Universal credit, minimum income guarantees and social security reform
The future of social security is an increasingly pressing issue in the current context of the cost of living crisis, the rise in poverty, debt and destitution, the increasing numbers relying on food banks, and all the other evidence that more and more people are struggling to make ends meet. The short-term fixes set up in the pandemic highlighted the gaps and limitations of our current provisions. The need for the furlough scheme and £20 per week increase to the standard rate of universal credit is evidence of this.
Universal credit itself – proposed a decade ago as the answer to the future of social security for working-age people – is looking increasingly ineffective at providing adequacy and security. The levels are too low, people with earnings struggle to cope with the fluctuating payments, and too many people have deductions taken from their payments each month.
There are lots of proposals for measures to remove or alleviate some of the most egregious aspects of universal credit, including for example from Policy in Practice, Child Poverty Action Group, the TUC, the House of Lords Economic Affairs Committee, and several reports from the House of Commons Work and Pensions Select Committee.
These highlight many problems to fix in the current design and delivery, although there are limits to the policy reforms possible largely due to the fixed parameters of monthly assessment.
Envisioning a more effective system of social protection: Recent proposals
There is thus a growing interest in alternatives or reforms that would better meet the need for an effective system of social protection. Universal Basic Income (UBI) is still the favoured option for some, but UBI is expensive and hard to sell politically (although Wales is experimenting with a BI for young people leaving care).
It is some form of minimum income guarantee – to provide financial support such that no one falls below a set income level – that is getting more attention. Recent proposals include:
- Institute for Public Policy Research (IPPR) Scotland, March 2021 – Minimum Income Guarantee
- Commission on Social Security, January 2022 – Guaranteed Decent Income
- New Economics Foundation (NEF), December 2022 – National Living Income
- Bright Blue, January 2023 – Minimum Living Income
- Joseph Rowntree Foundation/Trussell Trust, February 2023 – Essentials Guarantee
These proposals are detailed and draw on substantial back-up data and analysis, historical context, statements on principles, evidence from focus groups and polling, views and participation of current claimants, and modelling of options. There is lots to read and digest. So here I am focusing on some of the issues that struck me on reading these – others will no doubt pick up different points.
Setting benefit levels
One of the main areas all proposals address is how to set the level of benefit to provide the minimum and how to keep it up to date. The focus is generally on the adult rates for single people and couples, so for reference the standard universal credit allowance from April 2023 is about £85 per week for a single person and £134 for a couple (age 25 plus).
The Joseph Rowntree Foundation/Trussell Trust propose an Essentials Guarantee, to set the standard rates for single people and for couples of universal credit at a level that would "protect people from going without essentials". Their focus is on the adult standard rates, arguing that "setting a minimum amount for one source of household income" and linking this to the "core living costs" of adults provides a foundation to which other sources of income can be added. Deductions or sanctions would never take the support below this level. The amount would be reviewed annually in line with independent recommendations. Based on their own analysis of the definition and costs of essentials the report suggests a level of £120 per week for a single person and £200 for a couple (2023/24).
The Commission on Social Security propose a Guaranteed Decent Income, set at half of the minimum wage. This gives a level of £163.50 per person per week in 2022, with an additional amount for people who live alone (£63.50, one-fifth of the minimum wage). There would be no sanctions, no two-child limit and no benefit cap. The guaranteed minimum income would be increased in line with increases in the minimum wage. The Commission also call for much greater input from claimants with "the people who receive social security to be involved in setting up and running the social security system".
IPPR Scotland set out the steps towards a Minimum Income Guarantee for Scotland, to be delivered alongside "action to deliver good work for more people and to reduce costs through strong collective services". The report includes an illustrative minimum income guarantee, using as a benchmark a proportion of the minimum income standard (MIS) developed at Loughborough University. The MIS is based on what "people think is needed in order to live with dignity in the UK today". The IPPR Scotland proposals are a monthly entitlement of £792 for a single person and £1,244 for a couple (2022/23), with additional payments for households with children and for other additional needs including disability and childcare.
Bright Blue similarly put forward plans for a new Minimum Living Income benchmark. This would be "proposed by a reformed and expanded Social Security Advisory Committee, which would also recommend the levels and uprating of different social security benefits to help low-income households to reach the 'minimum living' income". The minimum living income would thus include universal credit and other means-tested benefits. The Commission would also periodically review thresholds and caps to ensure that these do not take people below the minimum.
NEF are proposing to replace universal credit with their National Living income. This would be based on a new minimum income guarantee, initially set at 50 per cent of the Loughborough MIS according to household type. This is £460 per month for a single adult and £770 per month for a working-age couple in 2021/22. There would be higher percentages of the MIS for those unable to work and for short-term sickness. All caps, limits and sanctions would be abolished. There would be annual uprating with reference to the MIS and the option of in-year uprating in line with inflation. The national living income would also include a new universal "national allowance" for all. This would be paid directly to each adult, up to individual earnings of £100,000 per annum, then tapered on the same basis as the personal tax allowance. This national allowance would form part of the calculation to bring households to the set MIS level.
Additional targeted benefits and administrative reform
Alongside these proposals for a means-tested minimum income there is also recognition that more is needed:
- The Commission on Social Security propose a "new disability benefit" to replace the personal independence payment (PIP). This non-means-tested benefit would be designed and set up with disabled people and paid at three rates according to the level of support needed.
