What might a revived contributory principle look like?

Social security’s the cause of much soul searching on the left: despite the legacy of Labour’s progressive universalism in reducing poverty, and the post-crash rise in unemployment, public hostility to benefits recipients is driving the policy agenda.

Recently however there’s been a revived interest in the contributory principle that was at the heart of the Beveridge plan, as a way to forge a new narrative on ‘welfare’ policy, with publications from the IPPR, the TUC, and a series of speeches by Liam Byrne.

The idea that what you get out of the system is related to what you put in appears to score well on both affordability and fairness. But before we reach for neat solutions, it’s important to define the problem correctly. What’s needed now may be a modern version of Beveridge, but it must be a model that addresses modern risks and needs. And an insurance model can’t alone address all modern demands (nor did it in Beveridge’s welfare state). So it’s important that we spend time fleshing out exactly what a revived contributory principle might look like. Here are some first thoughts.

Modern risks

The risks that people need help with managing today reflect changing demographics, changing family structures and roles within the family, the nature of the modern labour market – highly flexible but with corresponding job instability and insecurity – and modern perceptions about social participation and contribution. A first go at defining what those risks look like, and the most appropriate mechanism for addressing them might result in the following list:

• A social insurance system to cover the risk of worklessness, whether through unemployment or temporary illness/disability, or to enable periods out of the workplace for caring;
• An intention to minimise this risk through policies to promote full employment, combined with measures to address labour market discrimination and disadvantage;
• Shared social responsibility to help meet the costs of raising children (including the cost of childcare);
• Shared social responsibility to meet the additional costs of living with disability;
• A social savings mechanism to fund retirement;
• A new model of funding for social care.

I haven’t attempted in this piece to look at the role of contributory models to fund retirement, or at the funding of long-term social care. But we need to keep these ideas in the same conversation: talking about the whole picture, including provision for care and in old age, is important for rebuilding public support . If we talk of lifecourse events in terms of employment and the risk of losing your job , needing time out to care for your children or elderly parents, needing to pay for childcare or social care, preparing for retirement, it helps to change the narrative – we’re not just talking about dealing with “worklessness”, but a series of contingencies and life experiences which could, and many of which will, happen to all of us.

Time out of the labour market

The risk of time out of the labour market, whether through unemployment or because of longer term sickness/disability, is already shared between employer and employee via national insurance contributions. The social insurance model works well here, and could be extended, for example by extending it to cover paid parental leave, or short breaks for caring or family emergencies. We could also look at increasing the generosity of benefits linked to how much individuals “pay in” – for example, by extending contributory ESA beyond one year for those with longer contributions records.

Giving a more central role to the contributory model however offers the opportunity for a larger ambition for benefits adequacy, as the corollary of full employment. Achieving full employment – or something close to it – serves to maximise contributions, a prerequisite for affording more generous benefits.

Moving towards more generous benefits, both contributory and means-tested (which it’s recognised would be lower than contributory benefits, though we should be careful not to drive them to poverty levels), and full employment to make this affordable, would need to be a gradual ambition, but would signal a direction of travel to guide policy. And it would reframe the debate about social security, re-linking labour market risk with adequate support when you’re out of work, a central argument that’s been made for the contributory principle.

Full employment

If we want to change the narrative and develop the policy agenda in this way we need to look for solutions beyond the social security system to tackle structural inequalities in the labour market, and achieve full employment.

This means recognising responsibilities on both employers and employees, not just on the state. For sure, the state has a role to play, for example in setting minimum standards, but it needn’t and shouldn’t deliver all of the solutions itself. Guarantees of access to education and training, addressing low pay and progression, tackling occupational segregation, ensuring employees have the choice to work flexibly, improving employee protection and workplace democracy, all have a central place in welfare policy. Indirectly they’re the means for making work pay – creating obligations on employers to provide “good employment” as an effective replacement for using social security (tax credits) to deliver wage subsidies, and thus minimising the spending burden on the state.

From an employee perspective, clearly there has to be an obligation to take suitable work, and there could be expectations on employees to maintain and develop skills and undertake training. In turn, we should develop ideas for a “job guarantee” and “better off in work”. And labour market programmes will need to be effective in getting people into work – employment activation measures that don’t actually increase employment should be abandoned.

Children

Meeting the cost of raising children is something all society should share in. We all have a stake in the future of children, but the cost of raising them and taking time out to care for them falls on their parents. Society has a role in helping to meet those costs.

This is quite a hard sell to the public in today’s toxic welfare narrative (“why do they have children if they can’t afford them?”) – so we need to work hard to re-win the argument for universal child benefit.

At the same time we need to make the case for universal childcare (in addition to the case for Universal Child Benefit, not instead of it). Whereas Child Benefit meets the immediate costs of children, childcare is an investment in long-term outcomes for children, and facilitates parental employment. Seeing childcare as a social investment helps us to argue for a shift from using the benefits system towards supply side funding (an argument that also holds for housing).

Disability

We need to draw a distinction between disability benefits that meet extra costs – disability living allowance (DLA), and those which replace income – employment and support allowance (ESA).

Benefits that meet extra costs are not and should not be subject to contribution records or means-testing. DLA essentially levels the playing field for disabled people. One early priority for Labour must be to think about how to repair the damage done by the 20 per cent cut in spending that will be implemented when the Government moves from DLA to the new Personal Independence Payment.

The arguments in relation to ESA are those made above in relation more broadly to out of work support. There is a need to tackle labour market discrimination (perhaps through a National Insurance incentive for employers), and provide support to meet the additional costs of labour market participation (by extending and improving Access to Work and developing Right to Control). Labour market programmes will need to meet the needs of disabled people, and there may be a role for intermediate labour market models – though these could exist outside of the state sector . We should also recognise that levels of compulsion and job guarantee may look different for disabled people.

ESA would be made more generous in line with improving adequacy of out of work benefits more generally as suggested above, and by increasing the period covered by the contributory benefit . Those whose disability has prevented them from making contributions and who are deemed not able to work in the future could be “credited in” for a period, and would, as now, be entitled to a more generous level of benefit. Re-crediting in young people who’ve never been able to work should be an early priority for Labour.

But can we afford it?

We need to seize this opportunity to create a virtuous circle of more, better, work, more contribution, and thus more generous support. But this will take time, and in the interim’s costly, especially at a time of significant financial pressures. While it’s right to set an ambitious vision, the next Labour government must be clear about priorities.

Prioritising children and supporting their parents has moral and economic force. A bold offer on childcare, funded through supply side measures, and contribution-based paid parental leave might therefore be the first candidates for extending social support and developing the contributory model, and would present a strong Labour story on welfare.

Kate Green is the Labour MP for Stretford and Urmston and is the shadow Minister of State for Equalities