The Covid-19 pandemic has caused millions of people to turn to the social safety net for support. The number of people using Universal Credit more than doubled in 2020 and remains at unprecedented levels throughout 2021. While the Department for Work and Pensions (DWP) has been credited with managing this huge surge in demand, many are still struggling to get enough support during this time. This experience has highlighted some key issues with our social security system and brought it to the attention of the wider public.
Much of the recent debate has rightly focused on the adequacy of benefits, particularly the £20 universal credit boost implemented during the pandemic. The boost ends in early October 2021, a decision that is expected to have devastating effects: Joseph Rowntree Foundation (JRF) Discovery 21% of working-age households in the UK will see their income fall by £1,040 a year, while Citizenship Advisory Report It could leave 2.3 million people deeply in debt. The cuts to the universal credit decline rate and adjustments to work allowances in the October Budget still leave about three-quarters (73%) of claimants in a worse position than they would be if they continued to rise.
NEF has made it clear that, even with a £20 increase, universal credit is still insufficient and we should strive to provide a level of support to ensure that everyone has a living income that reflects their circumstances, meets the JRF’s minimum income standards to ensure that people can live in dignity , whether at work or off work. Our previous modelling showed that by the end of 2021, around 32% of the UK population (21.4 million people) will be living below the socially acceptable minimum income.
However, welfare rates are only one part of the equation – questions about eligibility, accessibility and acceptance are also crucial in determining whether people are getting the support they need. Achieving a guaranteed living income for all will require major changes to the way our social safety net works.
There is growing interest in ways to achieve this scale of change. Universal Basic Income (UBI) will provide everyone with regular unconditional payments, while Minimum Income Guarantee (MIG) will top up everyone’s income to a minimum level. Both methods have their advantages and disadvantages. UBI is very simple, but will be an expensive way to ensure a living income; MIG will target resources to those who need it most but are complex to manage.
This report makes two recommendations that, by repurposing elements of the current tax and benefit architecture, will introduce key elements of UBI and MIG, balancing the universality of the former with the efficiency of the latter:
- The weekly National Allowance will replace the personal income tax allowance, paying £47.30 a week to all but the highest earners. This would effectively reinvest billions of dollars spent on a regressive system of personal tax breaks in redistributive methods to ensure that everyone has a basic level of income.
- Automatically enrolling everyone into the revamped Universal Credit Model means people will receive additional financial assistance to top up to a minimum when income falls below this level without having to actively apply for support.
These proposals will ensure more people get support when they need it. The Weekly National Allowance will provide everyone with the security of a stable level of income they can rely on, and the collective benefit of our social security system. It will also reduce inequality: the net distributional effect will be to spend around £8bn on tax relief currently spent on the top 35% of households and redistribute it to the remaining 65%. A more automated universal credit registration and payment system means we can all expect extra support when we’re in trouble, just as we expect our income to be taxed when we make it.
The two proposals will also help break down divisions created by toxic narratives ‘taxpayer objection ‘benefit claimants and, in the process, reduce the stigma associated with receiving support. Altogether, the proposals would increase net cash transfers to low-income households by around £13.3bn, equivalent to around 83% of the benefit cut between 2010 and 2019. This will increase the disposable income of the poorest 10%. The average household has increased by around £2,000 a year (an increase of around 36%) and lifted three quarters of the million people out of poverty.
These proposals by themselves do not guarantee a living income for all. We modeled the weekly national tax allowance compared to the personal income tax allowance, which is cost-neutral and automatically enrolls in universal credit at current rates, but with higher adoption rates . One or both of these payments would need to be substantially increased to ensure that everyone has a living income.
However, these proposals will mean that more people have access to support when they need it, and will lay the foundation for a social security system that guarantees a living income for all. By demonstrating the potential of alternative approaches, we believe these proposals will help build public investment and support for social safety nets. This, in turn, could inspire greater political will to increase payments to levels that ensure everyone has enough income to thrive.
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