Centre for Social Justice, Reforming Contributory Benefits

Centre for Social Justice (no editor), Reforming Contributory Benefits, Centre for Social Justice, 2016, www.centreforsocialjustice.org.uk/library/reforming-contributory-benefits

This report on a discussion that took place in July 2016 raises an important issue: The UK’s contributory benefits system is no longer fit for purpose. They are of ‘decreasing value … [and] there is little relationship between the amount claimants receive and the amount they contribute’ (pp. 2-3). The report suggests that as the UK will soon be leaving the European Union, it will no longer need to retain an ‘exportable’ element in its benefits provision ( – that is, it will no longer have to ensure that UK citizens moving within the EU retain their rights to benefits, as UK recipients of the Basic State Pension do now), so an opportunity for reform now exists. The report outlines the complex relationships between contributory benefits, current means-tested benefits, and Universal Credit, and, quite understandably, suggests that reform is required. (The report ought to have been clearer that it is about unemployment and sickness contributory benefits, and not the Basic State Pension, or its replacement the State Single Tier Pension, which are both connected to the National Insurance system.)

The solution offered is one proposed by the insurance company Legal and General (its logo appears on page 1, and its own policy document on Lifestyle Insurance is referenced, although we are not told whether the company paid for the round table discussion or the publication of the report):

The suggestion was to replace the contributory benefits system with a low premium social insurance scheme delivered by employers through an auto-enrolment structure. This new social insurance scheme would take the form of a ‘rainy day guarantee’, where beneficiaries would make regular payments into the scheme, which would protect against the risk of future income shocks as a result of long term sickness or unemployment.

The typical recipient of contributory benefit support – and therefore the target for the new social insurance scheme – would not be part of the long term unemployed demographic, or even a regular claimant of income support. Instead, the new scheme would suit individuals from the professional and skilled class who have fewer transactional experiences with Government. They are less likely to suffer a shock to income from illness or sudden unemployment and often need support infrequently and for less than six months. (p. 6)

L&G suggest an auto-enrolment mechanism, and ‘a cost of around 0.5% of payroll earnings at approximately £11 a month. Total pay-out would be £900 a month for a maximum period of one year, with a 50% replacement rate’ (p. 7).

A number of objections to the scheme are discussed: employer resistance to yet another administrative burden; public acceptability if a private insurance product, particularly if it is made compulsory; and the plan’s relationship to the welfare state.

While the CSJ is to be commended for asking about the future of National Insurance benefits, it is doubtful whether either the general public or employers would take kindly to L&G’s pitch for a private insurance product as their replacement, especially as the proposal completely ignores the widespread perception that National Insurance Contributions paid throughout a working life have generated a right to National Insurance Benefits, however flawed the reality of the National Insurance system might be. This is the reason for recent Citizen’s Income proposals published by the Institute for Social and Economic Research leaving the National Insurance system exactly as it is. We commend the approach.

Footnotes

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