A Minimum Income Would Be A Real Cost Of Living Guarantee
Instead of a “Cost of Living Guarantee” that doesn’t actually guarantee that you can meet the cost of living, John Swinney should adopt the long-awaited publication of a proposal for a Minimum Income Guarantee.
Image Source: Flickr
In 2021, shortly after the Holyrood elections, Nicola Sturgeon’s plans to launch a Universal Basic Income pilot study in Scotland were dashed after the UK Government refused to comply with the concessions that would be required – chiefly a promise that HMRC wouldn’t tax the payouts and the DWP wouldn’t claw them back by counting them as income against other benefits like Universal Credit.
The result would have been effectively a transfer of Scottish public money to Westminster coffers without benefiting the participants in the scheme. Needless to say, this wouldn’t have allowed the scheme to study the actual benefits of a UBI. At roughly the same time, Wales launched its own more limited UBI scheme focused on people leaving care – they got round the problem by just stumping up the cash to pay off Westminster, but that was less of an option in the broader Scottish study.
This was massively disappointing because in the run up to that election Scotland made international news when it became apparent that there would likely be an implicit Parliamentary majority in favour of a Scottish UBI. The SNP, Greens and Lib Dems were all explicitly in favour of it. The Conservatives were, of course, against. And Labour were a bit more cagey – caught in a bind between popular support within their own members and vocal opposition from their UK party leader Keir Starmer.
In the wake of the block on the UBI study, Sturgeon – to her credit – decided to explore a more limited option that Scottish Labour were in favour of: A Minimum Income Guarantee. She set up a study group to explore options for the idea and to model the impact of the policies. That group, four years and three First Ministers later, has produced its final report split across four documents (1,2,3,4) that were quietly published by the Scottish Government this week (they didn’t even warrant mention in the press briefing they publish at 4pm each day – I only discovered it by accident while searching the government publication library for some housing statistics). Very few news outlets picked it up on the day. This article may be the first and only explainer, written for the lay person, of what this proposal is on the internet by the time you read it.
What is a Minimum Income Guarantee?
Readers of my work over the years will be familiar with the concept of a Universal Basic Income – a cash payment made to individuals regardless of their income, employment status or other criteria. One of the points of opposition against UBI is that it doesn’t target individuals who need the money and most of the payments go to people who aren’t in poverty (proponents of the scheme see this as a feature rather than a bug as it ensures that people who “qualify” don’t need to go through onerous barriers to claim their payments, that including higher earners “buys them in” to the project to encourage rather than discourage higher payments, and people who “don’t qualify” can’t cheat by, say, lying about their income to stay under the threshold and those significantly above the threshold would see their income taxes increased to compensate anyway).
A Minimum Income Guarantee (MIG) seeks to gain many of the benefits of a UBI while bypassing that critique of spending resources on those who ‘don’t need it’. Rather than a payment given to everyone, a MIG says that people should be guaranteed to receive a minimum amount of money and if their wages from work or other sources don’t meet that minimum amount, then it should be topped up by the benefit.
What about the Cost of Living Guarantee?
This month in the Programme for Government, John Swinney launched his “Cost of Living Guarantee”. It mostly consisted of advertising existing policies in Scotland such as free prescriptions, tuition and bus passes, alongside the fact that some taxes are lower in Scotland than in England. It also announced the return of two policies that Swinney cancelled – universal winter fuel payments for all pensioners and the end of peak rail fares. Crucially, this announcement did not contain any measures that would guarantee that you personally would meet the cost of your living. In this respect, it’s a very different prospect from a Minimum Income Guarantee and is far less a reform of social security and more just a party political advert for policies that had already been implemented before John Swinney became First Minister (even if he did turn a couple of them off and on again).
The Minimum Income Standard: How much is ‘enough’?
The question around both a UBI and an MIG is how adequate should it be? Back in 2017 when I published a costed Scottish UBI, I proposed a relatively low amount equivalent to then Job Seeker’s Allowance (an equivalent approach today would be to match the approximately £100/week of Universal Credit or £5,200 a year). While I acknowledged even then that this was far from adequate, at the time the UBI campaign was still finding its feet and that proposal was far more about proving the concept and building the infrastructure for increasing the UBI later. Many UBI proponents now seek payments in countries as wealthy as Scotland of approximately £1,000/month.
There is another approach to the question of ‘adequacy’. The UK Minimum Income Standard seeks to answer that question by surveying people to find out what kind of things they think people should be able to do to live decently. As it turns out, a ‘decent life’ doesn’t just mean shivering in a hovel wondering if you’ll eat two meals today instead of three but that by a wide consensus, the people of Britain have a good idea that a decent life includes the ability to socialise with friends, to eat out, to own a moderate amount of gadgets like a TV, phone or games consoles if they wish to, to be able to afford to go on holiday every now and then and various other activities that aren’t just work, sleep and survival.
When a ‘decent life’ is collected on paper, we can cost it and work out what it takes for a household to be able to afford to live decently. You can try it here and you’ll probably be surprised to learn that there’s a good chance that you can’t afford to live what most people think is a ‘decent life’ in Britain today. For example, a household of two adults and a five year old and a 14 year old living in Scotland requires to bring in around £71,500 per year across all earners to meet the Income Standard. A more modest household of 2 adults with no children needs around £39,400 across all earners.
The median household income in Scotland for households with 2 adults and no children is just £33,500 per year, meaning that more than half of such households cannot afford to live decently and they’d need to earn almost £6,000 per year extra to do so. For the family with two kids, the median income is just £51,200 – over £20,000 a year short of being able to provide their kids what the people of Britain consider to be a “decent life”.
