What is living and what is dead in the contributory principle? (Part 2)
Tomorrow sees the publication of our report for the TUC, making the case for the revival of the contributory principle in the social security system. As we set out in a post on Wednesday, we need to move beyond the ‘something for nothing’ perspective which dominates discussion of social security in the UK and address the ‘nothing for something’ problem.
Too many people who pay into the system get nothing, or little, in return. This in turn helps to foster a ‘them and us’ culture where benefits are seen only as something for the poorest and most desperate in society – rather than fulfilling their original function of providing insurance and savings to spread costs across a life time. In this final post, we explore three areas where there is the potential improve the balance between contribution and entitlement.
The most obvious way of rewarding contributions is to return to providing additional financial support for those with contributions records, restoring a previous feature of the system. We examine the options for a top up to Jobseeker’s Allowance for those who have paid sufficient contributions. We suggest that a graduated earnings related top up may be prohibitively expensive but that a flat rate top up of £30 a week to the benefit for those meeting the contributory conditions could be affordable. However we also point out that research evidence shows little public demand for extra payments to contributors: Beveridge’s egalitarian approach where everyone receives the same amount seems still to command support among the British public.
But are financial rewards what we should be focussing on? More promising in our view is to think of how we might reward contribution differently, through supporting people to take time out of the labour market when necessary and facilitate the return to employment . We argue that time-based rewards for contribution could play a key role in helping people with a strong attachment to the labour market to manage caring responsibilities. At present, the UK system offers over-rigid choices between work and caring. We take our cue from the Belgian ‘time credit’ system in which contributions build up to the right to take up to a year off from employment, with financial support, to enable a range of activities including childcare, caring for a sick or elderly relative, or training. As a step towards this, we suggest that parents’ current entitlement to a period of unpaid parental leave could be supported through a contributions related payment. This model could also be extended to workers who need to provide temporary support for elderly or disabled relatives.
This is an area where there is a clear rationale for linking benefit entitlement to contributions. It is also a way of responding to one of the major challenge that all social security systems face as we move into an era of rapid population ageing: how do we balance the aims of maximising employment for people of working age ( to maintain the fiscal viability of the welfare state) while ensuring people are able to meet caring responsibilities? Reconciling these apparently conflicting aims is a daunting task, and we can see no way of achieving this in which a more flexible social security system would not play a central role.
Finally we argue that we need to focus on the ability to make a contribution as much as on what the return to that contribution looks like. Compared with other countries with mature welfare states, our contributory system sees far fewer people gaining any entitlement to support: for example, only 9% of the unemployed in 2008 were receiving the contributory form of unemployment benefit. The only comparable countries with lower coverage for contributory unemployment benefit are Australia and New Zealand – and neither of these countries has a contributory unemployment benefit! There are a number of factors which explain the decreased coverage of contributory benefits: tighter eligibility conditions, later careers starts due to rising educational participation and crucially, for many a more precarious labour market with low wages, low hours of work and frequent interruptions to employment.
Social security alone cannot resolve problems of job quality which originate in the labour market, but we need to ensure that it does not contribute to them. The exclusion of jobs with short working hours from employers’ National Insurance contributions is an implicit subsidy to this type of employment , and workers in these jobs are not building any contributory entitlements. We suggest that those in short hours jobs should be partially credited into the National Insurance system to ensure that all workers see a return for their contribution to the economy. And to mitigate the incentives for some employers to offer jobs at shorter hours, over time employer contributions should also begin to be levied on these jobs.
We end on a note of caution. Contributory social security cannot on its own embed the sense of reciprocity and trust that is needed for public legitimacy. Beveridge’s report had three fundamental assumptions about the conditions under which his contributory system would function: full employment, a system of family allowances to meet the costs of children, and a National Health Service to minimise the costs of sickness. To these core elements of the Beveridge system we now need to add support for childcare costs and for the additional costs of disability. Unlike in Beveridge’s day, full employment must also mean full opportunities for disabled people and those with caring responsibilities to participate in the labour market. Too often, social security is blamed for problems that originate elsewhere: restoring confidence in the system will demand concerted action to address a range of issues which lie outside the scope of contributory social security.
Our report sets out initial ideas rather than a blueprint for reform. We’ll be discussing these at a seminar on Friday, with responses from Richard Exell of the TUC and Matthew Oakley of Policy Exchange. We think that a revival of the contributory principle has the potential to make social security popular again. We hope this debate is the start of that process.