The economic fallout from the pandemic is nothing short of grim: a projected 14% contraction in the economy this year; the deepest recession for 300 years and unemployment twice as high as before the crisis.
Behind these headline numbers are millions of people who face a catastrophic hit to their livelihoods. We have yet to understand the full impact of this on ordinary people’s lives. The early warning signs are alarming: 2.9 million new applicants for Universal Credit between 1st March and 19th May of this year, an estimated three million people going without meals since the lockdown and an 81% increase in food bank usage in March compared to 2019. All of this points to the inescapable reality that many families across the country are facing real hardship.
This hardship is exposing the gaping holes in our social safety net. We entered this recession with one of the weakest social security safety nets – both among advanced economies and in our own post-war history. Total out-of-work payments received by UK employees are on average 34% of their previous in-work income – the third lowest among 35 OECD advanced economies. At the outset of the crisis, the main adult unemployment payment was worth less than 15% of average earnings, lower than at any time since the creation of the welfare state. While the £20 per week boost to Universal Credit and working tax credits since then was a small step in the right direction, it only reversed one fifth of the overall cuts to welfare seen since 2010. And at £94 a week, many people who never imagined they would ever be on welfare are struggling to cope with an income that is simply too inadequate to live on. However we look at it, our social security system has been denuded to a worrying degree.
For too long, we have swept the inadequacies of our social security system underneath the carpet — the pandemic has laid it bare for all to see. We will have to respond – if not now, then when the swelling numbers relying on this system begin to make their voices heard. In responding, we must rekindle the spirit behind Beveridge’s welfare state: the ambition to deliver a minimum standard of living ’below which no one should be allowed to fall’. This was a key plank of the social contract that dominated for much of the post-war period. A contract that has slowly been broken.
At the heart of our response should be a new minimum income guarantee. In the heat of the current crisis, when the priority is to get much needed income support to families quickly, this should take the form of a temporary, upfront, non-conditional payment of £221 per week to anyone that needs it. This would provide much needed relief to an estimated 5.6 million people who are at risk of losing their jobs or hours and falling through the cracks of the Government’s job retention and income support schemes – as well as for the millions more who may yet be left stranded as these schemes start to become unwound from August. The case for doing this to ease the hardship of those at the sharp end of this crisis is clear, but it also has the benefit of boosting spending and demand in the economy, which in turn has the power to create the jobs needed for recovery.
As we recover from this crisis, we should then enshrine this principle of a minimum income guarantee into a social security system that badly needs reform. Through a combination of universal payments – that benefits all those who pay into the system – and means tested support for those that need it most, we must create an income floor that ensures that everyone can afford the basics for a decent standard of life.
We must move beyond the welfare state of old that was there to catch us when we fell on hard times to a wellbeing state that aims to provide everyone with the building blocks they need to live decent, fulfilling, healthy lives. Alongside a minimum income guarantee should be access to well-funded education, childcare, health and social care and quality housing to everyone that needs it. This should form the basis of a new social settlement coming out of the pandemic to replace the one that has frayed. If we get this right, we have the chance to build back better from this crisis.
Miatta Fahnbulleh is the Chief Executive of the New Economics Foundation. This article first appeared in our Centre Write magazine Family friendly?. Views expressed in this article are those of the author, not necessarily those of Bright Blue. [Image: J J Ellison]
