Minimum Income Guarantee: report - executive summary

Executive Summary

The aim

A Minimum Income Guarantee would ensure that no one falls below an agreed income level set to allow everyone to live a dignified quality of life, offering financial security and unlocking opportunities for all. This income level would be achieved through a combination of fair and accessible paid work, reform on costs, high quality services and stronger social security. Each component must work together in harmony, if one element of it is underdelivering then the Minimum Income Guarantee will have less of an impact.

Life is unpredictable, as we see now and as we have seen through the pandemic and cost of living crisis. Too many are living insecure lives which is holding us all back. A Minimum Income Guarantee would provide a universal guarantee to financial security, ensuring everyone in Scotland can reach a dignified quality of life.

It would be a fundamental change to the social contract in Scotland, freeing people and families from the huge financial risks currently inherent in things like job loss, illness, disability, growing a family, and relationship breakdown. This is a good in and of itself but it is also a necessary foundation for the transitions we face as a country. Scotland will face significant opportunities and challenges over the coming years and decades, including an ageing population, technological change (including automation and AI) and transition to net-zero. By offering security for all we can unlock opportunities for all, navigating these changes so that everyone can lead a dignified quality of life.

To reach this ambition we will need time, investment and action. It is a commitment that will need buy-in from the public, decision-makers and business – a genuine national commitment. It would support a wellbeing economy that is more inclusive and supportive of all its people, which can deliver economic growth that is more sustainable and, crucially, shared fairly. It would be preventative spending, reducing demands on public services to deal with the social and health problems caused by poverty and inequality. Research estimates that at a UK level the cost of poverty on health care is even greater than the £29 billion in 2016, (£34 billion at 2024 prices).^[1] Financial insecurity impacts on life chances, young people living in the most deprived areas in Scotland are four times more likely to be excluded from school and have lower attendance levels.^[2] The societal costs of doing nothing cannot be ignored. As well as harming children and families, poverty is estimated to harm Scotland’s economy to the cost of at least £2.4 billion per year.^[3]

The design

A Minimum Income Guarantee should ensure a dignified quality of life for all. To design a Minimum Income Guarantee we used the Minimum Income Standard developed by Loughborough University as a proxy, which looks at the income level required to lead a dignified, socially acceptable life.^[4] The Minimum Income Standard varies across household types and sets out real-world budgets required to meet this standard. Our aim is to see a Minimum Income Guarantee set at the equivalent of 100% of the Minimum Income Standard delivered through significant reform to work, services, costs and social security longer-term.

The level of income required to live with dignity should vary by need, reflecting the reality of peoples’ lives. Treating everyone the same is not the same thing as treating everyone fairly. There is currently no Minimum Income Standard that fully reflects the additional costs of disabled people, unpaid carers or those living in rural and island communities. This is something we want to see addressed.

To fulfil the potential of a Minimum Income Guarantee, we need to transform the labour market and economy. Inclusive growth, fair work and equity are crucial elements of a wellbeing economy^[5] – the ambition of a Minimum Income Guarantee would be core to delivering this in Scotland. Many of the countries who have a stronger record on fair work than Scotland or the UK have institutions in place that act to balance the interests of employees, employers and the country. This would require a model being adopted in Scotland that brings everyone together to establish a social partnership approach. Through this approach, we expect to see paid work going further to provide financial security.

We would like to see progress towards Universal Basic Services with the aim of ensuring essentials can be provided to everyone for free or affordably. This means less money would be needed for individuals and households to reach a dignified quality of life. It can help provide financial resilience and protect against unforeseen and unpredictable needs across a lifetime. Introducing Universal Basic Services could lead to an improved quality of services that is more efficient and cost effective; it has the potential to reduce stigma around accessing support; and enhance solidarity among communities by recognising we have shared needs.^[6] There is also an opportunity to use services as a vehicle for our ambitions around fair work. This would be achieved through designing services with fair work embedded, recognising the value of key workers, and ensuring that entering work is always a positive financial choice that is not undermined by unaffordable childcare or transport.

A Minimum Income Guarantee social security payment will sit alongside a separate payment for housing costs, reflecting their variation across the country. Likewise, pensions, non-means tested payments for disability costs, and Child Benefit to support the additional costs of raising children would continue, together with additional payments for unpaid carers and other groups as now. It is important to retain the existing universal parts of the social security system to offer a bedrock of support on which a Minimum Income Guarantee can be built, and to offer a diversity of payments for people and households.

A Minimum Income Guarantee will see a radical departure from our current social security system. It would see a payment level set in line with advice from independent experts, including those with lived experience of financial insecurity, means tested fairly and responsive to real life costs. It should be set at level to ensure all can live with dignity. The payment will taper gradually to reduce as other sources of income increase, to support progression in paid work and to ensure that people gain financially by taking extra hours of paid work. It will be designed to prioritise maximum take up and action to remove accessibility barriers. This will be a genuine safety net for all who need it and free from the punitive sanctions we see in the Universal Credit system. Crucially, a Minimum Income Guarantee will ensure that everyone can access their own income through an independent payment rather than the current single household payment. This will help reduce intra household financial and economic abuse which is rife within the existing UK system and experienced most harshly by women and disabled people.