- NEF also propose to add a "disabled adult element" to their national living income. This would make up the difference between disability benefits and 100 per cent of the MIS, paid at three levels based on care requirements.
- Bright Blue propose adding a new individual time-limited contributory element into universal credit, for those who opt into voluntary national insurance contributions. This would replace new style jobseeker's allowance and employment and support allowance.
- The Commission on Social Security propose to increase child benefit to £50 per child per week.
- NEF propose that child benefit and the child element would together meet 100 per cent of the cost of "providing a decent standard of living to a child".
Finally, there are some new ideas about how the administration could be improved.
Bright Blue propose a 'Social Security Digital Platform' to streamline the benefit claiming processes for universal credit and other means-tested benefits and to give claimants some choice over frequency and destination of payments.
NEF propose a system of auto-enrolment in which everyone would be automatically enrolled into the social security system via a basic profile of (for example) date of birth, address, and verified identification. Additional information for means-tested benefits would need to be added by individuals, including their household composition.
Reflections and first impressions
One point that is clear is that the level of universal credit is not enough to meet needs. These reports use different benchmarks to measure needs (JRF/Trussell’s own measure, percentages of the MIS, the minimum wage) and all come up with amounts for single people and couples that are higher than the universal credit standard rates. Many people receiving universal credit struggle financially. There is a strong case for increasing levels of support.
As noted above, there is a lot packed into these proposals. I may have missed, or misunderstood, important details so I urge everyone to read the full reports. Here are just some brief first impressions:
- What about the other aims for social security? These proposals are about poverty, about ensuring at least a minimum level of social protection. But the social security system fulfils a number of other important aims, including smoothing income across the lifecourse, horizontal (as well as vertical) redistribution (from those without children to those with, for example), meeting additional needs, enabling autonomy, managing income risks, and supporting people through social and economic contingencies such as sickness and unemployment.
- Is there still too much means-testing? Means test are complex to administer and to access. Take-up is often less than complete so the benefits do not reach the people for whom they are intended. Withdrawal as income rises can create poverty traps. The means tests are usually family or household based so there is no individual entitlement. The reports suggest various ways to address some of these concerns. The Commission on Social Security note support in their consultation for "payments to be on an individual not household basis" but if this means an individual means test it is difficult to see how that would work in practice. Bright Blue embed their contributory element within universal credit but that seems to add an unnecessary further confusion between individual and household entitlement. NEF’s national allowance is individual but would be included in the household calculation. The aim (in my view) should be to return means-testing to the last resort in a more mixed system of universal, contributory, and means-tested provision. The Fabian Society has recently made the case for a new Employment Insurance benefit, which would be an individual benefit, earnings related, and time limited. This could be an important step towards re-building contributory benefits into our system.
- Is there enough for children? Given the continuing high levels of child poverty (4.2 million children in the 2021/22 official figures) – more attention is needed on tackling this issue. Higher child benefit is proposed by the Commission on Social Security and by NEF. Child Poverty Action Group has been calling for increases to child benefit for some years. This could be a start to developing a broad-based child poverty strategy.
- Where are the equality and family impact assessments? It would be helpful if those proposing reforms made these sorts of assessments. This would indicate the impact on different individuals within the household, including children, and highlight any potential impact on gender and other protected characteristics.
- Do we need an independent body to advise on benefit levels and uprating? This could be a good idea, but it would be quite a departure for the UK where governments have always been reluctant to even state what adequacy might mean. The House of Commons Work and Pensions Select Committee is holding an inquiry into benefit levels, and it will be interesting to see whether this suggestion meets with their approval. A more consistent and fairer system for uprating benefits is urgently needed, to avoid the current annual wrangling and uncertainty. This would not necessarily require an independent body if it was included in legislation. Tom Clark recently argued for a "tripe lock against poverty", to increase benefits by "the best of prices and wages – plus another one percentage point".
- What about the technology? The experience with universal credit as digital by design does not inspire great confidence in the ideas for an expanded digital platform. The benefits advice site entitledto give marks of just six out of ten for the administration of universal credit and note that the "digital-only application is still a challenge to many". Plus, the universal credit online system can act to obscure people’s rights, by not providing proper reasons for decisions or deleting past information needed to appeal. Automation is increasingly seen as a way to reduce administrative burden for claimants. But automation has its own complexities, including that it is not obvious how this would work for individuals in the context of household-based means-tested benefits, especially if work requirements are attached.
- What about financial incentives to work, conditionality, and sanctions? The focus on financial incentives to promote employment is deeply embedded in our benefit system, alongside work conditionality requirements and sanctions for non-compliance. The success of this approach is contested and it causes high anxiety and hardship. The guarantees/essentials approach aims to ensure an adequate income for people, employed or not. But more debate is needed on the appropriateness of the emphasis on employment for all. Kayley Hignell argues for some new thinking on the assumptions about how people make decisions about employment and for a social security system that is designed to "support people to navigate change and challenge in their lives".
It is refreshing to see wider debate on the future of social security. Let’s hope it leads to much needed change.
With thanks for comments to Fran Bennett, Alison Garnham and Rita Griffiths.
This blog was originally published by the Institute for Policy Research, University of Bath on 22 May 2023.