Can a Universal Basic Income help stave off the looming economic crisis?

Jimmy Haddow, Socialist Party Scotland national committee

The Coronavirus pandemic has brought large parts of the capitalist economy to a standstill. Governments have pumped billions into the economy to prevent an economic collapse – much of which has gone to big business. However, around 7.5 million workers are currently having 80% of their wages paid by the Westminster government.

The final bill for the economic crisis cannot be known at this stage. But the Office for Budget Responsibility (OBR) considers it could be at least £300 billion for this financial year (April 2020 to March 2021). Across the OECD – the world’s advanced capitalist economies – an eye-watering $17 trillion of extra debt will be added to the stockpile as a result of the crisis.

UK GDP fell by 2% in the first quarter of 2020, similar to the financial crisis in late 2008. However in March, GDP fell by 5.8%. Business surveys paint a bleak picture of activity in April and May, particularly in the consumer-facing services sectors such as non-food retail and entertainment (retail footfall was down by 75-80% in April and the first half of May compared with a year ago).

A surge in recent claims for the Universal Credit benefit – 2.5 million from 16 March to 5 May – suggest unemployment is rising fast. The Bank of England projects the unemployment rate, in a “plausible illustrative economic scenario”, to rise to 9% in the second quarter of 2020, compared to 4% before the crisis. There have also been steep falls in consumer and business confidence.

In Scotland, Universal Credit (UC) claims (out of work/low income benefit) rose sharply in March and April. Household claims for Universal Credit in Scotland have increased from an average of 20,000 per month in 2019 to over 110,000 between 1 March and 7 April, highlighting the impact the pandemic is having on people’s finances.

According to a recent report from the Scottish government “there could be a 33% fall in GDP during the current period of social distancing. These figures are unprecedented in scale but so is the nature of this crisis and the policy response.

At a UK level, this has included direct fiscal interventions, including unprecedented direct government support for earnings of the employed and self-employed, paid for by state backed loan guarantees.

In Scotland, the budget measures were broadly replicated with a £2.2 billion package of support for business and a £350 million package to support welfare and wellbeing for the most vulnerable.

Central Banks have also significantly loosened monetary policy to support demand in the economy. Access to finance, reductions in interest rates, increased quantitative easing and increased provision of liquidity to key financial institutions and banks are widespread.

The impact on workers and fears for employment going forward are unprecedented. The UK-wide ONS Business Impact of Covid-19 Survey reported that of the businesses that were still open, 47% of staff were now working remotely, while 29% of firms reported they reduced hours of staff and over 40% had reduced staff levels in the short term.

In Scotland, the Scottish Business Monitor reported that 51% of businesses had seen a reduction in the number of staff due to the pandemic, while 81% said they have reduced the number of hours staff is working.

Between 70,000-100,000 workers in hospitality and tourism are expected to lose their jobs in Scotland alone.

Calls for UBI

The economic and social crisis has given further impetus to demands for the introduction of a Universal Basic Income (UBI). Most opinion polls show large support for the idea. Hardly surprising given the vicious austerity offensive on working-class people’s incomes since the crisis of 2007-8. 

Child poverty in the last four years in Scotland has increased from 14 to18%. At the same time there has been a lack of a lead from the right-wing trade union leaderships in fighting for wage increases. Despite the sell-out by these leaders following the public sector pension strike in November 2011, independent struggles of the workers’ movement are vital to secure increases in the standard of living for workers. There can be no going back to austerity and cuts after this pandemic.  

Included amongst the champions for UBI are Nicola Sturgeon and the SNP government. In early May, Sturgeon at her daily coronavirus briefing in Edinburgh said: “the time has come for a universal basic income in Scotland”. She called for constructive discussions with the UK government on this matter. Around three years ago, the SNP government began four pilots in different areas of Scotland to test the feasibility of UBI on people on benefits. At the time the Scottish Government concluded by kicking the can down the road and saying it was the UK government that had ultimate power over creating a UBI.

