One in five people in the UK were living in poverty in 2021/2, according to the latest official data. The numbers are bound to have increased since then, as the cost of essentials such as energy, food and housing has escalated. There are two closely linked dynamics at play here. Firstly, the cost of essentials is very high. Secondly, people do not have enough money.
The Social Guarantee is a framework that addresses both elements. It aims to reduce the cost of living by ensuring that people have access to high quality public services such as transport, energy, care and housing at genuinely affordable prices. And it aims to guarantee that everyone has a living income, enough money to buy other essentials such as food and clothes. A living income is secured through a real living wage for those in work, and a minimum income guarantee (MIG) for those unable to work or otherwise earn a sufficient amount. But what is a MIG and how would it work?
The problem with the current system
The current social security system is deeply flawed. The amount of money available to struggling households is woefully inadequate. Compared to similar countries the UK has low in-work benefits, sick and maternity pay as well as low payments for those with disabilities. The way that benefits are calculated is often arbitrary and not tied to living costs.
On top of this, the system is a complicated patchwork of entitlements that target different areas of need individually. This convoluted approach has meant that many people are unaware of, or unable to claim, money they are entitled to with £19bn of benefits going unclaimed last year.
Sanctions and poor policy design means that the amount people receive can vary dramatically. For example, Universal Credit is paid monthly and calculated in response to a person’s monthly income. For someone getting paid weekly there are four months of the year where they receive 5 weeks of pay, rather than four. On these months their Universal Credit is reduced to nothing, severely impacting household incomes. The use and level of sanctions has also increased significantly in recent years reducing the incomes of the most vulnerable.
The aim of the current social security system is not to ensure people have access to essentials. It has been designed with the purpose of pushing people into work. This has long been touted by this government as the best route out of poverty, though in reality it doesn’t work. A punitive benefits system does push people into work, but this work is often low paid and insecure. Far from lifting people out of poverty, it further entrenches it. In-work poverty has risen steadily in the past decade. A recent study by the Health Foundation found that in 2019/20, two in three children and working-age adults in poverty lived in families where at least one adult was working part-time or more. This is up from just over half in 2009/10 and 44% in 1996/97.
How to fix the problem
The aim of a decent social security system should be ensuring everyone has access to everyday essentials. This means tying social security payments to the actual cost of living rather than to average incomes or some other arbitrary measure. The Joseph Rowntree Foundation and University of Loughborough produce an annual report detailing a Minimum Income Standard (MIS) – the amount of money deemed necessary to achieve a decent standard of living for various types of household in the UK. This measure serves as a good baseline for calculating adequate cash benefits though it does not incorporate additional needs for people with disabilities who require additional support.
Because the MIS calculates how much money is necessary to access life’s essentials, it incorporates the cost of essential services and takes account of how far they are affordable. If the cost of housing goes up, for example, so will the MIS. If the cost of accessing other essential services, such as transport or childcare, goes down, so will the amount of cash benefits needed.
Of course, not everyone will require cash benefits. Much of the working age population will receive their living income through sufficiently well-paid work. The roll out of more and better public services supports this in two ways. First, public services represent a ‘virtual income’ by meeting people’s everyday needs without the price being met in full (or at all) through out-of-pocket payments. Second, they provide good quality, sustainable jobs in every town, village and city in the country. The minimum income guarantee ensures that if for any reason someone is unable to work, or is not earning a sufficient amount, they will still receive the money they need to buy those essentials that are not accessible through public service provision.
How to deliver a Minimum Income Guarantee
Most proposals for a MIG look to increase existing social security payments whilst simultaneously working to reverse social attitudes that stigmatise benefit recipients in a variety of ways. A recent proposal from the New Economics Foundation provides an innovative delivery method which would ensure that no one falls through the gaps.
NEF propose auto enrolment in the existing universal credit system which would work like a mirror of the tax system. At the minute, whatever you earn through PAYE is taxed at source according to the level of income. If your income increases, you are automatically taxed more. Similarly, the proposed system would work so that if your income falls below a certain level, tied to the MIS, it would automatically be topped up to that level.
This system would ensure that everyone automatically receives the payments they are entitled to. It also embeds a principle of universalism into our social security system. Everyone would be enrolled, and many more people would directly feel the benefit of it. This would help to reduce stigma and gather public support.
The costs of a MIG depends on the cost of living and the state of public services. Needless to say, it would require significant investment. A popular proposal to raise the funds needed for a functioning social security system is to abolish, or significantly reduce, the personal tax allowance. NEF calculated that a reduction of the personal tax allowance to £5,350 which would raise over £70bn per year, this rises to over £110bn if the allowance was abolished entirely. In addition, there are other ways we could reform the tax system to raise the money necessary to invest in all elements of a Social Guarantee as shown in a previous discussion paper.
An economy designed to meet people’s needs requires access both to services and to a sufficient income. To address the cost of living crisis effectively, we must make it cheaper to access essentials through high quality public services and at the same time ensure people have enough money to buy other things they need. That’s the Social Guarantee.