Minimum Income Guarantee: report - a roadmap to dignity for all

Realising our Collective Ambition: beyond 2036

Scotland in 2036

Through its first few years, we expect that the Minimum Income Guarantee will show its potential. The focus at this point shifts from tackling poverty to delivering financial security and a dignified quality of life for everyone. The Minimum Income Guarantee sits alongside older parts of the social contract, including the NHS, and free school-age education. Longer-term, these should combine to create a new social contract ready for the challenges and opportunities we continue to navigate through as our population ages, we transition to a low carbon economy, and we take the positives of technological change while addressing the negatives. The preventative spend we have invested in means that a Minimum Income Guarantee has led to better physical and mental health outcomes, reducing demand on health and social care. It has supported workers in the transition to a low carbon economy.^[228]

Our vision from 2036 is that we work to progress implementation, balancing the role of work, services, costs and social security to successfully manage our social needs with our economic needs. Through fuller powers and flexibilities or through action from the UK Government we are now able to regulate the costs of essentials more fully, and to shape the world of work. Everyone has access to the essentials of life either for free, or at an affordable cost, with income from fair work and/or social security making this possible.

We live in a part of the world where there is financial security for all, unlocking opportunities for all, where poverty– where it still exists – is fleeting and without the damaging scarring effects we see now. Everyone is supported to reach their full potential, building an economy and society far stronger than today, with wellbeing at its heart. It is our hope that the number of people who require the social security element of a Minimum Income Guarantee at this point is reducing, given the changes we have already seen on fair work and services.

Step 14: Delivering a full Minimum Income Guarantee

Following successful implementation of the time-limited Minimum Income Guarantee outlined in the last chapter (Recommendation 24), expansion of the Minimum Income Guarantee payment could be through increasing the minimum income level or through increasing the time-limit to begin with (or a combination of the two). Advice from the Minimum Income Guarantee Commission will be crucial to implementation decisions (Recommendation 23). It will be important to continue to balance the role of work, services, costs and social security in achieving a Minimum Income Guarantee. At times of fiscal pressures on governments, actions towards delivering a Minimum Income Guarantee should be seen as an investment which protects our social fabric, the health of the population, and ensures that people can live in dignity and security.

Our ultimate ambition is for a Minimum Income Guarantee set at a level that guarantees a dignified quality of life for all with no time limit. The Minimum Income Standard is the closest proxy for a dignified quality of life that we currently have and gives an illustration of where Minimum Income Guarantee levels could ultimately reach, once the economic, financial and social context allows. Implementation would need action across the UK, or much fuller flexibilities or powers for the Scottish Parliament.

Dignified work

We need to see transformation of the labour market and our economy to fulfil the full potential of a Minimum Income Guarantee. Inclusive growth, fair work and equity are crucial elements of a wellbeing economy – the ambition of a Minimum Income Guarantee could be core to delivering this in Scotland. This would be the introduction of a system that empowers communities to take a greater stake in the economy, with more wealth generated, circulated and retained within local communities, while protecting and investing in the natural environment. It provides opportunities for everyone to access fair, meaningful work, and values, supporting responsible, purposeful businesses to thrive and innovate.

The Minimum Income Guarantee has the potential to transform society for the better. However, there are risks to the economy and labour market associated with introducing a more extensive social security system. These risks, such as seeing people exiting the labour market,^[229] need to be mitigated. However, not all movement out of the labour market is a bad thing. People using the opportunity to retrain, to volunteer in their local communities, to gain education, to care for their families might not be counted as ‘labour market participation’ in our statistics but they all contribute to the economy and are essential for enhancing wellbeing and quality of life.

The introduction of reforms – such as improvements to minimum wage, minimum hours, minimum employment terms and conditions, career progression, rights to request flexible working, parental leave, care leave and sick leave, alongside strengthened worker rights enforcement – would help to counteract the risk that people leave the labour market due to a strong social security safety net providing more security than employment. The pace of actions to deliver greater levels of fair work could determine in part how quickly a stronger social security offering can be established due to these impacts.

