Could National Insurance help make Britain’s welfare state more effective and popular?

Public support for benefits has fallen dramatically. Kate and Declan argue this is due in part to changes in the way benefits are administered. A return to the principles of contributory benefits could be an important step to rebuilding support for the welfare system, and making it work better for more people.

The event is being streamed live from 12:30pm, and you can add your comments or questions to be put to the speakers by sending a Tweet on the hashtag #TUClive, or sending an email to rexell@tuc.org.uk - We’ll try to get in as many comments as we can in the time.

For more reading on the issue, see these posts from Kate and Declan, and our own Richard Exell:

• What is living and what is dead in the contributory principle?
• What is living and what is dead in the contributory principle? (Part 2)
• Contributory benefits and social security policy

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.

This year marks the 70th anniversary of Sir William Beveridge’s epoch-making report Social Insurance and Allied Services, which set out the main features of the post-war social security system. Famously, Beveridge proclaimed that ‘Benefit in return for contributions, rather than free allowances from the State, is what the people of Britain desire’. In a new Touchstone pamphlet we ask whether Beveridge’s contributory principle is relevant to social security in the 21st century, a subject we will be debating at a TUC seminar on Friday.

The question may seem paradoxical: the contributory basis for social security has been eroded over the last thirty years by successive governments of all parties and by deep changes in labour markets. Contributory benefits are worth less, many workers are not covered, many who are fail to claim the benefits they are entitled to and the funding basis for the system, National Insurance contributions, has been diverted by successive governments to fund income tax cuts or avoid tax increases, simultaneously reducing fiscal transparency and making the tax/benefit system more regressive.

It is little wonder then if people see no relationship between the contributions they make and what they can expect in return, or if commentators such as the IFS call for the pretence that the UK has a functioning contributory principle to be abandoned, merging NI contributions with income tax. It would be easy to conclude that at both individual and collective levels Beveridge’s contributory principle is a dead letter.

Nonetheless the answer we give to the question is a qualified ‘yes’: as long as we focus on those areas where there is a clear rationale for linking benefit entitlement to contributions (and this is not universal) a revived contributory principle could help us deal with some of the major challenges faced by social security in a climate marked by fiscal constraints and rapid population ageing. Making clear and strengthening the links between contribution and entitlement could also help overcome the problem of public legitimacy which the UK social security system faces by reinstating the value of reciprocity at the heart of social security- ‘making reciprocity manifest’ in Stuart White’s phrase.

But we also argue that the potential of a contributory approach could be undermined by symbolic ‘get tough’ policies which, while often promoted as a return to Beveridge’s principles, are primarily intended to send political signals to the electorate rather than address the real issues we face, and which actually undermine the chances making reciprocity credible over the longer term.

In this, the first of three posts, we address the last point. Any discussion of Beveridge today needs to recognise that along with the erosion of the link between contributions and entitlements, the contributory principle has also been the victim of an extraordinary impoverishment of meaning. When Beveridge contrasted ‘benefits in return for contribution’ with ‘free allowances from the State’, his aim was to break with previous paternalist models of social protection: the new model turned on workers having an entitlement to the benefits for which they had paid. This did not mean that benefits were unconditional (Beveridge was clear that both unemployment and sickness benefits were conditional on making preparations to return to work except where this was ruled out by disability) but it meant that they were part of a deal between citizens and government : a social contract extending across the lifecycle and across generations . In contrast, when ‘the contributory principle’ is invoked these days it is often in terms of the policing of the benefit system, referring to little more than the idea that people who have not worked or fail to meet worksearch conditions should not be able to access benefits.

This attenuation of the idea of contribution is an important development in the political language of welfare in the UK. It arises in part from the way the language of reciprocity came to be turned against the welfare state in earlier decades. The political fortunes of the phrase ‘something for nothing’ over the last twenty years are instructive. ‘The something for nothing society’ was introduced into the political discourse of welfare by Peter Lilley at the Conservative party conference in 1993; it was adapted by Tony Blair as ‘the something for nothing culture’ to frame New Labour’s welfare reform agenda in the late 1990’s. Variations on the phrase continue to frame policy statements on social security on both Labour and Conservative sides, reinforcing the message that the main problem faced by social security is one of non-reciprocity, of people taking out who have failed to put in. And policy under both the current and previous government has often seemed to have more to do with reinforcing the sense of a system subject to massive abuse than any genuine policy objective. It is hard to imagine Beveridge welcoming ‘lie-detector’ tests for benefit claimants, or proposals to cut benefits for the families of convicted rioters, or the existence of a benefit fraud hotline where people can denounce their neighbours under cloak of anonymity, with only 1.3% of calls leading to the detection of any fraud.

In the report we subject the ‘something for nothing’ perspective to a reality check and find it severely wanting. Perhaps the most heretical statement that could be made about the UK social security system is that it overwhelmingly does what the public want it to do: however, this would seem to be the case. Most people who claim benefits have ‘put in’ in the past and will do so in the future; most benefit claims are short-term; most long-term claims are for disabled people or carers. As for the social archetypes that haunt the contemporary welfare discourse- the families in which no-one has worked for generations, the areas where ‘nobody works around here’- these bear virtually no relation to any identifiable social reality. To see ‘scrounging’ or benefit fraud as the main issues facing social security is about as realistic as seeing the theft of prescription medicines as the main issue facing the NHS.

If the contributory principle is to play a serious role in future thinking about social security, we need to move away from the ‘something for nothing’ framing and address the ‘nothing for something’ problem of a system in which the great majority of people contribute but see little visible return for their contribution. In doing this, we should be alive to the full meaning of the principle that Beveridge set out when he talked of ‘benefits in return for contributions’. Although there were important limitations to Beveridge’s system which were to dog social security policy for decades-especially with regard to gender and disability – his contributory principle was nonetheless intended as a principle of inclusion. To use it to draw new lines of exclusion, as often seems to happen today, would be a poor tribute to his achievement.

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