Is a Universal Basic Income from the magic money tree the antidote to recession?

1930s jobless queue. ” Buddy can you spare a dime”?

With the mother of all recessions about to hit us we’re told, who can be blamed if we search frantically for magic bullets as furlough payments taper off?   A universal basic income is one of them. Go for it says veteran commentator Simon Jenkins, usually one to save public money from big public spending schemes.

Rishi Sunak must think radically. There is no point in saddling individuals, companies or future generations with soaring debt. The British economy needs customers, not debtors. It needs cash. So-called “printing money” is what governments have done in emergencies throughout history. They are doing it now. Germany is distributing €300 cash to every child and €6,000 rebates for buying low-carbon cars. The US is proposing to hand out $1,200 to (most) adult citizens. China, Australia, Japan and France have all gone down the handout route. This is the quickest of economic blood transfusions. Above all, it does not have to wait on banks. It is recovery led from the ground up, from the market place.

Who pays for this money? No one, unless government defines it as “borrowed” from itself. Of course cash handouts can, under reckless regimes, veer into rampant inflation and disaster. Britain is not reckless, and inflation is close to zero. But with a soaring unemployment rate and capacity lying idle, the one thing the economy needs is the cash of which its government, if with the best of intentions, starved it three months ago.

Sunak should slash VAT and extend his direct payments to all who need it for the remainder of the year. The government owes all Britons a universal basic income until this crisis passes. As for the cost, it should be written off. Let the bankers howl.

Too good to be true, writes Tim Worstall, a senior fellow of the right wing Adam Smith Institute in the Times

Universal basic income (UBI) is an excellent idea but it’s not going to solve the problem of poverty on our sceptred isle…

A UBI set at our national definition of poverty, 60 per cent of median income, would be simply unaffordable. We’re just not rich enough. The proof is in a new report from the Fraser of Allender Institute, IPPR Scotland and Manchester Metropolitan University on the likely effects of a proposed three-year pilot scheme in Scotland.

The idea is that we tax everyone to pay for all that basic income. The problem is that the economist Art Laffer was right ( ah the Laffer curve !): there’s a tax rate above which revenue collected falls instead of rising. At best guess that income tax rate is about 45 per cent in Britain. Tax more than this and we gain less money. What’s more, universal credit is designed so that, for every pound a claimant earns in excess of their work allowance, their benefits are reduced by 63p. So we lose work, production and revenue. So, say advocates of basic income, replace the present welfare system with a simple, untaxed payment to all.

However, as this new report points out, for the basic income to be 60 per cent of median income, the top rate of tax would have to be 85 per cent and the base rate 58 per cent. It simply wouldn’t work. By pushing tax rates so high to raise the necessary revenue we would be gaining less, not more, tax to pay out in UBI.

A basic income set at around the current Jobseeker’s Allowance level of £74.35 a week is eminently achievable but that sum doesn’t come close to our definition of poverty.

As anyone who has ever dealt with the welfare or tax systems knows, there is a potential joy in asking them to do something simple rather than administer the current unwieldy structure. Surely even they would be able to hand out free money? Sadly, though, we are left with the truth that the most important part of the phrase “universal basic income” is “basic”. We can afford it if it is set at a near-trivial level, not if it’s any more than that.

But don’t  tax to raise the revenue,  Just “write it off” as “ borrowing from ourselves”  says Jenkins.  How does that work?  Debt repayment complete by 2070 when my grandchild is 60?

Trump Victory Greeted With Global Financial Panic” by Mike Licht, is licensed under CC BY

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