Should we give people cash to aid recovery? - RSA

Should we give people cash to aid recovery?

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  • Economics and Finance
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According to the Sunday press, the Chancellor is considering a universal one off payment in the form of a voucher scheme to adults and children to help fuel recovery.

The idea, proposed by the Resolution Foundation, is that every adult should receive £500 and each child £250. The catch is that these vouchers would have to be spent locally to help the face-to-face economy.

Is it a good idea? Listeners of the Bridges to the Future podcast will recognise the idea from the episode with Taiwanese Digital Minister, Audrey Tang. Taiwan has introduced something similar.

For recovery to be swift the Government will have to act at pace and at scale on both demand and supply sides of the economy. Putting cash directly in pockets will help with the former. A big caveat has to be added though: none of this can be allowed to jeopardise the most important recovery — from the public health emergency we are still in the middle of. Public health is still first.

The Resolution Foundation scheme bears striking similarity to a recovery or temporary Basic Income. The reality is that people will shift spending to accommodate the vouchers, eg using cash in non permitted retailers such as online suppliers, reserving the vouchers for face-to-face purchases. This begs the question: why not just give the cash as it’s much simpler and less technically fraught?

There is an advantage for doing it the way that Resolution Foundation suggests it seems to me. There is a nudge towards the local economy. People will have an incentive to use up local vouchers and may be willing to shoulder higher prices, have an additional treat, and could be responsive to the 'signal' that local and face-to-face need support. That's all positive.

The problem is the technical complexity. Realistically, this will have to be done through some smart card system. Given fiascos over the contact tracing app and free school meal voucher distribution, are we really confident that a new payment or compensation for local purchases system only permissable on certain types of retailer is deliverable in the short term? There are severe doubts.

Luckily, payment systems exist and until the more complex system is available, payments can be made through tax and benefits systems. Local authorities should be given resources to target those who fail to receive their grants. As the payments are made, there could be a stipulation that they should be for local purchases with a strong campaign backing it up- nudging through messaging rather than systems weaker though that may be. The more complex system could be developed in the background and then ditched at the cost of £100 millions to the taxpayer when it doesn’t work a few months later.

Another way of getting cash into pockets, which would be more progressive, is to universalise tax and national insurance personal allowances which would benefit those earning beneath £11,500 disproportionately.

The RSA has proposed this as the first step towards Basic Income. Child benefit could be doubled. The cost would likely be less or at least no more than the £30 billion for the Resolution Foundation scheme and could mainly use existing systems. Could it be removed if there was a second lockdown? It could be suspended if necessary but probably wouldn’t be as spending would shift to essentials again anyhow.

On the other side of the recovery ledger, in support of demand for labour, it is extremely likely the Government will create a new job creation scheme with wage subsidy at its heart. Whilst it's tempting to say this should focus on jobs whatever it takes, that is not enough. Any scheme should support well paid jobs, with decent conditions, training, and a massive boost for green jobs. To support this latter category, a residential and commercial building retrofitting scheme should be announced at scale. Recovery yes, but that's not enough : renewal, social and environmental, is necessary too. The future should embrace good work, a transformed environment and economic security.

One final thought, over the past few years Basic Income has often been treated as a kind of pariah policy in some progressive circles for reasons that are difficult to fathom. I hope that as things move forward Basic Income can now be normalised as a policy proposition with merits and drawbacks. Often innovations in crisis can shine a light to a better system wide set of institutions in normal times too.

Huge credit to the Resolution Foundation for picking up this idea of how to support recovery. I hope Rishi Sunak is listening. I’m sure he will be. 

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  • The case for a universal basic income has been made by the RSA elsewhere. Some form of cash hand out might work as an encouragement to spending. It might also make the prospect of unemployment slightly less daunting, freeing the individual to explore more options. In turn the Chancellor may be encouraged to be more generous it, as Simon Jenkins has argued, the money is a direct handout that does not involve the banks – debt free money - and is thus not a debt burden that passes down the generations.