed should not involve payment to them of tax and National Insurance that would, then, be subject to later recovery, if appropriate.
Then it is important to note that unlike employees self-employed people have considerable variations in their earnings from time to time. For this reason it is unfair to provide support now on the basis of, for example, the last tax return which may be wholly unrepresentative of a self-employed persons income overtime. I am instead suggesting that support be provided on the basis of their average net declared earnings declared from self-employment over the last three years. If they have underdeclared those earnings, that is their problem, I am afraid. If they have a loss during the period that should be ignored for these purposes.
The self-employed person should, then, be permitted to make a claim of 80% of this average figure for their earnings over the last three tax years subject to a maximum, in this case, of £20,000 (there is no point in being spuriously accurate) per annum to allow for likely tax that would have been paid.
The self-employed person could then claim this sum in monthly instalments to add to their income this year. I stress, that income would remain taxable.
This claim could be done by simply making payment through the HMRC payment on account system through which payment could also be made.
That said, the possibility of fraud (and it is significant) would have to be addressed. I suggest three measures. First, for this year the self-employed will have to declare their billings per month on their tax returns. This is really not hard.
Second, if during a month their billings per month multiplied by the ratio of their net profit to turnover as shown on their last three tax returns plus the amount claimed in coronavirus support exceeded £1,666 in any month then the excess will have to be repaid in full: there is a duty to make sure overclaims do not arise now. This is not a difficult figure to calculate. HMRC could easily provide a calculator.
Third, to prevent billing being delayed to permit claims to be made, if total net earnings in the year (presuming there jus a recovery after lockdown) exceed £24,000 then a repayment of support provided will be expected in 2021/22. A tapering mechanism may be appropriate: full repayment might, for example, be required if income exceeds £36,000, but this would need to be tested and I have not yet had time to do that.
Fourth, a self-employed person would be required to take into consideration other sources of income when making their claim: it must not be possible that their total income with the claim included should exceed £1,666 in gross terms. If they did make claim without taking this factor into account all excess payments made would be refundable, in full on demand.
Subject to these factors HMRC should now simply pay requests made.
I would be inclined to extend this scheme to small landlords as well, but quite specifically subject to them granting their tenants rent holidays.
And I would be planning a considerable increase in staffing at HMRC to check the claims in due course. Their closure and consolidation programmes must end now.
Do this and I think the problem for the self-employed would be substantially solved.
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When you refer to net income do you mean income less expenses ignoring allowances?
Net income after expenses per allowances
There is a lot to contemplate here, but first impression seems to be that the tax and employment systems are such a mess in the uk that implementing UBI would be unworkable without fixing those first?
On your second point – surely companies would carry on paying wages exactly the same as before but claim back the sum of UBI for each employee? The inadequacies of HMRC still stand of course. And I assume there would be changes to taxation on earnings above UBI – in the long term.
A UBI would require radical (read massive) changes to tax system
See http://classonline.org.uk/docs/2013_Policy_Paper_-_Richard_Murphy__Howard_Reed_(Social_State_-_Idleness.pdf
12 years of austerity looks rather like a comprehensive bridge burning exercise now.
Richard, radical in outcomes but in implementation I’m not so sure, my version of a UBI would just remove allowances. My concerns around a UBI is how it could fail to sweep up everyone with current systems, you made this point and I agree.
Believe me – we could not deliver a UBI now
Discuss if for the future by all means
But right now it would kill the whole system – and that helps no one
just a side note to illustrate that this crisis has only really started and there’s a lot more to come,
I’ve been watching aviation figures to get an idea of real activity in the real world economy and they are now definately starting to drop,
https://www.flightradar24.com/data/statistics
they were holding pretty steady even though this crisis was unfolding and Richard did point out last week that a lot of these commercial flights were probably flying near empty to retain their flight slots but now the figure for daily flights has dropped below the level for Christmas day,
in all likelihood we are not out of the woods but actually moving deeper in.
I wouldn’t be surprised if we see another bloodbath in the markets when they re-open tomorrow and the pressure for governments to ‘do something for crying out loud!’ will increase,
I endorse the realism and practicality of everything Richard is trying to suggest at this point.