We have an opportunity to build a better system to address the systemic inequalities experienced by women, marginalised groups and economically disadvantaged communities in Scotland. It will be critical that the policy is designed to ensure that those who experience multiple forms of discrimination, based on race, ethnicity, class, disability, gender or age, can fully benefit from a Minimum Income Guarantee. A Minimum Income Guarantee that is not gender-competent, anti-racist, and responsive to how inequalities and injustices intersect, and compound would ultimately fail in its aims. This is the time to showcase an intersectional approach from data collection to service design.

Our Roadmap

In this report we adopt a Roadmap approach, outlining how we can deliver a full Minimum Income Guarantee, step by step. We combine long-term vision with near-term steps that mean significant progress can be made straight away, even if full implementation will take time, investment and action. A full list of recommendations is published separately.

First steps: Building the guarantee 2026-31

These initial steps focus on strengthening the existing safety net. The first steps can be taken between 2026 and 2031 using existing powers and greater flexibilities in cooperation with the UK Government and in the current economic context.

On social security, this sees an end to the two-child limit in Scotland, the five-week wait for the first Universal Credit payment, and unfair deductions from social security payments for those who cannot afford them. 100% of childcare costs paid under Universal Credit, up to a cap, would be covered for low-income households with children. Pilots in Scotland to end punitive conditions and sanctions within the existing reserved benefits system would be introduced, alongside reforming Jobcentre Plus. It would also see the doubling of the Scottish Child Payment to £55 per week by 2031 (in 2024/25 prices) with new protections put in place to manage the cliff-edge of support for those who lose Scottish Child Payment entitlement if necessary.

For services, there would be concerted action to improve availability, accessibility, quality and take up. Existing services, such as housing, childcare, social care and transport need to be strengthened to make way for future growth and expansion. People need to understand what support they’re entitled to and feel encouraged to access this, whether this is by making transport safer, improving the childcare infrastructure, raising awareness of phone and broadband social tariffs; and ensuring services are designed to be accessible for disabled people. There will also be action to reduce costs through greater promotion of phone and broadband social tariffs, and progress towards creating an energy social tariff.

We also want to see an end to age discrimination and recognition of the value of apprenticeships by working towards all workers receiving at least the real Living Wage and Living Hours by 2030. There should be a review of how local tax powers can encourage progress on fair work and the potential of sectoral bargaining mechanisms to go further.

Other first steps include doing the work to ensure that women can access an independent income through the Minimum Income Guarantee’s design; taking steps to ensure people can access their existing entitlements to social security and services; and for the investment in the collection of intersectional data to better inform the policy design in the later stages of the Roadmap.

The additional costs faced by disabled people must be met urgently as part of building the safety net and foundations for a Minimum Income Guarantee. Steps are needed to ensure that these additional costs are adequately met through existing disability benefits that sit separately alongside the Minimum Income Guarantee. We believe that providing unpaid care should never result in poverty, disadvantage, or impact wellbeing. Further work is needed now to fully understand the additional costs faced by unpaid carers, and to then ensure that carers are adequately supported. Similarly to disabled people this should be done in collaboration with unpaid carers and seek to understand the outcomes that they wish to achieve. This should be accompanied by strengthening access to essential services and resources which support independent living and unpaid care, alongside better tailored support for those disabled people who can enter the workforce.

We also recommend piloting a fuller version of a Minimum Income Guarantee for some groups at this stage of the Roadmap so we make progress quickly and test and learn from different approaches to implementation. Piloting will be critical for the successful later stages in this Roadmap.

Our initial steps on social security would cost around £650m per year of additional investment by the end of the next parliament, though if we see UK wide action on some of these recommendations, the cost to the Scottish Government could fall to around £270m per year. This would build a stronger safety net in Scotland and see significant reductions in child poverty and action to tackle broader poverty and destitution levels. This would see reductions in poverty of ?? and child poverty of ??. We see this investment as preventative spending, investing now to reduce harm and demand on public services later. As such we recommend that this investment should be deemed a priority spending area in the next parliamentary term, seeing a first call on any increases in devolved tax revenues and/or the Scottish block grant alongside other protected areas such as the NHS and schools. If tax rises are necessary for other parts of the Scottish Government budget, we recommend focusing on progressive changes to council tax and income tax thresholds as key options.

Next steps: Building a Fairer Scotland 2031-36

Our vision for Scotland in 2031 is that it will have hit its child poverty targets and is now working towards eradicating poverty across the population. The UK Government and Scottish Government should be working together, along with local and national levels of government, towards the shared goal of a Minimum Income Guarantee offering financial security for all.

The Roadmap sets out the next steps, from 2031-2036, some of which will require further powers for the Scottish Parliament or further flexibilities and cooperation between UK and Scottish governments. It sets out proposals for a new Cooperation Commission between the UK and Scottish governments to understand the potential joint action, flexibilities and/or powers necessary to deliver a Minimum Income Guarantee in Scotland, and a new Minimum Income Guarantee Commission (which could be absorbed into an existing body) to advise on roll-out, setting and uprating of the Minimum Income Guarantee level.

