Torrin Wilkins is the Director of Centre Think Tank, a think tank and pressure group which supports a comprehensive welfare system alongside free markets. All views expressed are those of the author and do not necessarily represent Backbench’s stance. Members of Centre Think Tank will be contributing more pieces to Backbench over the coming weeks and months.
Just over a month ago, I spoke in front of the Gaps in Support All-Party Parliamentary Group (APPG) about employees who could not access the furlough scheme. There are up to 800,000 people who so far haven’t been able to access the furlough scheme either because their employer didn’t want to add them or they couldn’t afford to add them. Employees couldn’t apply for furlough themselves, meaning they had no access to the system.
This issue has seen extensive coverage with both employees and the self-employed unable to access government support during the pandemic. Yet there is a side to it that deserves a lot more attention. These people often fell through two gaps in support – income support schemes set up hastily during the pandemic and Universal Credit. It’s the latter, Universal Credit, which hasn’t seen as much focus but needs reform just as urgently.
Unlike the furlough scheme, it has been broken for years with plenty of time to correct its issues. Universal Credit has a mix of technical issues; long waiting times for people before they start receiving their first payments and some people who cannot access it at all. It’s clear that we need an alternative to Universal Credit.
The proposal I support is to replace Universal Credit with a Guaranteed Minimum Income. Put simply; this would mean everyone living below the poverty line would receive enough money from the government to live on. However, this is just the basic principle rather than a fully formed policy. That’s where we need to look at lessons from countries that have already tested this system. And then, how it would need to be altered to work within the UK.
One country that tried something similar to a Guaranteed Minimum Income was Finland. They tested this by giving 2,000 unemployed people money without any conditions. It meant that the participants didn’t need to find a job and spend the money on whatever they wanted. Unsurprisingly, this meant they had no incentive to work, and the test “showed positive effects on health and stress, but no improvement in work status”. To ensure we don’t make the same mistake as Finland, we support reducing payments as people earn more, using a negative income tax system. This avoids the damaging sanctions used by Universal Credit whilst still incentivising work.
Brazil is a good real-world example of what happens when incentives are used. They have a program called Bolsa Família, in English the Family Allowance, which ensures that poorer families are given money. However, it’s only given to families who send their children to school and ensure their kids are vaccinated. This is a different incentive from tapering off payments, focusing more on young people’s employability than whether their parents, who are the ones receiving the payments, are in work. This approach’s impact can’t be underestimated with its track record of reducing inequality and targeted support, with 80% of families who receive it being below the poverty line.
Whilst both the lessons from Finland and Brazil can be helpful; we also need to look closer to home. After all, the UK has a unique tax system that we will need to alter so the government knows when people leave work and how much they are earning. At the moment, we use the PAYE system (Pay As You Earn) alongside RTI (Real Time Information).
While both sound quite complex, they simply mean that the government can see when someone joins and leaves payroll and how much they are earning. However, this still leaves gaps for some people who don’t report their income using the PAYE system, who report it less regularly or where not all of their income is included. To ensure the government can keep track of whether these people are in employment and their wages, we need to alter the PAYE system. The solution will involve reporting PAYE monthly rather than annually where possible and expanding how much information is collected through the PAYE system.
Another area where the UK is unique is the devolved powers held by Wales, Scotland and Northern Ireland. After all, the UK has varying costs of living, which is why we have the London Living Wage. A Guaranteed Minimum Income would similarly need to vary depending on the cost of living in the area. This is why a Guaranteed Minimum Income would need to be devolved to both our devolved nations and across England if regional Assemblies are ever used.
There is a clear case for implementing a Guaranteed Minimum Income, but a movement is pushing for an alternative replacement called a Universal Basic Income (UBI). The basic ideas behind a UBI are fairly similar such as giving people a safety net and reducing poverty. However, the significant difference is that it involves giving everyone money rather than just those on low incomes or out of work. This often involves taxing payments back from those who are better off after it’s been given out to make this affordable.
The issue with UBI is that it would be very costly and, as Joseph Roundtree Foundation research shows, even a range of,
You also have the possibility that the government wouldn’t receive as much money back in taxation from those in higher income brackets as was initially given out through a UBI. The way to reduce inequality and fight poverty is through a Guaranteed Minimum Income, not a UBI.
Whilst COVID-19 has been a disaster; if it results in a Guaranteed Minimum Income that lifts people out of poverty, there will at least be some good to come out of it. The hurdles on including everyone in the scheme, ensuring its responsive to local needs and incentivising work can be overcome. The biggest hurdle is getting it implemented, something I think the pandemic has shown we desperately need to do.