Economic Impact of a Minimum Income Guarantee: Analysis of economic theory and policy evidence

Conclusions and recommendations

In this final section, we bring together the findings from our review of both the economic theory and existing policy implementation to make five broad recommendations that form the key areas that it will be important for the Scottish Government to consider where these lessons need to be considered as a Minimum Income Guarantee is designed, rolled out and evaluated.

Setting appropriate targets to monitor the Minimum Income Guarantee’s performance: The overarching policy aim of a Minimum Income Guarantee is to tackle poverty, inequality and financial insecurity and ensure a socially acceptable standard of living that promotes dignity and a decent quality of life. As such, introducing a Minimum Income Guarantee will play a critical role in supporting the Child Poverty Act, which sets out targets to reduce the number of children experiencing the effects of poverty by 2030. Here, it will be vital to ensure, however the Minimum Income Guarantee is designed, a consideration of the impact any changes to the social security system have on the potential to create ‘poverty traps’ as outlined in the economic literature and a concern raised through evaluations of some existing Minimum Income Guarantee-type schemes.

Moreover, it is important to be realistic about the potential impact of the Minimum Income Guarantee on poverty reduction. Even in countries with relatively generous Minimum Income Guarantee-type policies, there have been issues with the ability of a Minimum Income Guarantee to make significant dents in overall poverty rates – with the clearest impact upon rates of deep poverty. However, the importance of this as a policy objective should not be minimised.

It would be prudent, then, that when setting targets to monitor the impact of the Minimum Income Guarantee against, these should include those targets set out in the Child Poverty Act. However, the Minimum Income Guarantee would benefit from its own objectives that are focused clearly on deep poverty, but also around the broader impacts on people’s lived experiences that may improve with the introduction of a Minimum Income Guarantee but may not be captured in overall rates of poverty in Scotland reducing.

The importance of a multifaceted approach to delivering a Minimum Income Guarantee: In addition, as outlined in our Theory of Change and RAG-rating system, there is a high degree of uncertainty around whether a Minimum Income Guarantee that only makes use of a single policy will lead to the desired outcomes. This was also seen in practice, with most countries’ approaches to implementing Minimum Income Guarantee-type policies focusing largely on providing a social security floor coupled with activation policies that have often led to unintended consequences or for the policy to fall short of its desired outcomes. The case of Malta clearly demonstrates that while one aspect of a Minimum Income Guarantee can have a high level of impact, this impact cannot be disentangled from other reforms. Moreover, such an approach can provide strong policy certainty for the Minimum Income Guarantee and make the policy less open to being politicised, which may jeopardise the future of the Minimum Income Guarantee – as in the case of Italy’s RDC.

Finally, taking a multifaceted approach to implementing a Minimum Income Guarantee allows for the Minimum Income Guarantee to be monitored and evaluated in terms of what various policy areas are having the most impact on meeting the Minimum Income Guarantee level. This will enable policymakers to focus more accurately on future reform and adapt to the Minimum Income Guarantee as necessary.

Placing a flexible approach to conditionality at the heart of the Minimum Income Guarantee: For those who can work, it is important that a degree of conditionality and work incentive is present within the Minimum Income Guarantee’s design. However, as a number of countries have shown, labour market activation and strict conditionality as the primary design function of a Minimum Income Guarantee can have negative consequences by taking a ‘work first’ approach to individuals who need wider social support to allow them to effectively access the labour market. As such, a flexible approach should be taken to conditionality that only applies to work search conditions following a thorough assessment of an indiviual’s wider social circumstances and prioritises addressing these before job search activity is required. Here, this follows a similar approach to how other countries have placed social inclusion as a key pillar of the Minimum Income Guarantee’s activation – the key difference being that social inclusion activation and labour market activation are more tightly integrated as a matter of policy design.

Ensuring the Minimum Income Guarantee recognises and financially supports groups that are currently disadvantaged: A Minimum Income Guarantee has the important role of supporting people to undertake roles that provide social and public good and more accurately compensates people for providing this role, for example, unpaid care. These roles are mostly carried out by women, and the economic value of this work has frequently been undervalued – for example not being captured in key economic indicators such as GDP. The introduction of a Minimum Income Guarantee would therefore recognise the economic value of these roles with adequate financial renumerations.

Here, certain target groups would benefit from no conditionality – in recognition of the demands of the role they provide and that a Minimum Income Guarantee better supports these individuals in undertaking that role than attempting to move them into the ‘formal’ labour market. In this regard, a Minimum Income Guarantee would seek to recognise the economic and social value the Spanish IMV has taken this approach to those living in deep poverty, but given the Scottish Minimum Income Guarantee will be implemented with a higher threshold, this same approach can be applied in a more targeted way to specifically disadvantaged groups, such as carers and lone parents.

Considering the broader economic climate as a Minimum Income Guarantee is introduced: The economic climate when a Minimum Income Guarantee is introduced, reformed or functioning plays a significant role in determining its success. The latest economic insights from the Scottish Government suggest that there is fragility and downside risks in Scotland’s labour market in terms of permanent job demand, staff shortages and growth in earnings.^[142] A Minimum Income Guarantee can play a key role in acting as a corrective to these concerns, but at the same time should be conscious of the limiting impact fragility within the labour market can have on a Minimum Income Guarantee’s success. However, it should also be cautioned that while favourable macroeconomic conditions can accelerate the impact of Minimum Income Guarantee-type policies (such as in Malta), this is by no means a guarantee of success. The Netherlands may have seen a halving of the unemployment rate since the introduction of the Participation Act, but this has masked the lack of growth in high-quality and sustainable job opportunities – which the Scottish Minimum Income Guarantee is keen to support. Ultimately, it will be difficult for a Minimum Income Guarantee to support people in work if there are limited opportunities.