One thing we know for sure about coronavirus is that it is going to have a long lasting impact on the world economy. Governments across the globe are taking unprecedented measures to keep money moving.
In the UK, a record low interest rate is being combined with promises of hundreds of billions of pounds in financial support, including tax deferrals, benefits payments and salary subsidies.
Following concerns that the self-employed were being left out, on March 26 the Chancellor of the Exchequer announced a new support scheme specifically for them, estimated to cost £9bn. At first glance, the support looked robust. But the fine print suggests otherwise.
First, the self-employed can claim up to 80% of profits (up to £2,500 per month), rather than the total amount of income generated. But declared profits can often be too low to be enough to sustain a single person, let alone a household of two or more people.
Second, as any entrepreneur knows, it takes time to build a business from scratch, and the first few years may be just about breaking even. The same applies to a lot of self-employed people who started their business over the last few years.
So looking at the declared profits over the last three years will leave a lot of people seriously out of pocket. If someone started a business in May 2019, they will not have had the opportunity to submit a tax return, even if they were profitable, meaning they are excluded.
Third, it will not be until June that the financial support becomes available. For those without any savings it will be a herculean task to survive until then.
A rough estimate of the government reaction to countering the effect of the pandemic amounts so far to upwards of £550bn, including £200bn in extra bond buying from the Bank of England, before the plan to support the self-employed is factored in.
The financial pain will be felt across all parts of society and across all sectors of the economy until a rebound occurs. Of course, one can only guess when that will be, but don’t expect it to happen – in the best case scenario – until August 2020. It could be much later.
So far, the measures announced by UK government are broadly on the right track, but more intervention is needed. One effective response which would assist everyone involved in the British economy – employers, employees and self-employed – is to provide what is known as “helicopter money”.
The idea is simple. Every person who, until recently, was an active contributor to the UK economy receives from the government hard cash money without strings attached. This can be a drastic but very effective tool of monetary policy to deal with the current situation.
This new money would sustain the economy and ease the current strain felt by producers, suppliers, consumers and creditors alike. A back-of-the-envelope estimation of the cost for such a programme is but a fraction of what has been already announced.
Based on the latest estimates from the Office for National Statistics there are almost 28 million people classified as employees and 5 million as self-employed in the UK. That means, assuming there is no overlap between employed and self-employed, the total UK labour market is approximately 33 million people. If the government gave £1,000 to each individual that would amount to £33 billion per month, and over three months, £99 billion.
It’s certainly a lot of money, but compare that figure to the amount (over £550 billion) already committed and announced by the government. “Helicopter money” would cost less than a fifth of the existing support and most of it would go straight back in to the economy.
This is hard cash that people would be spending on bills, rents and groceries. More importantly, it would be financial support equally distributed across the economy. This is similar to the idea of a universal income, with the difference that “helicopter money” would be a one-off, rather than an ongoing payment.
Delivering it would also be fairly straightforward using details held by the British tax authorities. A single form requiring the PAYE or the UTR (Unique Tax Reference) number along with a person’s name and address should be enough, and would allow for cross-referencing with electoral registers to ensure fairness and that nobody is left out.
And this is not a socialist solution. The term “helicopter money” and the notion of giving out free money to spur inflation was coined by one of the most ardent supporters of capitalism: Milton Friedman. Even the US administration has explored the idea of giving US$1,000 to every one of its citizens, ending with US$250 billion of direct cash payments to those under the US$75,000 threshold, as part of a US$2 trillion aid package.
At the moment, the UK administration is trying to do the right thing – but it needs to go the extra mile and ensure that no one is left behind. If the government thinks and acts creatively by giving out helicopter money to everyone, its actions will pay back in spades.
Dimitris Andriosopoulos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.