Yes, there is still a place for contribution-based social security

For two elections in a row, the Labour Party under Jeremy Corbyn failed on social security: independent think tanks found that neither the 2017 nor 2019 manifestos would have reduced child poverty. On benefits reform, people from across the Labour family therefore need to come together in a spirit of humility and openness to listen, learn, analyse and discuss. Nobody has all the answers. 

Instead, last week cheerleaders from the Corbyn era turned on the party’s new Shadow Work and Pensions Secretary Jonathan Reynolds and denounced his ideas, which he presented in a long and thoughtful interview with The House magazine. Reynolds’ crime was to suggest that there is still a place for contribution-based social security and that sometimes people should get more out when they put more in. Both these arguments deserve a serious hearing, not knee-jerk condemnation.

In a 2019 Fabian report on social security reform I showed that contribution-based benefits today account for less than 10% of spending on social security for working-age adults and children, compared to 40% in the late 1970s. It is hard to argue we have a better system today as a result. By contrast 80% of older people’s social security is based on contribution even though we provide a far higher means-tested safety net to pensioners than to everyone else.

The truth is that a generous safety-net and good contribution-based entitlements often go hand in hand. A single pensioner retiring today without a private income can avoid poverty because we have a strong contribution-based state pension; but single pensioners without sufficient contributions still escape poverty through means-tested pension credit.

It’s a similar story when it comes to working-age households in large parts of Europe. There are contribution-based schemes that replace people’s earnings but also decent means-tested safety-nets for people who aren’t eligible. Countries with such robust social security were far better prepared than Britain to support people when the covid-19 emergency arrived. 

The 2020 crisis has exposed why contribution-based social security matters. Millions of people in the UK are set to lose their livelihoods and not all of them can get the help they need from means-tested universal credit. Many have a working partner, some savings or a modest second income. It is right that the benefits system provides for them, to protect people from a huge drop in income, even though they may not face destitution.

But as things stand, contribution-based Jobseeker’s Allowance provides only £74 per week, enough to replace just 14% of the average wage. That’s now lower than the basic rate of Universal Credit (temporally raised to £95 per week). And there is absolutely no point claiming JSA if you need Universal Credit too, because the JSA is all clawed back through a pound-for-pound deduction in your UC payment.

It is little wonder that just 4% of unemployed people were claiming contribution-based JSA before coronavirus, compared to 45% in the recession of the early 1980s; or that so far during the crisis, only around one in ten of extra unemployed benefit claimants have applied for JSA.

As we enter the new recession, contribution-based Jobseeker’s Allowance should be made much higher. After all, the National Insurance system pays £151 per week to mothers on maternity leave and £175 to people when they reach the pension age. Shouldn’t social insurance protect against unemployment in a similar way? Likewise, there is a case for people who need to claim Universal Credit alongside JSA receiving a little more than if they were just claiming UC, to recognise their earned entitlement.

Plans along these lines do not require a zero-sum trade-off against means-tested support for people with high needs. We should have a far better safety-net for everyone, with Universal Credit (or a Labour-designed successor) becoming much more generous. But social security has never been just about alleviating poverty, it is there to insure us all. And by insuring everyone, it can earn strong support as a universal public service. This will be essential if we are to secure the resources needed to properly protect those in greatest need: people with very limited earning power such as those with severe disabilities will be the ultimate beneficiaries.

Paying benefits on a personal basis to replace individuals’ lost income matters for gender equality too. There are real risks in expecting women without earnings to rely either on the wages of someone else in the household or on a single monthly Universal Credit payment paid into a partner’s bank account.

Traditional contributory systems have failed the feminist test because they were predicated on a single full-time breadwinner. But National Insurance rules have been reformed before, and they can be reformed again. Labour should demand that social insurance for unemployment is available for people on low wages, the self-employed and those caring full-time.

The party needs to start afresh on social security, with a thoughtful, respectful and nuanced debate. This is not an area of public policy where there is a single silver bullet. There will be lots of answers and Labour will need to develop plans for a complex, multi-layered system. Social security should be based on universalism, means-testing and contribution. We do not need to choose between them.