There are uncertainties around the impact a Minimum Income Guarantee could have on the labour market. On the one hand, there is a potential that creating a more generous system through enhanced social security and services could encourage employers to improve working conditions, to incentivise workers and attract talent.^[230] On the contrary, it may lead to a depressive effect on wages paid through well-paid, secure, and fulfilling jobs by employers as people receive increased income from social security.231 These are aspects of the Minimum Income Guarantee that will have to be closely monitored, evaluated from the early steps through to the more ambitious and longer-term interventions. This is particularly the case for women’s labour market participation, and this should be explicitly considered by the Minimum Income Guarantee Commission in its advice on implementing a Minimum Income Guarantee. In particular, this must include the interaction between employment and things like childcare, maternity and paternity leave, and pay, ensuring women are adequately supported. We also recognise the challenges with introducing such wholescale change to the social contract and acknowledge that the approach may need to be reviewed and revised. However, core to this should always be progress towards an income floor that no one falls beneath.

Many of the countries who have a stronger record on fair work compared to Scotland or the UK have institutions in place that act to balance the interests of employees, employers, a social partnership approach to the economy. We would like to see something similar implemented in Scotland. For example, Denmark operates a tripartite negotiating system whereby government, employers’ representatives (Danish Confederation of Industry)^[232] and trade union representatives collectively decide the degree and focus of (sectoral) wage rises. This is within overall macroeconomic and inflationary targets for the country, and closely linked to volume and nature of labour supply. The system has been in place for 120 years and gives everyone a stake in the overall health of the economy, and in the overall wellbeing of the labour force. Nations with stronger records on fair work and on developing long-term business models also see higher levels of investment in general. There are often strong partnerships between government and business investment. This goes beyond our remit but further strengthening investment and forming partnerships between business and government to encourage long-term business models are key to driving fair work and a wellbeing economy.

Major reform in the functioning of Scotland’s economic model and labour market could increase the numbers of people reaching the Minimum Income Guarantee through paid work. In our view, this would require a model that brings together employers, employees, and government to establish a social partnership approach to economic development. Improving access to the labour market and increasing the numbers of people in paid work would likely have a positive impact on spend, consumption and could boost GDP. Currently, certain groups such as carers and disabled people and those with long term health conditions are likely to face challenges accessing the labour market. Improved labour market access, through the creation of more flexible and suitable work, services that enable access such as social care and childcare, and improved skills and employability initiatives, would make the overall costs of the social security element of a Minimum Income Guarantee lower. They would mitigate some of the potential work disincentives of a generous social security offering without it.^[233]

Over the long term, Scotland should adopt a social partnership approach to its economy, whether sector by sector and/or at the local, regional and national level. This would require the ability for the Scottish Government to place legal duties on companies, operating in certain sectors to begin with, to adhere to minimum employment terms and conditions set by agreement between employees, employers and government. This would ensure that all employment works towards ensuring decency and dignity first and foremost.

Ensuring everyone has the essentials for a dignified quality of life

We want to see progress towards Universal Basic Services with the aim of ensuring essentials can be provided to everyone for free or affordably. The more services that are provided, the less money would be needed for individuals and households to meet a decent standard of living. It can help provide financial resilience and protect against unforeseen and unpredictable needs across a lifetime.

There are several benefits to providing services collectively, including an improved quality of service that is more efficient, which could result in lower costs for providers as well as those accessing the services.^[234] It can also help reduce stigma associated with accessing support, recognising we have shared needs and boosting solidarity within communities and society as a whole.235 Reducing stigma was strongly felt to be an advantage of moving towards Universal Basic Services by our Experts by Experience Panel. Investing in services can also grow social capital, helping to support greater community cohesion, trust and hope for the future.

Collective services also hold the potential to generate good jobs with adequate pay and conditions for workers, recognising the contributions of key workers in sectors such as social care and childcare who are often underpaid and undervalued.^[236] The investment could also be used to influence patterns of consumption, increase sustainable development and more broadly support a just transition for workers to a low carbon economy.237

New opportunities could arise to reform energy provision, travel and housing. Our focus over this longer-term period has been on the principle of combining reducing costs with increasing wellbeing and contributing to broader agendas, for example around the transition to a low carbon economy. One idea which has come to fore is an ‘energy allowance’ whereby households would receive a certain amount of energy for free, varying by need (including for example disabled people who may need greater energy consumption than others), with households paying a higher marginal amount above this. This idea would aim to be redistributive from higher energy households to lower energy households. The energy allowance could be reduced in line with the necessary broader reductions in consumption to meet climate targets. The increased costs for higher income households under this idea could help to reduce energy consumption, while ensuring everyone has the minimum they need for free or for less. In many ways this is in line with the principles of the Minimum Income Guarantee and could complement it well.