I am told Stansted is at well under 10% of normal now
And thanks for the endorsement
I’m going to sweat buckets over this crisis – and that’s after the fever of a week ago
There would also be a problem with asylum seekers who only get around £35 pw minimal accommodation provided at the moment, would they go onto UBI, let alone thousands of other migrants of indeterminate status who are underground and living on their wits and dont appear on census or other official lists..
The community of self employed is always hard to tackle (gray economy/informal/not all registered with HMRC/prone to be mobile etc. You’ve made a grand effort to recognize the need and a proper response. My local rural economy (Argyll) has twice the national level of self employment (not always a positive indicator!) Supporting the area and the self employed is crucial.
I am ensuring that relevant people see this
That’s the best I can do….
2 points.
A great many self-employed don’t have reserves with which to pay staff.
The cost of using your overdraft to fund working capital in order to pay employees wages has increased from around 6% to 36% under the new bank charging regime. Almost payday loan costs.
So without knowing how long this will last plus how quickly you can get any support in your bank account millions of jobs will sadly not be saved.
I agree – hence the urgency for action
I promise there is pressure being brought to bear
I do not think I can say more than that
I hope that Guy Standing is reading your blog – he mentions UBI in his book ‘The Precariat’.
BTW – the quality of your thoughts is outstanding.
Guy and I have been talking today
Brilliant! Thanks for the feed back.
Richard so you want all the “support” the self employed and i presumed the employed to be paid back?
If this is so what is the point of them taking the “loan” because that is all it is – a loan, most will say no thanks and fold their businesses. This is the problem with these so called generous schemes there is always a catch. You rightly said the government’s loans were unworkable, due to them having to be paid back but then you offer the near same system. Whats the point of it?
It does not matter what level the payment is set and it is well known the government can change the level it really wants paid back. It starts higher to ensnare the fly in the webb and then when people have “borrowed” they set it a lower salary. The government did exactly this to student loans, at first it was quite high (the salary mark) but the threshold got lower and lower. It is just a big trap, same with the utilities saying they will not cut people off – but yeah right and pigs will fly. You can bet your bottom dollar when the crisis is over and people owe them thousands. They and you are just shoring up a crisis later on. People NOW will say it is not worth keep the shop open and off they go to claim UC. Of course they will be shocked to find out they have to wait 5 weeks and a draconian system to boot.
I would not trust the government very far, they clearly want to make money out of the crisis and want to keep the economy going. It echos 2008 again – giving people who have no means to pay the loan back – a large wad of cash only to crash a year from now. So if this crisis lasts two years every worker will owe the government £48,000. My god that is madness.
There is nothing in this that says loan
Not one word of it – unless, of course, the person has overclaimed
Please don’t suggest I have said what I have not
Darren, there is nothing anywhere that says UBI is a loan. It is open-ended money.
It makes sense for a citizen to get UBI from the Government because of one simple fact – the money is being spent in the economy of that Government. Not only that, that spending will contribute taxes to the Government (its ‘return’ if you like) that will be packaged up and sent out as other benefits/projects/social spending making the initial UBI go even further. It’s a win/win deal – the UBI is also other people’s income – expenditure that will keep other people in work and keep companies and their returns to investors functioning too.
This is how the real micro economy works Darren and it is this economy that is under mortal threat from Covid-19.
Think again.
Excellent blog, thank you.
My concern as a freelance contractor for just under 12 months now is that I have no previous tax records with HMRC to back up my invoices/payments from April 2019 to present.
I just hope something like a UBI can be sorted, but again I have my doubts, especially for people like me who only have this status 6 months out of the year (I work in the live event industry)
I am hoping this can be allowed for in schemes to be created
You can see on Twitter that Heather Self and I have been cooperating on this today
My fundamental dislike of UBI is moneys ‘Unit of account’ property.
£1 is a unit. It measures value. £1 is worth about a loaf of bread.
So when new money is issued by anyone, by banks, government, whoever, then the amount of money must be measured against the stuff that is exchanged for it.
One example is that the bank demands valuation on a property, before it grants the mortgage. Another is that the government publishes wage rates for different public sector jobs – it is defining what each £1 is worth in terms of hours of work demanded in return.
If you have benefits, these are paid to a small percentage of the population, the effect of setting the value of the £ to zero, is going to be small.
