What if everyone was on universal credit?

One in five people in the UK – just under 15 million people – are living in ​‘relative poverty’, according to the latest statistics from the Joseph Rowntree Foundation. Last year at NEF we found that 21.4 million people are living on incomes which mean they are unable to meet the day-to-day costs for a decent quality of life. For people on such low incomes, they are likely to struggle to afford the basics when unexpected shocks happen, like a broken boiler or losing a shift at work.

Everyone should be assured of a decent standard of living in one of the world’s richest countries. That why at NEF we are campaigning for a Living Income: an overhaul of our threadbare social security system so that no one falls below a level of income they need to meet everyday costs. But how should this be achieved in practice?

Two potential approaches are a universal basic income (UBI) or a minimum income guarantee (MIG). UBI is a set regular payment from the government to every adult resident, while an MIG means the state tops up anyone’s income that falls below a given level. Often UBI and MIG are seen as opposed to one another – but there is no reason why they can’t work together.

One advantage of UBI is that it requires no means testing – meaning everyone can benefit from the payment with no confusion about how much they will receive. Of the estimated half a million people who were eligible for universal credit at the start of the pandemic but didn’t apply, 27% said they didn’t because of stigma. This is a direct result of toxic narratives that surround benefit usage and weakening these narratives through the universalism of UBI could directly benefit the hundreds of thousands who miss out.

“Often UBI and MIG are seen as opposed to one another – but there is no reason why they can’t work together.”

UBI also means people would be able to count on steady payments even if their income went down. There is currently a five-week wait to receive universal credit, meaning many are forced to sacrifice essentials while they wait for their first payment. Finally, unlike the current social security system or an MIG, a UBI is extremely simple to understand and administrate. This is a very real benefit: 59% of those eligible people who didn’t apply for universal credit at the start of the pandemic said they did not claim due to confusion about navigating the application system.

The main drawback of a UBI is that it would be very expensive. One estimate from the Institute for Policy Research says that it would cost over £427bn a year to significantly reduce poverty in the UK: roughly double the Department for Work and Pension’s (DWP) current budget. This would require a significant change to our political landscape, as well as eventual major tax increases. Much of this money would be going to individuals who are already well-off, which is a questionable use of government funds. This could however be mitigated via progressive taxation that both partially funds a UBI and indirectly reduces payments to the wealthiest.

When it comes to a minimum income guarantee (MIG), one advantage is that it can target support at the people who need it most. A MIG can also be adjusted to consider the different needs of different families, with higher MIGs for larger families and those with disabled members. Because of this targeting, the MIG approach generally provides a higher minimum income level for a much lower cost. But conversely, the big potential downside is that it could be complicated to administer.

Our latest research sets out a proposal that strikes a balance between the universalism of a UBI and the efficiency of an MIG. First, everyone would receive a weekly national allowance (WNA) of £47.30 (£2,466 a year) as a form of UBI, a cost-neutral measure funded by abolishing the regressive personal tax allowance. This would make our tax system more progressive, and the bottom two thirds of people would end up with the same amount of money or more in their pockets.

Second, everyone in the country would automatically be enrolled onto the universal credit system. This would remove the onus on claimants to understand the system in order to apply, and falls in income could be quickly compensated for. The cost of auto-enrolment could be covered by abolishing tax reliefs on income from wealth, making our tax system more progressive.

Our proposal shows how a universal basic income and a minimum income guarantee can work together. We avoid the prohibitively expensive aspect of UBI by replacing the personal tax allowance with a reasonably small weekly national allowance. Meanwhile, auto-enrolling people onto universal credit would ensure that those who are eligible for extra support receive it, without an excessive administrative burden.

Together, our analysis shows that these reforms could lift 760,000 people out of poverty, while creating the building blocks for a Living Income: a social security system that lets everyone thrive and not just survive, whatever life throws at us.

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