However Nicola Sturgeon says she has now concluded that “the experience of the virus and the economic consequences of that have actually made me much, much more strongly of the view that it is an idea that’s time has come. As one of the many things that we should rethink, this should be up there, quite close to the top of the list.” The Scottish Government’s Social Justice and Fairness Commission are looking at UBI as a means to replace part of the means-tested benefit system in Scotland.

Of course the vast majority of the Conservative politicians – including the present Chancellor, Rishi Sunak, are opposed to any form of UBI. In fact Murdo Fraser – the Scottish Conservative shadow spokesperson for finance – said recently: “the biggest problem with any system of UBI is simply that of affordability.

“For UBI to achieve its objective of providing a safety net for all individuals, it would have to be set at a sufficiently high level to cover all the basic living costs, including those of housing….At such a level, the costs would be astronomical, eye-watering levels of personal taxation, particularly on middle and higher earners.”

A Universal Basic Income is quite a vague concept, depending on who is proposing it and how it is proposed. It means all things to all people; although the perception is a single set payment offered to all eligible residents as a right.

UBI does not depend on income or employment and is not means-tested. The level would be set by the government – and that is the rub – as a safety net. Some UBI supporters say it would allow some people to keep an income while caring for others, like old or sick parents or young children, do volunteering, take time between jobs and even take a sabbatical to pursue one’s artistic dreams.

The crucial issue is who decides the rate of payment. There is a plethora of think-tanks who have suggested figures such as a yearly UBI per adult of £5,200 and £2,600 per child. The Scottish Green Party advocates this level of UBI. Others suggest a £60 a week per working age adult and £40 per child (a family of four would ‘earn’ £10,400 per year). Another proposal suggests a minimum income standard of £221 a week, excluding rent – that is £957 per month.

The difficulty with all these monetary figures is that they do not even reach the level of two-thirds of the average wage, let alone the minimum wage of £8.72. Even in Finland, where a two year experiment of 2000 unemployed people being paid a UBI of £490 per month, it was below the minimum wage standard.

Another issue with UBI is which class is implementing it. As socialists we fight for and support any improvements in the living standards of the working class. For example utilising the power of the trade unions to fight for a higher minimum wage, for 100% of wages to be paid during the current pandemic for all workers, and for benefits that reflect the actual cost of living.

The capitalist class could use a system of UBI to break collective trade union agreements in the workplace and drive wages down to the UBI level. It could also be used as a justification to remove benefits from those reliant on them if low paid, unemployed, sick or disabled.

Although at this stage the capitalist class do seem opposed to a UBI, they could temporarily grant it if there is a movement, or the fear of one, by the working class fighting to safeguard their jobs and incomes.

The Scottish government arguing for a UBI is in contradiction to their policy of passing on Tory austerity to councils, the NHS and public services generally. They also voted down a proposal recently in the Scottish parliament that would have given care workers in the private sector the right to national collective bargaining on wages and conditions.

Socialist policies needed

Socialist Party Scotland fights for a minimum wage of £12 an hour as the first step to a £15 living wage. We campaign for no jobs losses, the sharing out of work and a 35 hour week without loss of pay. For all welfare and council cuts to be reversed and a benefit system with welfare payments to the sick, carers and unemployed based on an equivalent to the minimum wage.

To pay for this the Scottish government could utilise the present powers it has to increase the tax burden on the rich. Scotland’s richest saw their wealth increase by almost £5 billion in the last year. More importantly, the Westminster and Scottish governments could take the major companies into public ownership and run them under democratic working class control and management, with compensation to the owners paid only on the basis of proven need.

Of course this would then provide for the collective and democratic socialist planning of production for the benefit of the majority. An independent socialist Scotland should link with the working class internationally to develop a free and voluntary socialist federation with England, Wales and Ireland as a step to a socialist Europe.