Minimum Income Guarantee: medium-term social security modelling

Results

Figure 2 shows that the total cost of implementing the mid-MIG in 2024-25, assuming full take-up of benefits, would be around £8.1 billion per year. This accounts for the increased costs of UC and PC as well as the removal of SCP. Increased UC awards would also have some impact on other devolved benefits, namely Best Start Foods and Best Start Grant (which are passported from UC and so will include those newly eligible under the mid-MIG), Council Tax Reduction (the means test of which has included the total UC award for households with children since 2022), and Discretionary Housing Payments (which will no longer be needed to mitigate the benefit cap).^[4]

Source: SG analysis using UKMOD Notes: Figures may not sum due to rounding. Other devolved includes Best Start Foods, Best Start Grant, Discretionary Housing Payments, and Council Tax Reduction. Assumes full benefit take-up.

If the mid-MIG was implemented in a context where all workers were paid at least the RLW, the annual cost of the policy would reduce by around half a billion pounds, from £8.1 billion to £7.7 billion. This is because when households have more earnings, more of their mid-MIG award will be tapered away. In some cases their award will taper to zero, meaning they will also lose eligibility for SCP and some other devolved benefits.

Source: SG analysis using UKMOD Notes: Figures may not sum due to rounding. Other devolved includes Best Start Foods, Best Start Grant, Discretionary Housing Payments, and Council Tax Reduction. Assumes full benefit take-up.

We estimate that imposing a time limit of one year in every five years would reduce the total annual cost by 28%, bringing the annual cost from £8,140 million to an estimated £5,861 million in 2024-25 terms. The relatively low savings generated by this policy reflect the high proportion of the UC caseload that would be exempt from the limit due to incapacity or caring responsibilities; the high proportion of UC claims that are estimated to be less than a year even in the absence of the limit; and, to a lesser extent, claims of longer than five years flowing back onto the mid-MIG. Reducing the time limit to six months in every five years would reduce the total cost of the mid-MIG by an estimated 37%, bringing the cost to £5,128 million. Further details are provided in the annex.

Figure 4 shows the number of households affected by the mid-MIG, including the proportion that have at least one person in paid work, on the basis of the current labour market. Of the more than 1 million affected households, over half (58%) contain at least one person in paid work.

Source: SG analysis using UKMOD Notes: Assumes full benefit take-up.

Figures 5a and 5b shows the impacts of the mid-MIG on various measures of poverty for all people and for children, as well as the relative poverty impacts on the child poverty priority groups and on unpaid carers. With full take-up of current benefit entitlements, as well as the Minimum Income Guarantee payment, this is starting from a modelled baseline of 14% of people and 13% of children in relative poverty – meaning child poverty in particular would be reduced to very low levels.

One notable observation is that the policy has particularly significant impacts on low-income, particularly for children. Low-income is a less stringent measure than relative poverty in that the threshold is set at 70% of median household income rather than 60%. This implies, firstly, that the policy is largely benefitting those above the relative poverty line but still at risk of poverty, and secondly, for those initially below the poverty line, that the policy is not only lifting them over the poverty line but moving them further up the income distribution.

We can also see that unpaid carers and children in the priority groups both benefit disproportionately, if we compare the percentage-point impacts on relative poverty among these groups with those for all people and all children respectively.

Source: SG analysis using UKMOD Notes: figures rounded to nearest 10,000. Unpaid carers defined as those performing at least 20 hours of unpaid care per week. Relative poverty is defined as having household income less than 60% of the contemporaneous UK median. Absolute poverty is defined as having household income less than 60% of the 2010-11 UK median, uprated by inflation. Deep poverty is defined as having household income less than 50% of the UK median. Low income is defined as having household income less than 70% of the UK median. In all cases, income is defined as net equivalised household income. Assumes full benefit take-up. Poverty line is allowed to vary when the policy is introduced. The priority groups are: lone-parent households; a household where someone is disabled; households with three or more children; minority ethnic households; households with a child under one year old; and households where the mother is under 25 years of age. Figures not comparable with official poverty statistics.

Figures 6 and 7 show the impact of the mid-MIG across the income distribution for the whole population and for households with children. The policy is highly progressive, with lower-income households benefitting disproportionately. The lowest 10% of households see an increase in household income of over 50%, and those with children see an increase of over 60%.

Source: SG analysis using UKMOD Notes: Assumes full benefit take-up.

Source: SG analysis using UKMOD Notes: Assumes full benefit take-up.

Source: SG analysis using UKMOD Notes: Assumes full benefit take-up.

As noted previously, we do not estimate the impacts of the time-limited MIG on poverty levels or on the income distribution. To do so, we would need to adjust our analysis at a household level, rather than at the aggregate level as per our fiscal estimate. The key datum here is the distribution of claim durations across the population, which is not readily observable in the data sources available.