From the TUC

Recession Report #11: The adequacy of benefits

25 Sep 2009, by in Economic Reports

We publish this month’s Recession Report today, and the special feature is a look at what has happened to the relative value of benefits for unemployed people over the past 30 years.

Today, Jobseeker’s Allowance for a single person is worth just 10% of average earnings; this is less than in the 1980s and 1990s recessions.

The benefit system should help unemployed workers in two ways. Jobseeker’s Allowance should ameliorate poverty but it should also cushion families from a large drop in incomes.

Workers take on responsibilities that demand a certain level of resources – such as mortgages, loans and regular activities for children and other family members. Benefits should protect unemployment people’s standard of living, at least for an initial period. This only happens if benefit rates keep in touch with the norms set by wages and salaries.

But the value of benefits for unemployed people relative to wages has been falling steadily for 30 years:

  • During the 1980s recession, unemployment benefits were worth around one-sixth of average earnings.
  • By the time of the early 90s recession, this had fallen to around one-seventh of average earnings.
  • In 2008 Jobseeker’s Allowance reached one-tenth of average earnings.

This country’s main benefit for unemployed people is Jobseeker’s Allowance. The current rate for a single person aged over 25 is £64.30 a week (£50.95 a week if you are aged under 25.)

How did this happen?

The key change is what has happened to policy on uprating (raising benefit rates to take account of increases in wages and inflation).

In the 1970s, benefits like Unemployment Benefit were increased in line with increases in prices or increases in inflation, whichever was higher. Peter Kenway has pointed out that, although there was no official policy before then, over time, UB increases roughly matched increases in earnings.

This policy stops inequality either increasing or decreasing: families who rely on benefits tend to make up a large proportion of the poor, and benefits are a large element of income for nearly all other poor families. Raising benefits in line with wages means that their incomes don’t decline (or increase) relative to the wages of families who rely on wages and salaries.

But if benefits are only increased in line with inflation and wages usually go up faster than that, then the poorest families tend to fall further and further behind.

This is the policy that was introduced in 1980 and has never been reversed since then. If benefits for unemployed people had been increased in line with earnings over the last 30 years, JSA for a single person over 25 would not be £64.30; it would be worth over £100 a week.

If the new Government elected in 1997 had reversed this policy and reintroduced uprating in line with earnings JSA would now be worth more than £75 a week – over £10 more.

That is why the TUC is renewing its call for an increase in JSA to at least £75 a week, to provide more of a cushion for the newly unemployed.

One Response to Recession Report #11: The adequacy of benefits

  1. TUC’s 11th Recession Report « Connected Research
    Sep 25th 2009, 6:03 pm

    […] a comment » This was published today and is accessible over the usual route via the TUC’s excellent Touchstone […]