Universal basic income can only be a sticking plaster – it won’t heal our sick economy

The idea that governments can print money indefinitely to support a new kind of welfare system beggars belief

This pandemic is fast turning into a global tragedy – yet crises have a habit of provoking new thinking and creating opportunities. We already hearing of all the good things that are happening as a by-product of the coronavirus lockdown, from reduced pollution and carbon emissions to a revival of community solidarity.  

One of these seemingly good things is the emergence of unfashionable ideas – “thinking the unthinkable” – which are being tried out in the current emergency, or are at least being taken more seriously than in what we might call “peacetime”. Jeremy Corbyn is gleefully reminding us that nationalisation and huge dollops of public spending have their uses in capitalist Britain, not just in Caracas. In China, Xi Jinping is attempting to claim that all those drones and other methods of mass surveillance are in fact useful, whatever paranoid western liberals may have thought. Environmentalists are pointing out that we now have cleaner air and the revival of habitats, including fish in the canals of Venice. And sadly, every day I am getting “I told you so” messages from people euphoric that governments have at last seen the merits of sealed borders keeping out foreigners.  

Among all this, the idea of universal basic income (UBI) is enjoying a renaissance. Its supporters are pointing out that UBI isn’t all that different from what is happening in the unlikely settings of Donald Trump’s America and Tory Britain. Large amounts of money are being offered by government, unconditionally, to large numbers of people to provide them with a basic income while they are unable to work due to lockdown. And, to mix metaphors dreadfully, all this “helicopter money”, dropped from the skies to allow the public to spend, is being financed by the magic money trees which we were once told simply could not grow in our unfriendly soils.

I have always been highly sceptical of UBI, on political, philosophical and economic grounds. My scepticism was fuelled by seeing it advocated with equal fervour both by the collectivist left, who saw it as a tool for reducing inequality, and by the libertarian right who saw it as a way of dissolving government once subsistence level income was guaranteed.

The former would tend towards unaffordable generosity and extreme levels of taxation to pay for it; the latter to Arctic levels of austerity. No doubt there is a sweet spot between the two, but advocates of UBI are happier bandying about the slogan rather than illustrating how the numbers could be made to work. The experiments with UBI in several countries suggest that the sweet spot is difficult to find, or not very sweet at all.   I have always suspected that advocates of UBI were attracted to it because it offered a simple three-word answer to a very complex problem: how to simplify the welfare system without creating an army of losers or unaffordable bills.

It is often forgotten that the much-maligned universal credit system was designed to achieve that simplification: combining six benefits into one payment, akin to a wage. Yet universal credit is now heartily loathed by many because of the low level of support, poor design and implementation. UBI may well be simpler, but not necessarily more generous to those in need – helping to cover whole rents in Burnley, for example, but not coming close to those charged in London. Meanwhile, a basic subsidy to millions of people who simply don’t need benefits means less in the pot for those who truly do.  

Just as a shutdown of the global economy is no long-term answer to reducing carbon emissions, abandoning the incentive to work for reward won’t fix the problems in our labour market

In my view, universal payments also destroy the incentive to work. The tapering of benefits already creates something of a disincentive, but to pay the same to those in or out of work eliminates incentives entirely. Some advocates of UBI argue that work doesn’t really matter; we can live fulfilling lives without organised labour. But public reaction from working people against payments to “scroungers” led to a backlash against the whole welfare system and severely curtailed benefits for the unemployed. That is because people feel strongly about work and the right to it.  

Work has been fundamental to peoples’ sense of self-worth in both capitalist and communist societies. Optimists and idealists say that in future we can all find satisfaction in artistic endeavour, voluntary service, spirituality and lifelong learning; these things should be rewarded as well as what we define as “work”. Pessimists point out that communities with large scale unemployment but subsidised basic needs tend to generate apathy, self-neglect and addictive habits: gambling, drugs and drink.  

Alternatively the UBI advocates will argue that there will, in future, be little employment anyway because of the increasing automation of workplace roles, though the evidence to support this view of the future is wafer thin. It is possible, nevertheless, that a prolonged shut down of the economy lasting into 2021 will make a lot of the existing jobs or gig employment, which is currently being subsidised on a temporary basis, permanently redundant. There could then be a long period of large-scale unemployment until those left behind can be helped to adjust to a world with somewhat different working patterns, with jobs increasingly carried out online.

That will be a massive challenge, of course – but it is best not to start from the assumption that the newly unemployed will be unemployed forever.

So why are so many governments now applying some form of UBI? Because, as the pandemic is both rapidly moving and (we hope) temporary, these time-limited government schemes are both appropriate and affordable.

They are appropriate because, in these quite exceptional circumstances, it is vital to prevent a collapse in demand leading to deep depression resulting from a sudden loss of income. The collapse in demand is attributable to a sudden loss of employment and has to be replaced by the state. Enough has been learnt about basic economics from the inter-war slump that even a reactionary blowhard like Donald Trump can grasp the necessity.  

But that raises the affordability issue. Government concerns over debt sustainability are rightly being suspended, as in wartime, to counter a bigger threat. But if the need for basic income support expands and drags on the effects on the Exchequer will be very severe. The obvious economic response is for governments to borrow from the Central Bank. This can be managed on a controlled basis on a temporary basis (as is currently happening in Japan). But the idea that governments can print money indefinitely to support a new kind of welfare system beggars belief. There will be many other more pressing claims for the cash, not least productive infrastructure investment which is the best way to get the economy going again.  

UBI, in some form, may be a success temporarily to stem the worst economic effects of the pandemic, which will linger on for some time. It is a good sticking plaster, and it will provide some real world data on how guaranteed income affects behaviour.

But just as a wholesale shutdown of the global economy cannot be a permanent way to reduce carbon emissions, removing incentives to work cannot endure as a means to fix the labour market. 

Sir Vince Cable is a former leader of the Liberal Democrats and a former secretary of state for business