However, if you grant money to all of the working population to live on, maybe £1500 / month, without demanding anything in return, this is setting the value of the £ to zero. what effects is this going to have on the value of what a £ is when included with everything else that happens in the economy?
I can only see it as being highly inflationary, as the value of the £ is dragged lower by this ‘zero valuation’ being added into the mix , regardless of if the government deficit spend, or if they increase tax to ‘pay for it’. It’s not where the money comes from, it’s how it’s being valued by giving it away.
And as inflation takes off, UBI would need to be increased, to keep up, which increases the effects of devaluing the £.
UBI, is a bad idea.
We need universal basic services. Everyone should have basic access to food, shelter, security. Everyone. We should have access to the basics, and basics provided by the government. This would wipe out homelessness, food banks overnight. There would be no more begers on the street, because everyone would know that everyone is entitled to the basics, without needing money.
In a a mixed economy of private and public provision, UBI is a GOOD idea. Think again.
Only if it can work
Right now it can’t
Taking 3 links about UBI and inflation, from google:
1)
https://medium.com/basic-income/will-basic-income-cause-massive-inflation-no-f93175c24e48
“Some people have heard that an increase in the ‘money supply’ can cause inflation – but Basic Income does not necessitate any increase in the money supply.”
2)
https://medium.com/basic-income/wouldnt-unconditional-basic-income-just-cause-massive-inflation-fe71d69f15e7
“The money for a basic income guarantee would be already existing money circulated through the economic system. It would not be new money, just money shifted from one location to another. This means that the value of each dollar has not changed. The dollar itself has only changed hands.”
3) https://www.dailykos.com/stories/2019/12/28/1908263/-The-Economics-of-UBI-and-why-the-Critics-get-it-Wrong
” It will put more buying power into the hands of the heavily resource constrained and could drive up certain prices. But the Freedom Dividend is also removing buying power in a roughly equal amount from other sectors of the economy. There will not be “inflation,” but there could be a relatively short-term increase in certain prices”
—-
All three talk about UBI as NOT being inflationary, because the same amount of money is taken from elsewhere in the economy to fund it. Therefore, so the theory goes, because there is the same amount of money, no inflation.
I call bullshit. All three are simply using QTM, where quantity of money = price level, and increases in money supply cause inflation, as proof as UBI will not be inflationary. This (as evidenced by lack of inflation over the last 10 years), is demonstrably false.
MMT’s theory of what sets the price level is what the government demands in return, for a set amount of £. It sets the scale.
UBI is inflationary, in much the same way that the size of Burgers would inflate, if the first 500 grammes of every weight scale in the country, was set at zero.
UBI is a dangerous idea, that some progressives have backed, based on neoliberal rubbish they, like all of us, have been taught over many years.
I think there are real limitations to UBI: in general I am much more persuaded by job guarantees and a properly targeted and well funded social safety net
As a raggedy arse self employed plumber and small landlord I would say your ideas presented above make a lot of sense. Myself and Mrs Desp are in the fortunate position of having low overheads a bit of savings, and a couple of income streams which should keep us going for a good while. However I contract work out to half a dozen other self employed peole and even under normal circumstances some of them live a very hand to mouth existence, some of them sometimes ask for a “sub” against a pending payment to keep them afloat. I personally know many others who similarly sail close to the wind and without the kind of help you are suggesting will go under in a matter of weeks. Already I am owed a small amount from one person which I cannot see being paid for anytime soon, if ever.
I just hope Bo/Dom and their cronies realise this otherwise there isnt going to be much left to govern when we all emerge in a couple of months (hopefully) blinking into the daylight again.
Thanks Richard, and I hope your recovery continues.
Desp
Good luck and I’m feeling pretty OK now, thanks
This intelligent, highly considered and specifically targeted stimulus / support proposal from the Brookings Institution in America IS DEFINITELY WORTH A LOOK for anyone that claims to have an interest in this topic.
I have a couple of reservations about it about it but the essential idea is far better and far more appropriate than any other such proposal that I have seen:
“Keep your distance and your income: A policy proposal for COVID-19”
https://www.brookings.edu/blog/up-front/2020/03/19/keep-your-distance-and-your-income-a-policy-proposal-for-covid-19/?fbclid=IwAR3cFDeXA2tm9jt4TKQBp5p7hFoo4Q8-8q1btBs6sorVT-2QI6CLJ0xSxyQ
Rather than concentrating how to get money to people. In the short term, would it not be more efficient to try and reduce their outgoings. Mortgage, rent , utility bills, broadband, outstanding loans etc. Put a freeze all these payments.
