Minimum Income Guarantee - modelling of social security options

Overview

Communities Analysis Division were commissioned by the independent Expert Group to model two options for using the social security system to work towards a Minimum Income Guarantee (MIG). This note sets out a brief overview of the options and the results of the modelling exercise that the Expert Group then used to support their considerations.

All modelling in this paper is undertaken using UKMOD, a tax-benefit microsimulation model which is maintained, developed and managed by the Centre for Microsimulation and Policy Analysis at the Institute for Social and Economic Research (ISER), University of Essex. The model inputs 2021-22 and 2022-23 data from the Family Resources Survey (FRS) and projects this forward to 2024-25, the year on which all analysis in this paper is based.

Top up those on a reserved means-tested benefit to an agreed level using a set, flat payment amount – “Scottish Adult Payment”

We have modelled the first option as a flat-rate payment to adults on Universal Credit (UC) and legacy benefits. This is effectively a Scottish Child Payment (SCP) for adults; hence we refer to it as Scottish Adult Payment (SAP).

The SAP award value is set as the difference between the UC Standard Allowance and the Essentials Guarantee proposed by the Joseph Rowntree Foundation.^[3] In 2024-25, this difference was £29 per week for singles 25 and over, £48 per week for singles under 25, £57 per week for couples with both partners 25 or over, and £87 per week for couples with at least one partner under 25.

SCP is assumed to remain in place. Full roll-out of UC is assumed, primarily to ensure comparability with the other modelled option, and we assume that households take up their full benefit entitlements (including UC and SCP) so that the results are not sensitive to differences in take-up assumptions. Receipt of SAP has no knock-on effects for other benefits.

Expand eligibility of Scottish Child Payment (SCP) through the introduction of an earnings threshold once further powers allow – “new-style SCP”

We have modelled the second option as an SCP replacement (or equivalently a reform to SCP) that includes an increased maximum award value alongside an earnings taper. We refer to this benefit as new-style SCP (nSCP).

To retain consistency with UC, the nSCP taper is set at 55%, and the definition of dependents is extended from children aged 0-15 (as per SCP) to include people aged 16-19 who are in full-time non-advanced education or training. The nSCP maximum award value is set to fill the gap between current benefit entitlements and 75% of the increment to the Minimum Income Standard (MIS) for the first child in the household. In 2024-25, this was around £130 per week per child.^[4] The award will begin to taper at the level of earnings where the UC award tapers to zero (the ‘zero-UC threshold’).^[5] Thus, families receiving any UC or legacy benefits will receive the maximum nSCP payment, while those earning above the zero-UC threshold within a margin of £236.36 per week (£130/55%) will receive a tapered amount.

This design ensures that, under nSCP, no family will receive less than they do under the current SCP policy. Children in families that are currently receiving UC or legacy benefits, and thus eligible for SCP, will experience an increase of nearly 400% in their SCP award, from £26.70 per week to £130.00. In addition, children in families that are currently earning too much to be eligible for UC, but who are within range of the nSCP taper, will go from receiving no SCP to receiving a tapered nSCP award. A final group of beneficiaries are dependents aged 16-19, who will be newly eligible to receive either the maximum award or a tapered amount.

A key effect of nSCP is that it extends further up the earnings distribution than the current SCP policy, while avoiding the ‘cliff edge’ whereby the full SCP award is lost once a household’s UC award tapers to zero. To illustrate this, consider the example of a lone parent under 25 with one child born after April 2017 (Family 1) and a couple with both partners aged 25 or over and two children of different sexes, one born before April 2017 (Family 2). We assume that both families are living in Stirling and claiming their full Local Housing Allowance (three bedrooms in the case of the couple) but are not claiming any UC elements relating to care or disability and have no unearned income.

Table 1 shows the levels of earnings at which their UC award would taper to zero (level C), i.e. the SCP ‘cliff edge’, and the level at which their nSCP award would taper to zero (level D). If the household earns less than C, they will be eligible for at least some UC, and therefore for SCP in its current form. If they earn between C and D, they will not be eligible for the current SCP award, but they will be eligible for a tapered nSCP. If they earn more than D, they will not be eligible for SCP under either system.

Eligibility for nSCP could not be conditional on receipt of UC or legacy benefits, since, as shown above, it would extend to some households that earn too much to be eligible for UC. It is therefore assumed that the determination of nSCP eligibility involves a UC assessment for applicants who do not currently receive these benefits.

In addition, the modelling assumes that SCP is removed and replaced with nSCP. As with SAP, full UC roll-out is assumed, and we assume full take-up of all benefits including UC, SCP, and nSCP.