The Scottish Minimum Income Guarantee
The MIG report published this week took up the UK Minimum Income Standard as its starting point for the model of a Scottish MIG. The most expansive option was for Scotland to declare that no household in Scotland would be below the Minimum Income Standard. Any household that qualifies for Universal Credit and earned less that that line of basic decent living would be topped up to it. One downside of a ‘true’ MIG is that it implies a 100% tax rate for people below the threshold (unlike a UBI where the UBI is never taxed but income earned above it is taxed normally).
Therefore in the practical example presented, if the household had zero income, they would get the full amount and if they earned any income on top of that, their MIG payment would be withdrawn at a taper rate of 55% (the same as Universal Credit). It’d be a very different Scottish tax system if everyone’s income tax started at 55% (and presumably went up from there) but since we already consider that acceptable for people on Universal Credit (but not for millionaires, funnily enough) then it should be manageable. In this model, a median qualifying household in Scotland would receive a top up of £6,700 per year, or just under £130 per month (with households further below the threshold obviously receiving more).
The gross cost of delivering the maximum model would be about £6.9 billion per year. An extremely substantial amount – more than the UK will be charging Scotland for the defence budget even after Starmer’s nuclear-tipped expansionist warmongering agenda – but this is only the gross cost. When we consider that according to the IPPR, the cost of poverty in Scotland due to health impacts alone is £2.3 billion, that several other non-health costs of poverty such as productivity losses due to the stress of being poor come out to something similar, various other devolved low income benefits like Council Tax reduction add up to over £1 billion, and even on a back-of-the-envelope calculation, we approach the point that the MIG is not just a ‘nice idea’ but an actual moral imperative – the cost of delivering a MIG in Scotland would cost the Government less than the cost we are currently paying to mitigate the poverty caused by the lack of one. The cost of eliminating poverty in Scotland may well be cheaper than the cost of not eliminating poverty.
There are some limitations in this particular calculation that you may have noticed. Namely that there are plenty of households that fall below the Minimum Income Standard and don’t qualify for Universal Credit (I live in one of them). So the cost to top up those households too would have to be accounted for. And the cost is based on the assumption of full take up of Universal Credit – there are far too many people who are due social security payments but don’t or can’t claim them for any number of reasons including the UK’s benefit claiming system being unfair, unjust, unkind and deliberately cruel. This means that the cost to deliver MIG to everyone after we deduct known UC payments will be a bit higher. Still, these adjustments will not be huge (they won’t turn a £7 billion cost into a £70 billion cost) so they should be manageable.
Another approach is to reduce the minimum income threshold, to accept some level and degree of poverty in exchange for taking the weight off the public purse. The most modest proposal in the MIG report is to top households up to 50% of the Minimum Income Standard. This would only cost £600 million per year – enough to warrant a substantial section in the Scottish budget rather than a Minister just pulling out of the sofa mid-year, but not so much that it couldn’t be achieved by moving money around a bit or reforming a couple of taxes – our proposal to reform Council Tax would bring in more than this in a year.
Unfortunately, the report makes clear that this extremely modest proposal – equivalent to a payment of an average of £60/week to each household earning less than 50% of their Minimum Income Standard – wouldn’t actually reduce poverty in Scotland. It wouldn’t raise any households in poverty above the poverty line. It’d just make the very poorest households in Scotland a little less poor. Like my 2017 UBI model, this might be enough to build the political capital for future expansion, but if we choose this as our starting point then we must be wary of politicians coming out against that expansion the way John Swinney recently did against expanding the Scottish Child Payment.
Could Scotland do it now?
The major advantage of a MIG over a UBI is that it is likely easier to implement within the bounds of devolution. The report mentions two possible routes – one would be a new Scottish social security payment called the Scottish Adult Payment that would be paid as a “top up” to Universal Credit in the same way that the Scottish Child Payment tops up its UK equivalent. The other potential model if the Government didn’t want to create a new payment would be to expand the Child Payment (though that expansion would be on the order of £130/week per child and as mentioned, Swinney is already against moving it to just £40/week).
Either of these models would be relatively easy to implement – not harder than the initial introduction of the Scottish Child Payment – but would be easier to implement if there is some cooperation from Westminster (the easiest way to deal with the overlap with Universal Credit and other such benefits would be for Westminster to stop paying them to MIG recipients but to give that money to the Scottish Government instead as part of the Block Grant to be put into the MIG fund – without that cooperation, people will have to navigate a more complex system risking double- or under-payments plus possible issues around tax).
There’s also that extremely important issue of the people who fall into the gap of not meeting the threshold but not qualifying for the MIG for some reason. This almost certainly will require some kind of new benefit and, quite frankly, by the time you’re looking at that you’re probably better off just designing a full Universal Basic Income and avoid all of the gaps and edge cases entirely. There’s also the problem where those who don’t qualify at all may use their position of relative wealth and privilege to complain about the ‘free money’ others are getting and will lobby to reduce or eliminate the benefit and their taxes – never mind that we’ve found that most of them would agree that this is what we need to ensure that we can all live decently and that if we don’t do it, they’ll have to pay even more in taxes to compensate for the problems caused by poverty.
Nevertheless, if we can’t do a full UBI now and a MIG can provide a solid benefit of eliminating poverty in Scotland now, then there’s a solid case for designing and launching at least a limited MIG now and expanding it out as it beds in. The goal is clear and the elimination of poverty in Scotland is possible. The politicians are agreed that they want to eliminate that poverty. An election looms next year – how many of those politicians want to put their votes on the line and tell us if they’ll get on with doing what needs to be done to make poverty in Scotland history?