Have food rationed but then free to all. 2,000 calories a day. (It seems that rationing is coming down the line anyway).
If we are all self isolating anyway, people’s outgoings are going to be small after all these measures are in place.
The chancellor’s measures to date seem very beurocratic to implement.
(Maybe the above is also?)
Good work Proffesor and collaborators – please push it to the parliamentarians tomorrow as they fast track ill considered legislation.
Yes UBI would be impossible to implement in a week for everyone- it can wait till we have the census next year – which can be tailored to enable a comprehensive register (as much as any) to be compiled on which to consider it for the long term. (There is nothing to stop us bringing the census forward to be started this year)
The urgency is for the immediate few months.
For that period of time worrying about inconsistency or even ‘criminality’ of a minority is throwing the baby out with the bathwater.
Keep It Deliberately Simple – KIDS.
PAY ALL SELF EMPLOYED AND FREELANCERS ENOUGH TO FEED THEMSELVES AND THEIR FAMILIES.
The Inland Revenue is used to issuing refunds to all such who make returns.
The setup is there USE IT.
Print cheques and send them to these for whom they don’t have account details and direct payments to these for who they do – it should be fairly upto date we just had year end.
Just do it and worry about it after the current months. I would guarantee that almost all that money will go into the local economies where it is needed most – yes some may end up in the depressed stockmarket , so what. They certainly won’t be taking foreign holidays with it.
(Amazon are raking it in – they can be subject to a windfall tax! But i digress.)
Private rents as well as social rents and council taxes should be suspended immediately for at least 3 months starting this month as mortgages are. Most individuals should easily manage on £250 per week on that basis. Families on more – and kids are at home and not getting school meals.
KIDS!
Where would something like this leave someone who went self employed in Dec 2019 (previously self employed until 2015) , obviously wouldn’t have the last 3 years tax returns and not due to file one yet .
Likely to be an averaging arrangement
Thanks for writing this. I’m grateful that you’ve taken the trouble to outline the possibilities. It provides a little comfort while we self employed wait for some sign of rescue.
Not sure how to get the money to pensioners, never mind the self employed. Round our way you can’t get into the post office on pension day as the old folk are queing round the block!!!!!!
If they haven’t got bank accounts, what’s the mechanism going to be to get the money to them if they are self isolating?
Absolutely no idea….
Everyone has a national insurance number right?
Can’t everyone enter their address into a database using their NI number.
The government would then know where everyone lives. Could send out Giros (I miss the good old days of giros!) Would still need cashing at the post office though! Doh!
Or everyone enters bank details for payment when registering address? Still problem for old folk with no bank accounts.
No….
Not everyone knows their NI number
And some have two (yes, true….)
And the checking process would take forever …. every payroll clerk in the country could do the most massive fraud
So, a non-starter
From Lesley Riddoch, The Scotsman, 23 march, https://www.scotsman.com/news/uk-news/lesley-riddoch-self-employed-are-being-left-out-cold-2505064, very clear and simple:
‘Rishi Sunak must pay self-employed people 80 per cent of their last three years’ average earnings, with an £2,500 monthly upper payment cap to show employed and self-employed workers they are valued equally by this government’.
Easy to say
I promise you much harder to do
Just in from HMRC.
It’s like they don’t realize the economy’s about to collapse:
How do employers access the scheme?
You will need to:
designate affected employees as ‘furloughed workers,’ and notify your employees of this change — changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation
submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required)
HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.
This 80% grant is a reimbursement, so HMRC expect you to pay now and then you will get it back at a later date, nothing will be given up front. Obviously, there are several key questions which haven’t been answered yet, such as: –
How will the scheme work for employees with irregular earnings or zero-hour contracts, will there be an averaging system?
How long will employers have to wait to receive payment from CJRS?
Can an employer delay making payment to employees until they receive funding from CJRS?
What happens if employers have already terminated employees before the CJRS announcement?
I have taken that into account in recent comments