Similar to the approach for energy, a further idea that we have discussed is expanding the availability of free public transport to bring the costs of travel down for lower-income households. A free travel allowance would work to provide households, or individuals within households, a set amount of travel for free that could be used to pay for bus or train travel and potentially ride-share and other communal forms of transport (this could be particularly useful in areas where bus and train coverage is poor).

Our earlier steps to expand services provision should be closely monitored to understand the impact this has on poverty, access to work, wellbeing and financial security. Lessons should be taken on board to look at which services could benefit from a universal approach. Introducing Universal Basic Services would be bold and potentially transformational, especially alongside a Minimum Income Guarantee.

Social Security with dignity

We believe that social security under a full Minimum Income Guarantee is no longer a poverty reduction measure but a social contract, a mechanism to ensure you can live with dignity. It should recognise distinct needs which vary by person and by family – building on the recommendations on premium payments earlier in this report. When we have considered what dignity means we have based our thinking in this report on the Minimum Income Standard.

The learning and design principles from the time-limited Minimum Income Guarantee should be built upon, and at the appropriate point the payment levels should be increased from the relative poverty line to the equivalent of 100% of the Minimum Income Standard at the time of implementation.

The Minimum Income Guarantee payment would ultimately fully replace Universal Credit in Scotland. The purpose of the new system would be to guarantee security for all. To succeed the Minimum Income Guarantee needs to be seen as a universal guarantee that provides everyone with the peace of mind that if the worst happens, it will be there to support you. There should be a duty placed on the state to ensure take-up, drawing on learning from the current and ongoing work in Scotland. In addition, reducing stigma around social security is essential, working closely with well-equipped organisations to provide advice such as Citizens Advice Scotland. It should build on the earlier recommendations within this Roadmap.

The Minimum Income Guarantee payment should be as simple and accessible as possible. Simplicity means that as far as possible it should be one entitlement, supported by wider social security such as a separate housing payment and adequate disability benefits. It should have flexibility around the payment schedule, with all income-assessed payments combined into one place. Ultimately it would see Universal Credit, the legacy benefits and the Scottish Child Payment replaced. Similarly, payments that passport from these entitlements currently could be wrapped into the Minimum Income Guarantee (potentially including local-level payments). Universal (and near universal) benefits would continue as now, including Pensions and Child Benefit, forming a bedrock on which the Minimum Income Guarantee can be built. No household would be worse off under a Minimum Income Guarantee but all would experience greater simplicity. It is impossible to go into the detail of aligning these payments in the scope of this work, but this would be a recommended step for the Scottish Government when taking this forward and should build on our earlier recommendations on automation.

With technological advances happening constantly, we do not know what will be possible in ten years’ time. There is so much potential and possibility that future changes could benefit the delivery of the Minimum Income Guarantee. An example could be allowing the Minimum Income Guarantee payment to move further towards automation than existing social security systems are able to do. We support lowering the burden on applicants as much as possible. Assuming existing technology, people could access a Minimum Income Guarantee Payment through an application. Once in receipt they would not need to reapply and for those in PAYE employment, reassessment would take place automatically. Those in self-employment or not on the PAYE system would need to confirm their circumstances at the point of reassessment. Self-employed people should be built into the design and learning taken from the existing Universal Credit system to support implementation. This is in line with the existing Universal Credit arrangements.

We need the Minimum Income Guarantee to be fit for purpose and future proofed. The priority with any transition towards a Minimum Income Guarantee needs to be the safety and security of the existing Universal Credit client base. The Scottish Government has significant experience due to delivering devolved benefits. This learning should be applied to this process. The new system should build equalities and intersectionality considerations into its design ensuring that it works for everyone.

The fundamental assumption behind the design of the Minimum Income Guarantee payment should be that nobody should be financially disadvantaged through taking up employment. We recognise that paid work will usually be the means through which most people achieve the Minimum Income Guarantee and so any payment should support movement into fair, sustainable employment. A taper rate, building on the learning from the time-limited Minimum Income Guarantee should be maintained to help work pay.