By 2036, we can move to an interim Minimum Income Guarantee payment in Scotland, set at the level of the relative poverty line. We recommend that this would, subject to the advice of the Minimum Income Guarantee Commission initially be paid on a time-limited basis for those able to work. This would offer a temporary boost in support when peoples’ income drops below the relative poverty line, and on an unlimited basis for those with caring responsibilities or disabilities.

Design features of a time-limited payment, providing a temporary boost in support, as an interim step towards the social security element of a Minimum Income Guarantee

• Eligibility for payment, set at the relative poverty line, for a time-limit of 12 months in every 60 months, after which someone would revert to the strengthened safety net in line with our early steps e.g. Universal Credit, which by this stage on the Roadmap should amount to at least the Essentials Guarantee, no longer include the two-child limit, and is accompanied by an increased Scottish Child Payment for families with children.
• No time-limit for disabled people or unpaid carers, and an extended time-limit for parents to care for children (at least an additional 12 months).
• Three simple to understand payment levels – an Adult, Further Adult and Child Payment, ensuring everyone reaches the relative poverty line based on their household composition. These would replace Universal Credit payments and where possible combine with other means tested entitlements for simplicity.
• The payment would gently taper as earnings increase, supporting employment. There would be no work allowance with a taper applying from the first £1 of household earnings. A tapered payment would be subject to the 12 month time-limit.
• Paid to individuals, with higher levels of payment going to the primary carer and/or lower earner in a household.
• Safe and secure for households, evolving from the existing Universal Credit system and where possible simplify and align existing entitlements. All existing premia would be protected ensuring we can meet a ‘no one loses out’ principle as the new system is introduced.

The Minimum Income Guarantee level, ensured through a social security payment, would therefore be the following for a selection of typical households in 2024/25 prices (rounded to the nearest £500):

• Single Adult - £11,500 per year
• Couple - £20,000 per year
• Couple with one child - £28,000 per year
• Single parent with two children - £28,000 per year^[7]

This is based upon a household receiving their full entitlement, some will receive a lesser payment amount if they have additional sources of income e.g. through employment to bring them to the relative poverty line.

Pilots and the Minimum Income Guarantee Commission should inform whether and how to go ahead with this, nearer to implementation. This would require additional investment of £5.9bn^[8] per year in Scotland if introduced tomorrow. However, with improvements to the quality of work, and further investment in services, reductions in costs, and improvements in social security across the UK between now and 2036, this cost could be reduced significantly ahead of introduction.

The reduced earnings potential faced by some disabled people and unpaid carers would be addressed through a means tested premium payment, on top of the payment set at the relative poverty line. In both cases this is recognising the impact of reduced earnings on the long-term ability to save and live with dignity. In addition, living with dignity under a Minimum Income Guarantee should never be compromised based on where you live. Ultimately, a Minimum Income Guarantee would include a premium payment reflecting the additional costs faced by rural and island communities.

We want to see work to map out the reform needed to employability, education and skills provision to build a workforce that meets our current and future needs. This is particularly with the aim of futureproofing the workforce as we transition to a low carbon economy, see significant technological change (including automation and AI) and as our population ages.

We support calls for the existing childcare offer to be expanded to 36 per week year round for 3 and 4 year olds (50 hours per week in term time) and 24 hours per week for one and two year olds. If necessary, this should initially prioritise low-income households. There should also be expansion of the concessionary travel scheme to all low-income households.

The end of this stage of our Roadmap is over ten years away. We hope that our economic performance and labour market has improved significantly over this time, bringing down the costs of introducing our next steps towards a Minimum Income Guarantee, and freeing up tax revenue to do so. Equally, over the next ten years we very much believe the UK and Scottish governments must invest in social security, fair work and services/ costs of essentials. This would reduce the amount required to implement a Minimum Income Guarantee. We have undertaken work to understand how the time-limited payment could be funded. Our analysis shows that, with significant further powers or flexibilities, this level of investment could be delivered through tax reforms. This could include learning from the experience of other countries who have moved to make this kind of investment into social security by, for example, broadening their tax base and replacing existing tax allowances in the system with more targeted support.

Full steps: realising our collective ambition beyond 2036

Our vision for Scotland in 2036 is that the Minimum Income Guarantee now sits alongside more established parts of the social contract, including the NHS and free education, combining to create a new social contract ready for the challenges and opportunities we face as our population ages, workers navigate the transition to a low carbon economy, and we take the positives of disruptive technological change while addressing the negatives.

From 2036 onwards we work to progress implementation, balancing the role of work, services, costs and social security to ensure that everyone can live with dignity. Through fuller powers and flexibilities or through action from the UK Government we now regulate the costs of essentials more fully, have improved public services and strengthened working conditions, built on cooperation between employers and the state. This coupled with increased income from fair work and/or social security allows everyone to reach a dignified quality of life.

We live in a part of the world where there is security for all, unlocking opportunities for all, where poverty - where it still exists - is fleeting and without the damaging scarring effects we see now, where inequalities are transformed and where everyone is supported to reach their full potential, building an economy and society far stronger than today, with wellbeing at its heart.