UK Citizens Bonus

I believe that once the COVID19 lockdown is over, UK society will need to embrace a new social reality. The ‘old’ social contract between government and the people has been rather turned on its head by the necessary responses to the pandemic and there is recognition that the economic impact will require huge government intervention.

During the crisis, key workers have been the ones that have kept society functioning. Those key workers are often people who view their work as a calling such as doctors and nurses, where salary is not the key driver for their career choice and money isn’t a method of scoring success.

Other key workers, such as supermarket staff, drivers and binmen, have traditionally low-paid and often insecure jobs out of necessity and lack of choice.

An article in the Independent today suggests that up to a third of the key workers earn less than £10 per hour.

When all of this passes and we emerge from our cocoons into the new normal, I hope that we will recognize the moral injustice of this and do something about it. Indeed, should no action be taken, there will be palpable anger amongst the populous.

One answer would be finding a way to better reward the low paid and disadvantaged. I have long thought that as a country we have the wealth and ability to provide every adult of working age with an income over and above what they earn.

The government are now uniquely placed to take action on this. They are taking steps to try and mitigate against the economic maelstrom that will follow as the impact of locking down the country feeds through into the economy. They are seeking to provide mechanisms that will mitigate against unemployment, collapse of businesses and turmoil in the financial markets. They have pledged £30bn so far in funds, but have also offered loan guarantees to business banking lenders and recognized that they will need to offer bailouts to some business sectors.

So, how can we also afford to support the economy and correct the moral injustice of the low pay of our key workers?

The answer is to set up a UK Sovereign Wealth Fund. Income generated from this fund would be divided up equally between every working age British Citizen. To be clear, this Citizen Bonus would not be taken into account when calculating minimum wage rates, welfare entitlements, student loan repayments or pension payments.

Say the Citizen Bonus is £1,000 per head tax free. To some that may not seem a lot, but to a low paid worker on £8.75 an hour that could be the equivalent of 3 weeks wages. It could be the difference between making the rent or feeding the children.

The bad news that this would probably cost the UK about £30bn a year and therefore require a Sovereign Wealth fund in excess of £600bn.

The good news is that with a bit of nimble footwork, political will and deft project management, the government can start to seed the fund and in these unpredictable times are uniquely placed to kick start the wealth fund.

This is how:

•           Any government bailout to companies would require a company to lodge equity into the UK Sovereign Wealth Fund. This would be accompanied by warrants that would allow the wealth fund to purchase equity at a future date at a set rate, a method employed by Warren Buffett when bailing out Goldman Sachs.
•           The government have set up the Coronavirus Large Business Interruption Loan Scheme (CLBILS) that allows companies to borrow money from banks while the government guarantees the loan against bad debt. Effectively, the government is offering free insurance against bad debt. By insisting on an ‘insurance payment’ on each loan, this money can be used to seed the wealth fund.
• The current Bank of England (BoE) Quantitive Easing(QE) scheme can be amended to allow the BoE to use the money generated by QE to be sent direct to the wealth fund and be used to invest in equities, property etc. This would also boost the value of pensions and investments and help protect the insurance industry.
• Any direct business grants from central or local government would require the company receiving the grant to place a proportion of the value in equity into the wealth fund. This would include Research & Development grants.
• A change in Land Laws to make it mandatory that any income generated by UK land or property be paid to a UK tax domicile or UK incorporated company. A proportion of the extra tax revenue would be paid to the wealth fund.
• The law on trusts would be reviewed, especially family trusts, to ensure that when these trusts pass to a new generation of family, a small proportion of the investment will be passed to the wealth fund.
• The National Trust would be asked to pay a small levy based on profit to the wealth fund.

Now, I am not saying this will be easy. I am not saying it will be quick. It lays a foundation. It is sustainable. It means that everyone shares in British economic success and growth. It certainly seems to be a way to ensure that we recognize our key workers and to help lift people out of poverty.