We believe the assessment period within the existing income-assessed system is too frequent and short. This leads to constant changes in levels of support and perverse outcomes for some earners who are not paid monthly. A guarantee must ensure that households receive payments they are eligible for over a long enough period without constant variations. This will allow households to plan and make decisions about their future with certainty. Moving to a longer assessment is a key component of providing a guarantee and providing financial security for people. We envision a Minimum Income Guarantee Payment having an assessment period, which would consider average income over a three-month period, and inform the amount paid over the subsequent three-month period. Within this assessment period if a household’s financial circumstances improve, their Minimum Income Guarantee Payment would not change until the next assessment period. This means some households at times will receive more than the Minimum Income Guarantee level, as the priority here is financial security. If their financial circumstances deteriorate, they would be able to seek reassessment, within-assessment period, to ensure they receive what they are entitled to.

Housing is one of the most important and largest expenses households face and is closely linked to rates of poverty. We believe that if you lose your job or face illness, the last thing you should have to worry about is losing your home. Under a Minimum Income Guarantee support must be provided to renters and mortgage holders to support them in these circumstances. We believe, following action to fix the housing system, housing costs should be supported through a separate payment for those who are entitled. This should be assessed separately but tapered the same. Further investigation would be required to understand who would be eligible for this and how it would operate prior to implementation.

The steps above all outline how we believe a social security system with dignity at its heart might be delivered and this is the final step in realising our ambition for a Minimum Income Guarantee.

Recommendation 30: Beyond 2036, a Minimum Income Guarantee should be set at a level that ensures everyone can live with dignity. This should balance action across work, services and social security and consider economic and social needs. This includes expansion of the Minimum Income Guarantee payment, regulation of the costs of essentials, more needs met through Universal Basic Services, and the delivery of a social partnership economy.

Our people beyond 2036

The infographics provide an indication of how household income and benefits in kind may change through the gradual introduction of a Minimum Income Guarantee. They are intended for illustrative use only. Note that the additional costs for disabled people, unpaid carers and rural and island communities have not been sufficiently quantified so are not reflected in the graphics. The infographics are on a before-housing-cost basis, meaning housing costs have not been subtracted out.

Samira has seen a marked change in her circumstances and is now able to plan for the future. She is hoping to buy a flat with space for her youngest children who live at home and her eldest child when they visit. Samira’s job as a graphic designer means her income can fluctuate but the stronger labour market conditions and the introduction of tripartite bargaining has meant she has far more security through her employer. The security offered to Samira through a Minimum Income Guarantee has given her the confidence to consider starting her own business, she is currently working with employability services to build up the skills she needs to do so successfully. Samira’s oldest child now lives and works in the Highlands as an ecologist. The middle child has recently completed their apprenticeship and is a fully qualified engineer.

Ellie and Lucy. Ellie has completed her internship and the changes in employer/employee relations resulting in improvements in security, hours and pay has meant she has been able to find a marketing job that offers a secure future. Lucy is now expecting the couple’s first child and improvements in her terms and conditions as a cleaner mean she can now afford to take the time off to look after their child. The couple have a lot of optimism about their future, they will benefit from free early years childcare that suits their needs and an allowance towards transport to support Lucy back into work when the time is right.

Filip has now retired and is receiving State Pension. He was able to save some money for emergencies. However, he is not able to reach the Minimum Income Guarantee without a small top-up. He is extremely grateful for this and is relieved he doesn’t have to ration his energy use or scale back on spending time with his friends and family who he continues to visit using the local bus service. He loved his job as a community recycling officer and has decided to volunteer one day a week where he promotes and shares information about recycling in his local community. The support provided by a Minimum Income Guarantee has allowed him to stay socially connected and allowed him to find and follow his passion, he feels as though he can enjoy his retirement.

The social security component includes State Pension.

Mike and Janice now feel they are living with dignity and have seen their contributions to society and the economy fully recognised. The necessary reforms to the social care system have given Mike the ability to go back to work part-time, safe in the knowledge that Janice has the care she needs and that his employer will provide flexibility should he need it. Janice now works part-time as a business support officer from home, her employer has made reasonable adjustments and is supportive as and when she needs time off. Mike and Janice no longer worry every day about finances and have been able to enjoy life again, going on holiday and fully participating in their local community.